Galilea, LLC v. AGCS Marine Ins. Co.
| Decision Date | 16 January 2018 |
| Docket Number | Nos. 16-35474,16-35475,s. 16-35474 |
| Citation | 879 F.3d 1052 |
| Parties | GALILEA, LLC, Plaintiff-Appellant/Cross-Appellee, v. AGCS MARINE INSURANCE COMPANY; Liberty Mutual Insurance Company; Torus National Insurance Company, Defendants-Appellees/Cross-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Joseph Gleason (argued), Gleason Law LLC, Atlanta, Georgia; Ross D. Tillman, Boone Karlberg P.C., Missoula, Montana; for Plaintiff-Appellant/Cross-Appellee.
Brian P. R. Eisenhower (argued) and Gerard W. White, Hill Rivkins LLP, New York, New York, for Defendants-Appellees/Cross-Appellants.
Before: Marsha S. Berzon, Paul J. Watford, and John B. Owens, Circuit Judges.
"The sea, although an agreeable, is a dangerous companion," wrote Plato more than two millennia ago. Our case is about that danger; it concerns "a brave vessel ... [d]ash'd all to pieces," like the ship Prospero hexed in The Tempest . William Shakespeare, The Tempest act 1, sc. 2.
Although the background has its drama, the primary legal issues are more mundane: Is an arbitration provision in a maritime insurance policy enforceable despite law in the forum state assertedly precluding its application? In addressing this question, we consider several questions concerning the intersection of the McCarran–Ferguson Act, 15 U.S.C. § 1012, which shields state insurance laws from federal preemption, and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 – 16, which provides for enforcement of arbitration provisions in maritime contracts. After doing so, we conclude that the arbitration clause should be given effect.
Montana residents Taunia and Chris Kittler are the sole members of Galilea, LLC ("Galilea"), a Nevada limited liability company. In 2014, Galilea purchased a sixty-foot yacht ("the Yacht"). This case concerns the scope of the insurance coverage Galilea bought for the Yacht.
About a year after purchasing the Yacht, the Kittlers submitted to Pantaenius America Ltd. ("Pantaenius") an online request for an insurance quote. Pantaenius specializes in obtaining and administering yacht insurance policies, acting as an agent for insurance underwriters. Following the quote request, the Kittlers electronically exchanged several documents with Pantaenius. According to Galilea, the Kittlers also spoke with a Pantaenius representative over the phone to discuss the materials needed to complete an insurance application. The Kittlers say they informed the Pantaenius representative on one call that it would be difficult to submit a hand-signed application because the Kittlers were, at the time, sailing the yacht in the Caribbean, en route from Florida to San Diego via the Panama Canal. Pantaenius nonetheless required a hand-signed application, so the Kittlers docked in Puerto Rico to locate the necessary equipment to print and scan a signed application.
The application for insurance listed three different underwriters: AGCS Marine Insurance Company, Liberty Mutual Insurance Company, and Torus National Insurance Company (collectively, "Underwriters"). The application noted that one or more of these Underwriters would "be assigned at the time of binding [insurance] coverage."1
The application also included arbitration and choice-of-law terms. The arbitration term provided, in relevant part:
Any dispute arising out of or relating to the relationship between Pantaenius America Ltd and/or our participating underwriters and the insured shall be settled by arbitration administered by the American Arbitration Association ["AAA"] in accordance with its Commercial Arbitration Rules. ... The dispute shall be submitted to one arbitrator. ... The place of arbitration shall be New York, New York.
The application also provided that the "relationship" and the Agreement "shall be governed by the laws of New York."
A day after Galilea submitted the signed application, Pantaenius issued an insurance binder providing preliminary coverage for up to two weeks from the date of application.2 The binder set a coverage limit of $1,566,500, based on the "total agreed fixed value" of the Yacht; established a covered "Cruising Area" that extended south to 30.5 degrees north latitude; named the three Underwriters as the issuing insurance companies; incorporated the forthcoming policy's terms and conditions; and attached a document with those anticipated terms.
The formal insurance policy issued a day later. Pantaenius formally signed the insurance policy on behalf of the three Underwriters. The policy provided that it would be "effective only when the insured vessel(s) are within the ‘cruising area’ specified."
The choice-of-law and forum selection provisions in the policy's terms and conditions were different from those in the application. Both the policy and the application called for arbitration in New York pursuant to AAA rules. But the scope of the choice-of-law provision and arbitration clause differed. The policy provided:
This insurance policy shall be governed by and construed in accordance with well established and entrenched principles and precedents of substantive United States Federal Maritime Law, but where no such established and entrenched principles and precedents exist, the policy shall be governed and construed in accordance with the substantive laws of the State of New York, without giving effect to its conflict of laws principles, and the parties hereto agree that any and all disputes arising under this policy shall be resolved exclusively by binding arbitration to take place within New York County, in the State of New York, and to be conducted pursuant to the Rules of the American Arbitration Association.
The policy thus differed from the application by (i) identifying federal maritime law and, to fill its gaps, New York law, as the choice of law applicable to the policy, and (ii) including different language concerning the scope of arbitrable disputes—"any and all disputes arising under this policy," not "any dispute arising out of or relating to the relationship."
The Yacht ran ashore near Colón, Panama about a month after the insurance policy issued. Galilea submitted a claim for insurance coverage, but the Underwriters refused to pay it. Pantaenius explained that the Yacht had traveled south of the cruising area set forth in both the application and the policy. Galilea rejoined that the application and policy do not reflect the parties' actual agreement, and that Pantaenius and the Underwriters misrepresented the scope of the written policy.
After Galilea requested reconsideration of the coverage denial, the Underwriters initiated arbitration proceedings in New York. Galilea submitted objections and counterclaims in the arbitration proceedings, but also filed a separate action in federal court in the District of Montana, along with a motion to stay the arbitration proceedings.
In its Montana complaint, Galilea asserted twelve causes of action, all of which substantially overlapped with its arbitration counterclaims. The Underwriters responded with a motion to dismiss for failure to state a claim and a motion to compel arbitration. Separately, in federal court in the Southern District of New York, the Underwriters filed a petition to compel arbitration.
The Montana district court issued two orders from which the parties have lodged certified interlocutory cross-appeals. See 28 U.S.C. § 1292(b). In those orders, the court held: (1) the arbitration provision in Galilea's original insurance application was not relevant, because it was not included in the Underwriters' demand for arbitration; (2) claims arising under the insurance policy come within admiralty jurisdiction, and under relevant choice-of-law principles, federal maritime law governs the contract; (3) the FAA applies and requires enforcing the policy's arbitration provision; (4) questions relating to the enforceability and scope of the arbitration provision are properly determined by the court, not an arbitrator; and (5) the scope of the policy's arbitration clause did not extend to cover ten of Galilea's twelve claims. The district court thus granted the Underwriters' motion to compel arbitration as to two of Galilea's claims but denied it as to the others.
This case ultimately presents "gateway" arbitrability questions: whether a valid and enforceable agreement to arbitrate exists, and, if so, whether particular claims fall within the scope of the arbitration provision. See Rent–A–Ctr., W., Inc. v. Jackson , 561 U.S. 63, 70, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). But, before we reach those questions, we must decide whether there is an agreement to which the federal law of arbitrability could apply. See Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 401, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). We conclude the parties' insurance policy is the governing contract and falls within the Federal Arbitration Act's scope.
The FAA cannot compel a party "to arbitrate the threshold issue of the existence of an agreement to arbitrate" unless there is an overarching agreement to do so within the FAA's scope. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co. , 925 F.2d 1136, 1140–41 (9th Cir. 1991) (emphasis omitted); see also Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287, 296–97, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010). That is, "[a]lthough challenges to the validity of a contract with an arbitration clause are to be decided by the arbitrator, challenges to the very existence of the contract are, in general, properly directed to the court." Kum Tat Ltd. v. Linden Ox Pasture, LLC , 845 F.3d 979, 983 (9th Cir. 2017) (internal citations omitted). Accordingly, we "must first make a threshold finding that the document [evidencing an agreement] at least purports to be ......
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