North River Ins. Co. v. Allstate Ins. Co., 93 Civ. 8828 (SS).

• Decision Date: 07 October 1994
• Docket Number: No. 93 Civ. 8828 (SS).,93 Civ. 8828 (SS).
• Citation: 866 F. Supp. 123
• Parties: The NORTH RIVER INSURANCE COMPANY and United States Fire Insurance Company, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

866 F. Supp. 123

The NORTH RIVER INSURANCE COMPANY and United States Fire Insurance Company, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

No. 93 Civ. 8828 (SS).

United States District Court, S.D. New York.

October 7, 1994.

Simpson Thacher & Bartlett, New York City (Barry S. Ostrager, Andrew S. Amer, Janet A. Gochman (not yet admitted), of counsel), for plaintiffs.

Debevoise & Plimpton, New York City (Donald Francis Donovan, Mary Beth Hogan, of counsel), for defendant.

OPINION AND ORDER

SOTOMAYOR, District Judge.

Defendant Allstate Insurance Company seeks a stay of this action pursuant to the Federal Arbitration Act, 9 U.S.C. § 3, so that arbitration may be had of a dispute arising out of a series of treaty reinsurance agreements between the parties. Plaintiffs North River Insurance Company and the United States Fire Insurance Company contend that the doctrine of collateral estoppel bars defendant from seeking further arbitration of the liability issues in the parties' dispute. For the reasons set forth below, defendant's motion to stay this action pending arbitration is granted, and the complaint will be dismissed.

Background

The facts involved in this case are largely undisputed. North River Insurance Company ("North River"), United States Fire Insurance Company ("US Fire"), and their affiliates the International Insurance Company ("IIC") and Westchester Fire Insurance Company ("Westchester Fire") (collectively the "plaintiffs"), provided insurance coverage to manufacturers who produced goods containing asbestos. To reduce their exposure, plaintiffs entered into a series of reinsurance treaties with defendant Allstate Insurance Company ("Allstate")¹.

The reinsurance treaties at issue covered intermittent periods dating back to 1968. The treaties provided that for each "occurrence," Allstate would provide coverage above a certain retention, or deductible. The various treaties had retentions ranging from $250,000 to $1,000,000. The treaties all contain substantially similar arbitration clauses, which provide in pertinent part:

If any dispute shall arise between the reinsured and the reinsurer with reference to the interpretation of this contract or their rights with respect to any transaction involved, the dispute shall be referred to three arbitrators ... the arbitrators shall consider this contract an honorable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and binding on both the reinsured and the reinsurer.

Affidavit of Andrew S. Amer, Sworn to March 7, 1994 at Ex. A, Article XV ("Amer Aff.").

In the wake of extensive asbestos litigations in the 1980's, plaintiffs submitted claims to Allstate. A dispute arose, however, over the meaning of the word "occurrence" in the treaties. Allstate contended that because each asbestos claim arose out of multiple occurrences, plaintiffs and their affiliates had to pay multiple retentions. Plaintiffs argued that all of the asbestos claims arose out of a single occurrence, and therefore only a single retention payment was required. To resolve this dispute, in 1989-90 plaintiffs initiated a number of arbitration proceedings.

By consent of all parties, the arbitrations were consolidated (hereinafter the "Consolidated Arbitration"). The Consolidated Arbitration was held before a panel of three arbitrators in October 1992. On November 11, 1992, a majority of the arbitrators found in favor of plaintiffs. See Amer Aff. at Ex. B. The two page arbitration award does not indicate the grounds upon which the majority based its decision, nor did the dissenting member of the panel provide any reasons for his disagreement. The award was confirmed by an order of the Supreme Court of New York, New York County, on December 1, 1993.

Currently, there are seven pending arbitrations between Allstate and North River, and one between Allstate and US Fire. Although no demand has been made, another dispute (hereinafter the "MacArthur Claim") will be submitted to arbitration if a stay pending arbitration is granted in this action².

Defendant herein seeks an order pursuant to the Federal Arbitration Act³ staying this action so that arbitration may proceed in accordance with the arbitration clause contained in each treaty. Plaintiffs maintain that the doctrine of collateral estoppel bars Allstate from seeking further arbitration of the liability issue between the parties because the central issue in each of the pending disputes is the meaning of the term "occurrence."⁴ Plaintiffs contend that once the award in the Consolidated Arbitration was confirmed by the Supreme Court of New York, the Full Faith and Credit Act⁵ requires this Court to permanently enjoin Allstate from proceeding with the pending arbitrations on the liability issues between the parties. Defendant, in turn, asserts that the merits of plaintiffs' collateral estoppel defense should be determined by the arbitrators, and not by the Court.

Discussion

Federal policy, as embodied by the Federal Arbitration Act ("FAA"), "strongly favors arbitration as an alternative dispute resolution process." David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 248 (2d Cir.), cert. dismissed, 501 U.S. 1267, 112 S.Ct. 17, 115 L.Ed.2d 1094 (1991) (citing Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 478-82, 109 S.Ct. 1917, 1919-20, 104 L.Ed.2d 526 (1989); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987)). The FAA is a codification of "a liberal federal policy favoring arbitration agreements," Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), and was designed to "allow parties to avoid the costliness and delays of litigation ..." Genesco at 844. The FAA "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985) (citing 9 U.S.C. §§ 3-4) (emphasis in original).

As a threshold matter, a court must determine "whether the parties agreed to arbitrate, and if so, whether the scope of that agreement encompasses the asserted claims." Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 45 (2d Cir.1993) (citing Threlkeld at 249). In deciding whether a dispute is arbitrable, a court "is not to rule on the potential merits of the underlying claims." Transit-Mix Concrete Corp. v. Local Union No. 282, 809 F.2d 963, 967 (2d Cir.1987) (quotation omitted). Any doubts concerning the scope of arbitrable issues "should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language or an allegation of waiver, delay, or a like defense to arbitrability." Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir.1991) (quoting Moses H. Cone 460 U.S. at 24-25, 103 S.Ct. at 941-42). See also Associated Brick Mason Contractors of Greater New York, Inc. v. Harrington, 820 F.2d 31, 35 (2d Cir.1987) (presumption of arbitrability is so strong that arbitration will be ordered even if claim appears frivolous) (citing AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649-50, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986)); Government of the United Kingdom v. Boeing Co., 998 F.2d 68, 72 (2d Cir.1993) (arbitration agreements enforced even if such enforcement creates inefficiencies or "piecemeal litigation").

Inquiries into the scope of an arbitration clauses are governed by "the federal substantive law of arbitrability." Progressive Casualty at 48 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) (quoting Moses H. Cone 460 U.S. at 24-25, 103 S.Ct. at 941-42)). In construing the scope of arbitration clauses, courts distinguish between "broad" and "narrow" arbitration clauses. McDonnell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 832 (2d Cir.1988) (citing cases). If the clause is narrow, the court's inquiry is limited to a determination of whether the issue is on its face within the purview of the clause. Id. (citing AT & T Technologies 475 U.S. at 650, 106 S.Ct. at 1419). If a court concludes that an arbitration clause is broad, then "it will order arbitration and any subsequent construction of the contract and of the parties' rights and obligations under it are within the jurisdiction of the arbitrator." Id. (citing cases). The strong presumption in favor of arbitrability "applies with greater force when an arbitration clause is a broad one." Id. (citing AT & T Technologies at 650, 106 S.Ct. at 1419). See also Concourse Village, Inc. v. Local 32E, Service Employees Int'l Union, 822 F.2d 302, 304 (2d Cir.1987) ("unless it can be said `with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute,' the dispute should be submitted to arbitration.") (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960)); 9 U.S.C. § 3 (where issue referable to arbitration under an agreement, court shall stay proceedings).

Neither party disputes the existence or validity of the arbitration clauses in the reinsurance treaties. To determine the scope of the arbitration clause, I turn to the text of the treaty. As noted the clause provides, "if any dispute shall arise between the reinsured and the reinsurer with reference to the interpretation of this contract or their rights with respect to any transaction involved, the dispute shall be referred to three arbitrators...