ExxonMobil Oil Corp. v. TIG Ins. Co.

• Decision Date: 12 August 2022
• Docket Number: s. 20-1946 (L),21-2658 (Con.),August Term, 2021
• Citation: 44 F.4th 163
• Parties: EXXONMOBIL OIL CORPORATION, Petitioner-Appellee, v. TIG INSURANCE COMPANY, Respondent-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

44 F.4th 163

EXXONMOBIL OIL CORPORATION, Petitioner-Appellee,

v.TIG INSURANCE COMPANY, Respondent-Appellant.

Nos. 20-1946 (L)

21-2658 (Con.)

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: May 10, 2022

Decided: August 12, 2022

Daniel M. Sullivan (Daniel P. Goldberg, Alison B. Miller, and Denisha S. Bacchus, on the brief), Holwell Shuster & Goldberg LLP, New York, NY, for Respondent-Appellant.

Donald W. Brown (Allan B. Moore, Covington & Burling LLP, Washington, DC, P. Benjamin Duke, Andrew W. Hahn, Covington & Burling LLP, New York, NY, on the brief), Covington & Burling LLP, San Francisco, CA, for Petitioner-Appellee.

Before: Walker, Nardini, and Menashi, Circuit Judges.

William J. Nardini, Circuit Judge:

This case involves two distinct issues. First, we consider whether vacatur is required where judgment was entered by a first district judge who belatedly realized that he had a conflict of interest, and a second non-conflicted judge then reviewed the merits of that decision de novo . Second, if vacatur is unwarranted, we determine the existence and scope of an arbitration agreement between the parties.

TIG Insurance Company ("TIG") appeals from a judgment and order of the United States District Court for the Southern District of New York (Edgardo Ramos, Judge , and Mary Kay Vyskocil, Judge , respectively). TIG asserts that Judge Ramos erred in ordering it to arbitrate a coverage dispute with ExxonMobil Oil Corporation ("Exxon"). Even if it was required to arbitrate, TIG further contends, Judge Ramos erred in awarding Exxon prejudgment interest when confirming the arbitral award.

After entering judgment, and after TIG initially appealed, the district court clerk notified the parties that it had been brought to Judge Ramos's attention that he owned stock in Exxon when he presided over the case. Nothing in the record suggests that Judge Ramos was aware of his conflict at the time he rendered his decisions, and the parties do not suggest otherwise. TIG moved in the district court to vacate the judgment. The case was reassigned to Judge Vyskocil, who denied the motion to vacate. TIG appealed from that denial as well.

We AFFIRM the district court's denial of the motion to vacate. Vacatur was not required because this case presents only questions of law, and a non-conflicted district judge reviewed the case de novo . As to the merits, we AFFIRM the district court's order compelling arbitration and REVERSE in part its decision granting Exxon's request for prejudgment interest and REMAND to the district court for further proceedings consistent with this opinion.

I. Background

A. The TIG insurance policy

TIG issued an excess insurance policy (the "Policy"), insuring Exxon for liability for damages from personal injury or property damage resulting from the use of Exxon's products.¹ The coverage was limited to $25 million.

The Policy states that it should be "construed in an evenhanded fashion as between the Insured and the Company; without limitation, where the language of this Policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Insured or the Company and without reference to parol evidence)." Joint App'x at 38.

The Policy contained customized language regarding arbitration. The parties deleted a provision in the original Policy form that would have clearly constituted a binding arbitration agreement, which stated that "[a]ny dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950." Id. at 37. Instead of this stock provision, the parties added Endorsement No. 11—"Alternative Dispute Resolution Endorsement" (the "ADR Endorsement"). Id. at 60. Because the ADR Endorsement is the crux of the dispute on appeal, we set it out in full below:

ALTERNATIVE DISPUTE RESOLUTION ENDORSEMENT

If the Company and the Insured disagree, after making a good faith effort to reach an agreement on an issue concerning this policy, either party may request that the following procedure be used to settle such disagreement:

1. The Company or the Insured may request of the other in writing that the dispute be settled by an alternative dispute resolution ("ADR") process, selected according to the procedures described herein.

2. If the Company and the Insured agree to so proceed, they will jointly select an ADR process for settlement of the dispute.

3. ADR processes which may be used may include but are not limited to mediation, neutral fact-finding and binding arbitration (as described in paragraph (4)). By agreement of the parties, the services of the American Arbitration Association, Judicial Arbitration & Mediation Services Inc., Endispute Inc., or the Center for Public Resources Inc. may be used to design or to implement any ADR process.

4. If the parties cannot agree on an ADR process within 90 days of the written request described in paragraph (1), the parties shall use binding arbitration. The arbitration shall be conducted by a mutually acceptable arbitrator to be chosen by the parties. Neither party may unreasonably withhold consent to the selection of an arbitrator; however, if the parties cannot select an arbitrator within 45 days after binding arbitration is selected under paragraph (2) or is [sic] the ADR process because of this paragraph, the selection of the arbitrator shall be made by one of the consultants listed in paragraph (3). The arbitration proceeding shall take place in or in the vicinity of New York and will be governed by such rules as the parties may agree. The parties expressly waive any pre-hearing discovery about the dispute, including examination of documents and witnesses. It is expressly agreed that the result of such binding arbitration shall not be subject to appeal by either party.

5. All expenses of the ADR process will be shared equally by both parties.

6. It is expressly agreed that any decision, award, or agreed settlement made as a result of an ADR process shall be limited to the limits of liability of this Policy.

7. Any statutes of limitations which may be applicable to the dispute shall be tolled, from the date that the Company and the Insured agree to follow the selection procedures described herein with respect to such dispute, until and including the date that such ADR process is concluded.

Id.

B. Procedural history

In the 1990s, Exxon faced a series of lawsuits related to its use of methyl tertiary-butyl ether (MTBE) as a gasoline additive. As a result of these suits, by 2019, Exxon had paid $46 million in settlements and faced judgments totaling over an additional $269 million. It sought indemnification from TIG under the Policy, but TIG disputed that the Policy covered the MTBE suits. The parties engaged in settlement discussions, which ended on November 30, 2016, when TIG filed suit in the New York Supreme Court seeking a declaration that the Policy did not cover the MTBE-related losses. Nine days later, Exxon sent a letter "formally invok[ing] its contractual right under the Policy and Federal law to settle the parties’ disagreement over coverage under the Policy for Exxon[ ]’s MTBE insurance claim by binding arbitration." Joint App'x at 82. Exxon filed a petition to compel arbitration in federal district court the same day. Exxon also asked the court to enjoin TIG from pursuing its New York declaratory judgment action.

1. The district court grants the petition to compel arbitration

In support of its petition to compel arbitration, Exxon argued—and the district court (Judge Ramos) agreed—that the ADR Endorsement amounted to a binding arbitration agreement. The court focused on the first clause in paragraph 2 of the ADR Endorsement: "If the [C]ompany and the [I]nsured agree to so proceed, they will jointly select an ADR process for settlement of the dispute." Spec. App'x at 24; see Joint App'x at 60. It concluded that the conditional introductory phrase ("If the Company and the Insured agree ...") referred only to the second clause in that sentence ("they will jointly select ...."). Spec. App'x at 24. Thus, the ADR Endorsement would allow the parties to use any ADR procedure on which they jointly agreed. If one party requested ADR and the parties could not jointly agree on the ADR process, however, the ADR Endorsement "defaults to binding arbitrations." Spec. App'x at 25.

In so ruling, the district court rejected TIG's argument that the introductory clause in paragraph 2 meant that the entire ADR Endorsement procedure (not just the joint selection process) is triggered only if the parties agree to settle their dispute via ADR. The district court reasoned that New York courts read contracts to "give force and effect to all of [their] provisions," and reading the introductory clause as TIG urged would mean the ADR Endorsement would not "have any binding effect absent some further agreement." Spec. App'x at 25 (citing Trump-Equitable Fifth Ave. Co. v. HRH Constr. Corp. , 106 A.D.2d 242, 485 N.Y.S.2d 65 (1st Dep't), aff'd , 66 N.Y.2d 779, 497 N.Y.S.2d 369, 488 N.E.2d 115 (1985) ). The ADR Endorsement would be "an unenforceable and superfluous agreement to agree, under which neither party could require any form of ADR absent some further agreement." Id. The court also noted that its interpretation was "consistent with the federal policy in favor of construing arbitration clauses broadly." Spec. App'x at 25–26. The court thus granted the petition to compel arbitration, stayed all proceedings in the case, and retained jurisdiction to address other issues that might arise after the arbitrators rendered any awards. Id.

2. The arbitral tribunal rules in favor of Exxon

In August of 2019, the arbitral tribunal ruled in favor of Exxon. It held that Exxon's...