Mont. Ass'n of Counties Prop. v. Lloyds

• Decision Date: 22 October 2020
• Docket Number: CV 19-196-M-DLC
• Parties: MONTANA ASSOCIATION OF COUNTIES PROPERTY AND CASUALTY TRUST, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYDS, Defendants.
• Court: U.S. District Court — District of Montana

MONTANA ASSOCIATION OF COUNTIES PROPERTY AND CASUALTY TRUST, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYDS, Defendants.

CV 19-196-M-DLC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA MISSOULA DIVISION

October 22, 2020

ORDER

Plaintiff Montana Association of Counties Property and Casualty Trust ("MACo") sued Defendants Certain Underwriters at Lloyds ("Underwriters") for damages resulting from breach of contract and violations of the Montana Unfair Trade Practices Act. (Docs. 1, 31.) Pending before the Court is: (1) Underwriters' Motion to Compel Arbitration and Stay Proceedings (Doc. 20); (2) Underwriters' Motion to Strike (Doc. 34); and MACo's Rule 15(a)(2) Motion for Leave to File Amended Complaint (Doc. 39). For the reasons stated below, the Court grants the Motion to Compel Arbitration and Stay Proceedings (Doc. 20), denies the Motion to Strike (Doc. 34) as moot, and grants the Rule 15(a)(2) Motion for Leave to File Amended Complaint (Doc. 39).

FACTUAL AND PROCEDURAL BACKGROUND

MACo consists of an association of Montana counties that formed a joint risk pool to provide indemnity policies to its members. (Doc. 1 at 1.) MACo purchased excess of loss reinsurance for its policies from 2011 to 2018 from Lloyd's of London. (Id.) Underwriters, in turn, subscribed to the reinsurance agreement that MACo claims offers it excess reinsurance coverage for the claims here—Certificate No. PK1013217 ("Policy").¹ (Id. at 2.)

After Paul Jenkins and his family (collectively, "Jenkins") sued several of MACo's member counties for, inter alia, wrongful imprisonment, MACo and Jenkins eventually reached a settlement wherein MACo indemnified its members. (Doc. 1 at 3.) MACo demanded reimbursement from Underwriters pursuant to the Policy, but MACo alleges Underwriters refused to pay. (Doc 1 at 4.) MACo filed the instant action against Underwriters, claiming Underwriters' refusal breached the Policy's terms. (Doc. 1 at 4.)

Underwriters filed their first motion to compel and stay proceedings on April 7, 2020. (Doc. 7.) Before the Court could rule, MACo filed a motion for leave toamend its complaint. (Doc. 13.) There, MACo sought to add allegations that Underwriters also breached the Policy regarding claims brought by Freddie Joe Lawrence against MACO's member counties in another wrongful conviction case. (Doc. 13-1 at 6.) Underwriters opposed the motion for leave to amend and filed a second motion to compel arbitration and stay. (Doc. 20.)

On August 27, 2020, the Court issued an order granting MACo's motion to amend and denying as moot Underwriters' first motion to compel arbitration. (Doc. 30.) The Court explained it would rule on the second motion to compel at a later time, and stated it would consider the amended complaint in its ruling to allow MACo to present its best argument against arbitration.² (Id.)

MACo filed its amended complaint on the same day. (Doc. 31.) The amended complaint contains the same breach of contract allegations for Underwriters' failure reimburse it for the Jenkins claims, and adds breach of contract allegations for Underwriters' alleged refusal to participate in settlement of the Lawrence suit and failure to confirm that they would fulfill their indemnity obligations under the Policy. (Id.) The amended complaint also adds a countagainst Underwriters for violations the Montana Unfair Trade Practices Act. (Doc. 31 at 5-6.)

MACo filed a Notice of Supplemental Authority on September 22, 2020. (Doc. 33.) In response, Underwriters filed a Motion to Strike (Doc. 34), MACo filed a response (Doc. 37), and Underwriters filed a reply (Doc. 38).

Shortly before the Court was set to issue this Order, MACo filed a second Motion for Leave to Amend, seeking to join Everest National Insurance Company, another excess liability insurer, as a defendant. (Doc. 39). Underwriters oppose the motion. (Doc. 40 at 3.)

LEGAL STANDARD

To determine whether parties intended to arbitrate, a court conducts a two-part inquiry to assess: "(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Kilgore v. KeyBank, Nat. Ass'n, 718 F.3d 1052, 1058 (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)); see also Century Indem. Co. v. Certain Underwriters at Lloyd's, London, Subscribing to Retrocessional Agreement Nos. 950548, 950549, 950646, 584 F.3d 513, 523 (3dCir. 2009). "This determination applies equally in domestic and international arbitration contexts." Century Indem., 584 F.3d at 523.

DISCUSSION

The first issue before the Court is whether the parties must submit to arbitration of the claims. Underwriters argue that the Policy requires MACo to submit its claims to arbitration. Specifically, they point to the Policy language, which states: "Any dispute arising out of or relating to the interpretation, performance or breach of this Agreement, as well as the formation and/or validity thereof, will be submitted for decision to a panel of three arbitrators." (Doc. 31-1 at 18.) MACo argues that the Policy's "service-of-suit" clause grants Plaintiff the right to circumvent arbitration and sue in federal court for Underwriters' failure to pay MACo "any" amount claimed to be due under the Policy, notwithstanding the arbitration clause. (Doc. 12 at 8.) For its part, the service-of-suit clause provides: "It is agreed that in the event of the failure of Underwriters to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured, will submit to the jurisdiction of a Court of competent jurisdiction within the United States." (Doc. 31-1 at 3.) Notably, MACo does not argue that the arbitration clause is null, void, or otherwise invalid, but rather that the service-of-suit clause creates a "carve-out" for certain claims. (Doc. 12 at 10.) Underwritersargues that the arbitration clause must be read in harmony with the service-of-suit provision—a reading that does not exempt MACo's claims from arbitration.³

Even though MACo appears to concede the issue, the Court first addresses whether there was a valid arbitration agreement, and then analyzes whether each of MACo's claims against Underwriters falls within the scope of the arbitration agreement. Then, the Court will discuss MACo's notice of supplemental authority, Underwriters' motion to strike, and MACo's motion for leave to amend.

I. Whether the parties must arbitrate claims

a. Whether there is a valid arbitration agreement

Generally, courts should apply state law contract principles when deciding the threshold issue of whether a valid agreement to arbitrate exists. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998). "Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). Under the choice of law provision inthe Policy, Montana law applies to the question of whether there is a valid agreement to arbitrate. (Doc. 8-5 at 16.)

Montana principles of contract interpretation require that, "'[t]he whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, each clause helping to interpret the other.'" Krajacich v. Great Falls Clinic, LLP, 276 P.3d 922, 926 (Mont. 2012) (quoting Richards v. JTL Group, Inc., 212 P.3d 264 (Mont. 2009); see also Mont. Code Ann. § 28-3-202. "Mere isolated tracts, clauses and words will not be allowed to prevail over the general language utilized in the instrument." Krajacich, 276 P.3d at 926 (quoting Rumph v. Dale Edwards, Inc., 600 P.2d 163, 168 (Mont. 1979) (citations omitted)).

Here, MACo's suggested reading of the Policy is contrary to Montana contract interpretation principles, because it fails to consider the whole contract and give meaning to each part. MACo argues that the words "any amount claimed to be due," contained in the service-of-suit clause, are clear and show the parties' intent to create an exception to the arbitration clause. (Doc. 12 at 25.) It goes on to contend that reading the service-of-suit clause to facilitate the enforcement of arbitration awards would limit the language of the service-of-suit clause, or, alternatively, require the insertion of the words "to enforce or confirm an arbitral award" into the clause. (Id.) But if the service-of-suit clause encompassed all failure to pay claims, as MACo suggests, it would swallow the arbitration clause,which orders the parties to submit "any dispute arising out of or relating to the interpretation, performance or breach of this Agreement" to arbitration. (Doc. 8-5 at 16.) Montana contract interpretation principles require a court to find meaning in both clauses. Krajacich, 276 P.3d at 926. A more reasonable interpretation of the Policy language, therefore, is that the service-of-suit clause provides a judicial avenue to compel arbitration or enforce an arbitration award.

Reading the service-of-suit clause in harmony with the arbitration clause also follows the conclusion reached by other courts in reviewing similar clauses. See Century Indem., 584 F.3d at 554 (finding that "service-of-suit clauses do not negate accompanying arbitration clauses; indeed, they may complement arbitration clauses by establishing a judicial forum in which a party may enforce arbitration"); Safety Nat'l Cas. Corp. v. Certain Underwriters, 587 F.3d 714, 725 (5th Cir. 2009) ("More likely the service of suit provision related to the consent of Underwriters for personal jurisdiction than to abrogate the arbitration clause"); Montauk Oil Transp. Corp. v. Steamship Mut. Underwriting Ass'n (Bermuda), 79 F.3d 295, 298 (2d Cir. 1996) ("The principal effect of the New York Suable Clause is to resolve the issue...