Holiday Isle Owners Ass'n v. Certain Underwriters At Lloyd's, London
| Docket Number | Civil Action 21-00512-JB-B |
| Decision Date | 15 June 2022 |
| Parties | HOLIDAY ISLE OWNERS ASSOCIATION, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, et al., Defendants. |
| Court | U.S. District Court — Southern District of Alabama |
This cause comes before the Court on Defendants' Motion to Compel Arbitration and Dismiss or Stay the Proceedings (Doc 7), Plaintiff's Response in Opposition (Doc. 12), and Defendants' Reply (Doc. 13). Defendants[1] move to compel their insured, Plaintiff Holiday Isle Owners Association Inc. (“Plaintiff”), to arbitrate this dispute and to dismiss this action, or in the alternative to stay this action pending completion of the arbitration process.
The Court, having carefully considered the Motion, the record, and relevant authorities, finds the Motion to Compel Arbitration (Doc. 7) is due to be granted for the following reasons.
Plaintiff, a non-profit entity, is the owners' association of the Holiday Isle Condominium (the “Property”) located on Dauphin Island, Alabama. Plaintiff alleges the Property, insured by Defendants, suffered damage (the “Loss”) as a result of Hurricane Sally on or about September 16, 2020. (Doc. 7). At the time of the Loss, the Property was insured under a surplus lines commercial property policy (the “Policy”) with damages to be shared among the Defendants. (Doc. 1-2; Doc. 7). After Hurricane Sally hit Dauphin Island, Plaintiff submitted a claim under the Policy for the Loss to the Property. (Id.). Defendants appointed a third-party claims administrator to inspect the Property. (Id.). The claims administrator determined the Loss, less depreciation, equaled $272, 6720.58, which was below the applicable deductible of $872, 991.20. (Id.) Plaintiff hired its own consultants who determined the loss to be $8, 096, 028.00, after applying the applicable deductible. (Id.). Plaintiff alleges it notified Defendants of its determination of the Loss calculations and Defendants rejected it. (Id.).
As a result of the discrepancy between Plaintiff's loss calculations and Defendants' estimate, Plaintiff filed a complaint in Mobile County Circuit Court on September 14, 2021, asserting the following causes of action: “Declaratory Judgment” (Count I), “Breach of Contract” (Count II) and “Bad Faith” (Count III). (Doc. 1-2; Doc. 7). In Count I, Plaintiff alleged Paragraph C (the “Arbitration Clause”) and Paragraph Y (“Suit Against Companies”) are “inconsistent.” (Doc. 1-2). Plaintiff further alleged the Lloyd's Endorsement changed the Policy and did not preserve the Defendants' right to arbitrate. (Id.). As such, Plaintiff seeks a judgment declaring (1) that “the Amendatory Endorsement, Service of Suit Clause (U.S.A.) changes the [P]olicy and does not mention or reserve arbitration and therefore arbitration does not apply; (2) the language of the [P]olicy at issues which provides suit within 12 months of the loss is invalid and Alabama law applies as to when suit has to be brought; and (3) Plaintiff is entitled to $8, 096, 028.00 under the [P]olicy as a result of damages resulting from Hurricane Sally occurring on 9/16/2020.” (Doc. 1-2 at ¶21-28; Doc. 7 at ¶12).
On November 30, 2021, Defendants timely removed under 28 U.S.C. § 1441 and 9 U.S.C. § 205. (Doc. 1). Defendants are entities which are considered citizens of countries other than the United States. (Id.). Defendants assert there is a valid arbitration clause between the parties that falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (also known as the “New York Convention”), and, thus, this Court has original jurisdiction pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 205. (Id.). See also Bautista v. Star Cruises, 396 F.3d 1289, 1294 (11th Cir. 2005) () (quoting 9 U.S.C. § 203).
Paragraph C of Section VII (Conditions) of the Policy contains the following Arbitration Clause: “All matters in difference between the Insured and the Companies (hereinafter referred to as ‘the parties') in relation to this insurance, including its formation and validity, and whether arising during or after the period of this insurance, shall be referred to an Arbitration Tribunal in the manner hereinafter set out.” (See Doc. 7-1 at 37) (emphasis added). The Arbitration Clause sets out the procedures for appointing an arbitrator and the tribunal. (Id.). The Arbitration Clause specifies the “seat of the Arbitration shall be in New York and the Arbitration Tribunal shall apply the law of New York as the proper law of this insurance.” (Id.). Lastly, the (Id.) (emphasis added).
Paragraph V (“Settlement of Claims”) of Section VII of the Policy further specifies that “[t]he amount of loss for which the Companies may be liable shall be payable within thirty (30) days after Proof of Loss, ” is “received and accepted” by agreement or “an amount is determined by binding Arbitration in accordance with the provisions of this Policy.” (Doc. 7-1 at 43). In Paragraph Y of this same section, entitled “Suit Against Companies”, the parties agreed “[n]o suit, action or proceeding for the recovery of any claim under this Policy shall be sustainable in any court of law or equity unless the Insured shall have fully complied with all the requirements of this Policy. . .” (Id. at 44) (emphasis added).
In addition, the Policy contains an endorsement applicable to coverage provided by Certain Underwriters at Lloyd's London (hereinafter the “Lloyd's Endorsement”). The Lloyd's Endorsement contains both a service of suit and applicable law clause. (Doc. 7-1 at 65). The clauses are prefaced, at the top of the page, with the following note: (Id.). The “Service of Suit Clause (U.S.A.)” reads as follows:
It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this Clause constitutes or should be understood to constitute a waiver of Underwriters' rights to commence an action in any Court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any State in the United States. It is further agreed that service of process in such suit may be made upon [addresses inserted] and that in any suit instituted against any one of them upon this contract, Underwriters will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.
(Id.). The “Applicable Law (USA)” clause instructs the parties “[t]his insurance shall be subject to applicable state law to be determined by the court of competent jurisdiction as determined by the service of suit clause (USA).” (Id.).
Defendants now move to compel Plaintiff to arbitrate its dispute over the amount of insurance coverage due and stay the proceedings. (Doc. 7). In support of their Motion to Compel, Defendants contend: 1) the four jurisdictional prerequisites under the Convention are met, and therefore, the Court must compel arbitration; 2) the delegation clause in the arbitration agreement requires the arbitration panel to determine all threshold issue of arbitrability; 3) additionally, or in the alternative, under Alabama contract law, the service of suit clause does not supersede or conflict with the arbitration clause. (Id.).
In response, Plaintiff contends no valid arbitration agreement is in force. (Doc. 12). More specifically, Plaintiff reiterates its allegations in the declaratory judgment action and contends the Lloyd's Endorsement, specifically the service of suit clause, changes the Policy, and renders the Arbitration Clause inoperative and unenforceable. (Id.). To bolster its point, Plaintiff provides an example of a Lloyd's Service of Suit endorsement which expressly preserved the right to arbitrate. (Id.). Plaintiff correctly points out that the Lloyd's Endorsement in the Policy at issue did not do so. (Id.). Finally, Plaintiff asserts whether there is a valid arbitration agreement should be analyzed under Alabama law governing insurance contract interpretation. (Id.).
In their reply, Defendants urge the Court to find the question of whether the Arbitration Clause has been superseded by Lloyd's Endorsement to be a “gateway issue” that must be decided by the Arbitration Tribunal under the “delegation phrase” contained within the Arbitration Clause - the same clause Plaintiff contends has been superseded by Lloyd's Endorsement. (Doc. 13). Further, Defendant argues, because Plaintiff did not challenge the delegation clause, specifically, the Court cannot entertain this challenge and must compel arbitration. (Id.). More concisely, Defendant argues the Court does not have jurisdiction to interpret the Policy. Therefore, the Court must determine whether it or the Arbitration Tribunal determines...
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