Nationwide Gen. Ins. Co. v. Investors Ins. Co. of America

• Decision Date: 09 June 1975
• Citation: 371 N.Y.S.2d 463,332 N.E.2d 333,37 N.Y.2d 91
• Parties: , 332 N.E.2d 333 In the Matter of NATIONWIDE GENERAL INSURANCE COMPANY et al., Respondents, v. INVESTORS INSURANCE COMPANY OF AMERICA, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 463

371 N.Y.S.2d 463

37 N.Y.2d 91, 332 N.E.2d 333

In the Matter of NATIONWIDE GENERAL INSURANCE COMPANY et al., Respondents, v. INVESTORS INSURANCE COMPANY OF AMERICA, et al., Appellants.

Court of Appeals of New York.

June 9, 1975.

John J. Tarpey and Paul W. Thorpe, Jr., New York City, for appellants.

Sol Kroll, Max Edelman and Roy E. Pomerantz, New York City, for respondents.

WACHTLER, Judge.

The question on this appeal is whether the courts below properly stayed arbitration on the ground that the dispute was not within the scope of the arbitration clause.

Appellants (Investors) entered into a reinsurance treaty with the petitioners who agreed to indemnify Investors 'for that portion of its General Liability writings which represents the excess of the sum of: (a) $50,000 each person, $50,000 each loss occurrence for Bodily Injury'. Investors, in turn, issued a general liability policy to Rova Farms Resort, Inc. providing coverage up to $50,000 for each person and $100,000 for each accident.

In July, 1965, while both of these agreements were in effect, one Lawrence McLaughlin was injured on Rova Farms' premi McLaughlin and his wife commenced an action in the New Jersey courts and obtained a jury verdict of $225,000. When this judgment was affirmed on appeal to the New Jersey Supreme Court (McLaughlin v. Rova Farms, 56 N.J. 288, 266 A.2d 284), Investors paid the limit of its policy ($50,000) plus interest and costs, and Rova Farms paid the balance.

Rova Farms then brought a separate action against Investors to recover the balance, on the theory that Investors had, without good cause, refused to settle the McLaughlin action within the limits of its policy. Trial of that action resulted in a judgment against Investors for $175,000 plus interest and costs, which was later affirmed on appeal (Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 323 A.2d 495).

Investors then turned to petitioners for reimbursement claiming that since the judgment arose from an occurrence covered by one of their general liability writings, they were entitled to recover under the reinsurance treaty. Petitioners refused payment stating that the agreement only afforded coverage when Investors issued a policy with limits exceeding $50,000 per person, and not when, as here, the excess liability was based on a failure to settle a claim within the face amount of the policy. To resolve this impasse Investors served a notice of arbitration pursuant to article XII of the reinsurance agreement which provides, in part, as follows: 'In case of any question or dispute between (Investors) on the one hand and the Reinsurer (petitioners) on the other touching the construction, meaning or effect of this Agreement or any article therein contained or any fact or matter connected with the carrying out of these presents or the rights or the liabilities of either of the said parties hereto, the same shall in every case be submitted to a court of arbitration.'

After receiving the notice petitioners moved to stay arbitration on the ground that the issue is not arbitrable since the contract simply did not provide for any reimbursement under these circumstances. In granting the stay the court stated: 'Initially it does not appear that the subject matter of the Notice of Intention to Arbitrate is encompassed within the terms of the agreement, for the reinsurance provisions appear only to afford coverage in cases beyond the limits of the primary coverage herein. Moreover it does not seem that the agreement herein was intended to cover respondent for sums exacted punitively rather than for sums paid as a consequence of its issuing a policy of insurance.' The Appellate Division affirmed, without opinion.

It is always useful to bear in mind that the announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties. 'One way to encourage the use of the arbitration forum' we recently noted 'would be to prevent parties to such agreements from using the courts as a vehicle to protract litigation. This conduct has the effect of frustrating both the initial...