Dimercurio v. Sphere Drake Ins.

• Decision Date: 04 November 1999
• Docket Number: No. 99-1470,99-1470
• Parties: (1st Cir. 2000) FRANCESCO DIMERCURIO, Plaintiff, Appellant, v. SPHERE DRAKE, INSURANCE PLC. NO 1 A/C, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 71

202 F.3d 71 (1st Cir. 2000)

FRANCESCO DIMERCURIO, Plaintiff, Appellant, v. SPHERE DRAKE, INSURANCE PLC. NO 1 A/C, Defendant, Appellee.

No. 99-1470.

United States Court of Appeals, for the First Circuit.

Heard Nov. 4, 1999.

Decided January 31, 2000.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Joseph L. Tauro, U.S. District Judge. [Copyrighted Material Omitted] Joseph M. Orlando with whom Vita A. Palazzolo was on brief for appellant.

Richard H. Pettingell for appellee.

Before Selya, Circuit Judge, Coffin, Senior Circuit Judge, and Boudin, Circuit Judge.

COFFIN, Senior Circuit Judge.

This case requires us to evaluate the validity of an arbitration provision contained in an insurance policy issued by London-based appellee Sphere Drake Insurance PLC for coverage on a Massachusetts fishing boat. Appellant Francesco DiMercurio, a fisherman who was injured when the boat sank, claims that the arbitration clause is unenforceable for various reasons, among them that Massachusetts law voids provisions in insurance policies that deprive the commonwealth's courts of jurisdiction over the insurer. See Mass. Gen. Laws ch. 175, §§ 3, 22. The district court upheld the validity of the arbitration clause, and we affirm.

I. Factual Background

The parties' dispute originated with the sinking in July 1994 of the F/V CAPE COD, a commercial shipping vessel owned by a Gloucester, Massachusetts company, Rosalie & Matteo Corporation. Appellant DiMercurio, a fisherman, suffered injuries in the incident and filed a claim for damages against Rosalie & Matteo. Rosalie & Matteo's insurer, Sphere Drake, denied the claim and voided the policy on the ground that the insured had never obtained a condition survey that was a prerequisite for coverage.

DiMercurio subsequently filed a personal injury suit against Rosalie & Matteo, but the company, whose only asset had been the F/V CAPE COD, defaulted. In March 1997, the district court awarded DiMercurio $350,000. A month later, Rosalie & Matteo assigned to DiMercurio all rights it had against Sphere Drake under the insurance policy.

DiMercurio then took his claim directly to Sphere Drake, demanding that the insurer pay the $350,000 judgment. Sphere Drake denied the demand and sought to invoke the arbitration process specified in the policy, which called for arbitration of all coverage disputes in London. DiMercurio responded by filing this action, in which he challenges the validity of the arbitration provision and seeks recovery of his damages award.

The district court granted summary judgment for Sphere Drake, concluding that the arbitration clause was enforceable and that the parties' dispute over coverage must be resolved pursuant to its procedures. This appeal followed.

II. Discussion

DiMercurio's primary argument on appeal is that the arbitration provision is unenforceable because it effectively deprives the Massachusetts courts of jurisdiction in contravention of Massachusetts General Laws chapter 175, § 22, which voids "any condition, stipulation or agreement [in an insurance policy] depriving the courts of the commonwealth of jurisdiction of actions against [the insurer]."¹ He alternatively asserts that the provision is invalid on grounds of unconscionability, primarily due to lack of mutuality of obligation. We explain below why we find neither of these contentions to have merit.

A. Standard of Review

We review the district court's grant of summary judgment de novo. See Bridges v. MacLean Stevens Studios, Inc., 201 F.3d 6 (lst Cir. 2000). At issue is the validity of a contract provision - the arbitration clause - and our task is to ascertain the intentions of the parties, consistent with state law principles and with due regard for the federal policy favoring arbitration. See Brennan v. King, 139 F.3d 258, 264 (lst Cir. 1998). The parties identify no significant factual dispute, disagreeing instead over the legal significance of the undisputed record. We therefore proceed to address those questions of law.

B. Enforceability of an International Arbitration Clause

An arbitration provision in an international commercial agreement such as the London-issued insurance policy in this case is governed by Chapter Two of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 201-208, which implemented the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention"), ratified by the United States, September 30, 1970, 21 U.S.T. 2517, T.I.A.S. No. 6997 (reprinted following 9 U.S.C. §201). A court in the United States faced with a request to refer a dispute governed by Chapter Two to arbitration performs a "very limited inquiry" into whether an arbitration agreement exists and falls within the Convention's coverage. See Ledee v. Ceramiche Ragno, 684 F.2d 184, 186 (lst Cir. 1982).² An agreement that satisfies the prerequisites, as does the provision in the Sphere Drake policy, is enforceable under the Convention unless it is "null and void, inoperative or incapable of being performed." Art. II, Sec. 3. It is at that second stage of inquiry that DiMercurio contends the Sphere Drake provision fails.

C. Arbitration and Jurisdiction

DiMercurio argues that the arbitration provision in the Sphere Drake policy is "null and void" under section 22 of the Massachusetts General Laws, which bars any condition in an insurance policy that deprives Massachusetts courts of jurisdiction. The arbitration provision does just that, he maintains, by requiring that his dispute be taken out of the commonwealth's courts. He further argues that the general federal policy in favor of arbitration, as expressed through the FAA, does not trump section 22 because the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), explicitly protects state laws regulating "the business of insurance" from preemption by federal legislation. See Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 272 (1995) ("state courts cannot apply state statutes that invalidate arbitration agreements") (citing Southland Corp. v. Keating, 465 U.S. 1, 15-16 (1984)).³

Whatever the reach of the McCarran-Ferguson Act, it is relevant here only if state law voids the Sphere Drake arbitration provision as an "agreement depriving the courts of the commonwealth of jurisdiction." The district court ruled that this was not such an agreement, rejecting the view that arbitration ousts a court of jurisdiction. The court relied in large part on our own case law stating precisely that conclusion. See Vimar Seguros Y Reaseguros, S.A. v. M/V SKY REEFER, 29 F.3d 727, 733 (lst Cir. 1994)("[A]n agreement to arbitrate does not deprive a federal court of its jurisdiction over the underlying dispute."), aff'd, 515 U.S. 528 (1995); Morales Rivera v. Sea Land of Puerto Rico, Inc., 418 F.2d 725, 726 (lst Cir. 1969) (holding that arbitration clauses are "not destructive of jurisdiction"); see also Vimar Seguros, 515 U.S. at 542 (O'Connor, J., concurring) ("Foreign arbitration clauses of the kind presented here do not divest domestic courts of jurisdiction, unlike true foreign forum selection clauses . . . .").

DiMercurio challenges this precedent. He claims that language in the FAA and in other case law indicates that, but for the FAA, courts are ousted of jurisdiction by arbitration provisions. Although he acknowledges that the FAA was intended to confirm a court's jurisdiction while permitting enforcement of arbitration agreements, he maintains that any jurisdiction-reviving impact of the FAA is negated in this instance by the combined force of section 22 of the Massachusetts General Laws' chapter 175 and the McCarran-Ferguson Act. In other words, section 22 invalidates arbitration agreements because they divest a court of jurisdiction, and the McCarran-Ferguson Act prevents the FAA, and its policy favoring arbitration, from preempting section 22. He contends that our prior decisions holding that arbitration does not negate jurisdiction fail to take into account this relationship among the federal and state statutes, and thus are not dispositive. In addition, he invokes as further support for his position decisions holding that a case referred to arbitration under the Convention should be dismissed for lack of subject-matter jurisdiction.

DiMercurio's thesis unquestionably has historical support. The prevailing attitude of the courts toward arbitration before passage of the FAA was one of disapproval, and this typically was couched as an objection to being ousted of their jurisdiction. See Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 220 n.6 (1985) (explaining history of court refusal to enforce arbitration agreements on the ground that they ousted courts of jurisdiction); see also Allied-Bruce Terminix Cos., 513 U.S. at 270-71 (similar). Section 4 of the FAA appears to adopt the ouster concept by referring to the jurisdiction courts would have "save for" an arbitration agreement.⁴ Similarly, in American Sugar Refining Co. v. The Anaconda, 138 F.2d 765 (5th Cir. 1943), aff'd, 322 U.S. 42 (1944), the Fifth Circuit states that, prior to enactment of the FAA, an agreement to arbitrate would not be enforced in United States courts because "parties may not by private agreement oust the jurisdiction of the courts." Id. at 766. The court then continued:

The act was passed not to oust the jurisdiction of the courts but to provide for maintaining their jurisdiction while at the same time recognizing arbitration agreements as affirmative defenses and providing a forum for their specific enforcement.

Id. at 766-67. See also, e.g., Kurt Orban Co. v. S/S CLYMENIA, 318 F. Supp. 1387, 1390 (S.D.N.Y. 1970) (quoting above language from The Anaconda).

DiMercurio asserts that such language demonstrates that the FAA was necessary to give back to courts jurisdiction that otherwise is usurped by an arbitration provision. Thus, if the FAA is rendered inapplicable here by the ...