Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela

• Citation: 991 F.2d 42
• Decision Date: 06 April 1993
• Docket Number: No. 968,D,968
• Parties: PROGRESSIVE CASUALTY INSURANCE CO.; the Reinsurance Corporation of New York; Christiania General Insurance Corporation of New York; Worcester Insurance Company; Pennsylvania Lumbermens Mutual Insurance Company; Colonia Insurance Company; United Reinsurance Corporation of New York; United Fire and Casualty Company, Plaintiffs-Appellees, v. C.A. REASEGURADORA NACIONAL DE VENEZUELA, Defendant-Appellant. ocket 92-9198.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 42

991 F.2d 42

1993 A.M.C. 2916

PROGRESSIVE CASUALTY INSURANCE CO.; the Reinsurance Corporation of New York; Christiania General Insurance Corporation of New York; Worcester Insurance Company Pennsylvania Lumbermens Mutual Insurance Company; Colonia Insurance Company; United Reinsurance Corporation of New York; United Fire and Casualty Company, Plaintiffs-Appellees, v. C.A. REASEGURADORA NACIONAL DE VENEZUELA, Defendant-Appellant.

No. 968, Docket 92-9198.

United States Court of Appeals Second Circuit.

Argued Feb. 25, 1993.

Decided April 6, 1993.

James W. Carbin, New York City (Kroll & Tract, of counsel), for plaintiffs-appellees.

Alexander Ewing, New York City (Debevoise & Plimpton, David W. Rivkin, Donald Francis Donovan, L. Ashley Lyu, of counsel), for defendant-appellant.

Before: LUMBARD, McLAUGHLIN, Circuit Judges, and DUFFY, District Judge. ^*

LUMBARD, Circuit Judge:

C.A. Reaseguradora Nacional De Venezuela ("RNV") appeals from an order entered on October 2, 1992 in the Southern District of New York, Haight, J., denying RNV's motion to stay this action pending arbitration and granting a motion to enjoin arbitration brought by Progressive Casualty Insurance Co., The Reinsurance Corporation of New York, Christiania General Insurance Corporation of New York, Worcester Insurance Company, Pennsylvania Lumbermens Mutual Insurance Company, Colonia Insurance Company, United Reinsurance Corporation of New York, and United Fire and Casualty Company (collectively "the American Reinsurers"). ¹ Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 802 F.Supp. 1069 (S.D.N.Y.1992).

RNV contends that the district court erred in ruling that: (1) RNV is required to show an "express, unequivocal" agreement to arbitrate; (2) a trial is necessary to determine whether the parties' agreement incorporated by reference an arbitration clause contained in another document; and (3) the arbitration clause does not bind the American Reinsurers as a matter of law. We reverse and remand.

In the early 1980s, a group of Venezuelan insurance companies issued insurance to a subsidiary of Petroleos de Venezuela, S.A. ("PDVSA"), an oil and gas exploration and development company owned by the Venezuelan government. Among other things, the insurance covered the costs of controlling oil wells following a "surface blowout." The Venezuelan insurers reinsured $10 million of this "cost of control" risk with RNV. RNV in turn retroceded, or re-reinsured, this risk through Sedgwick Marine & Cargo Ltd., a London based broker. Sedgwick placed 90 percent of the retroceded risk with London based reinsurers, and Fred S. James & Co., Sedgwick's American affiliate, placed the remaining 10 percent with New York Marine Managers, Inc. ("NYMM"), ² the underwriting agent for the American Reinsurers.

Thus, beginning in 1983, RNV and the American Reinsurers entered into a series of one-year retrocession agreements. Each year, James or Sedgwick discussed terms of coverage with NYMM and, on the basis of those discussions, presented NYMM with an insurance application which broadly outlined the agreed upon terms. ³ As is the industry practice, the policy was then prepared and sent by James or Sedgwick to NYMM for signature.

The parties' dispute arises from their agreement for 1989. NYMM signed the application for that year's coverage on behalf of the American Reinsurers on February 16, 1988. The Policy for 1989 was signed on August 31, 1988. Of particular relevance here, one provision of the Policy states, "Subject to Facultative Reinsurance Agreement."

RNV contends that the Facultative Reinsurance Agreement ⁴ ("FRA") referred to in the Policy is a 1977 agreement between certain insurers, reinsurers, and Lloyd's of London underwriters applicable to the reinsurance of PDVSA risk. The FRA establishes administrative procedures, provides for letters of credit, and contains an arbitration clause, which states in part:

Any question or dispute arising between the contracting parties concerning the interpretation of this Reinsurance Agreement, which cannot be otherwise arranged shall be settled by arbitration in London, England.

At issue here are two claims submitted by RNV under the Policy: an August 8, 1989 claim for a "blowout" at the CARI-6 drill site, and an October 23, 1989 claim for a "blowout" of the TEJERO 2E well. In June 1990, NYMM, on behalf of the American Reinsurers, paid RNV $1 million to cover the CARI-6 claim. In December 1990, however, NYMM rejected RNV's TEJERO 2E claim and notified Sedgwick that the $1 million had been paid in error because the CARI-6 claim was not covered by the Policy.

On July 8, 1991, the American Reinsurers filed this action seeking a declaration that RNV's claims were not covered by the Policy and requesting repayment of $1 million. On October 16, 1991, RNV served the American Reinsurers with a demand for arbitration. RNV then moved in the district court, pursuant to 9 U.S.C. §§ 3, 201, and 206 (1988), for a stay of this action and an order directing that arbitration be held. The American Reinsurers cross-moved to enjoin RNV from proceeding with the arbitration. The district court denied RNV's motion and granted the American Reinsurers' cross-motion. This appeal followed.

Federal policy, as embodied in the Federal Arbitration Act, ⁵ strongly favors arbitration as an alternative dispute resolution process. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 480-81, 109 S.Ct. 1917, 1919-20, 104 L.Ed.2d 526 (1989); Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). The Arbitration Act provides that written arbitration provisions in any contract involving interstate or international commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (1988). Thus, where a court is satisfied that a dispute before it is arbitrable, it must stay proceedings and order the parties to proceed to arbitration. Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987) (citing 9 U.S.C. §§ 3-4 (1988)).

In determining the arbitrability of a particular dispute, a court must decide "whether the parties agreed to arbitrate, and, if so, whether the scope of that agreement encompasses the asserted claims." David L. Threlkeld & Co. v. Metallgesellschaft, Ltd., 923 F.2d 245, 249 (2d Cir.), cert. dismissed, --- U.S. ----, 112 S.Ct. 17, 115 L.Ed.2d 1094 (1991). We address these questions in turn.

A. Agreement to Arbitrate

Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), dictates that we apply state law in determining whether the parties have agreed to arbitrate. In Perry, addressing the preemptive effect of § 2 of the Arbitration Act, the Court stated:

An agreement to arbitrate is valid, irrevocable, and enforceable, as a matter of federal law, "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (emphasis added). Thus state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of § 2. A court may not, then, in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law.

Id. at 492 n. 9, 107 S.Ct. at 2527 n. 9 (citations omitted). Thus, while § 2 of the Arbitration Act preempts state law which treats arbitration agreements differently from any other contracts, it also "preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate." Cook Chocolate Co. v. Salomon, Inc., 684 F.Supp. 1177, 1182 (S.D.N.Y.1988).

We agree with the district court that New York law governs here. ⁶ That law provides that parties will not be held to have chosen arbitration "in the absence of an express, unequivocal agreement to that effect." Marlene Indus. Corp. v. Carnac Textiles, Inc., 45 N.Y.2d 327, 408 N.Y.S.2d 410, 413, 380 N.E.2d 239, 242 (1978) (quoting Acting Superintendent of Schs. of Liverpool Cent. Sch. Dist. v. United Liverpool Faculty Ass'n, 42 N.Y.2d 509, 399 N.Y.S.2d 189, 191, 369 N.E.2d 746, 748 (1977)). However, New York law requires that nonarbitration agreements be proven only by a mere preponderance of the evidence. See, e.g., Fleming v. Ponziani, 24 N.Y.2d 105, 299 N.Y.S.2d 134, 139, 247 N.E.2d 114, 118 (1969). Because Perry prohibits such discriminatory treatment of arbitration agreements, the rule set forth in Marlene Industries is preempted. Accordingly, in determining whether the parties have agreed to arbitrate, we apply the ordinary preponderance of the evidence standard.

We believe that the parties agreed to arbitrate by incorporating the FRA into the Policy. We do not believe a trial is necessary to determine whether the parties intended the Policy to include the term referring to the FRA. There is no dispute that the Policy states, "Subject to Facultative Reinsurance Agreement," that NYMM signed the Policy on behalf of the American Reinsurers, and that the parties intended the Policy to be the final and binding expression of their agreement. Under New York law, in the absence of fraud or other wrongful conduct, a party who signs a written contract is conclusively presumed to know its contents and to assent to them, and he is therefore bound by its terms and conditions. Level Export Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 87, 111 N.E.2d 218 (1953).

We reject the American Reinsurers' contention that they are entitled to reformation of the Policy on grounds of fraud or...