Reliance Ins. Co. v. Raybestos Products Co.

• Decision Date: 27 August 2004
• Docket Number: No. 03-1494, 03-1495.,03-1494, 03-1495.
• Citation: 382 F.3d 676
• Parties: RELIANCE INSURANCE CO., Plaintiff, v. RAYBESTOS PRODUCTS CO., Defendant/Third-Party Plaintiff-Appellee, v. United States Fidelity & Guaranty Co. and Westchester Fire Insurance Co., Third-Party Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

382 F.3d 676

RELIANCE INSURANCE CO., Plaintiff, v. RAYBESTOS PRODUCTS CO., Defendant/Third-Party Plaintiff-Appellee, v. United States Fidelity & Guaranty Co. and Westchester Fire Insurance Co., Third-Party Defendants-Appellants.

No. 03-1494, 03-1495.

United States Court of Appeals, Seventh Circuit.

Argued September 16, 2003.

Decided August 27, 2004.

Appeal from the United States District Court for the Southern District of Indiana, Richard L. Young, J Jeffrey D. Claflin (argued), Brian C. Crist, Plews, Shadley, Racher & Braun, Indianapolis, IN, for Defendant-Appellee.

Brian E. Mahoney (argued), Cohn & Baughman, Alfred L. Buchanan (argued), Fedota, Childers & May, Chicago, IL, for Defendant-Appellant.

Before FLAUM, Chief Judge, and DIANE P. WOOD and WILLIAMS, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

Once again, we confront a case in which parts of a complex situation are arguably subject to arbitration, while other parts are not. The district court thought that the arbitration agreements at issue did not encompass one part of the dispute, and thus that judicial proceedings should proceed in parallel to the arbitral proceedings. In our view, however, this construes the agreement to arbitrate too narrowly. We therefore reverse and remand for entry of an order directing the controversy in question to be submitted to arbitration.

I

Raybestos Products (an indirect subsidiary of Raytech Corporation) manufactures brakes at a plant in Crawfordsville, Indiana. Some time in late 1996 or early 1997, Raybestos learned that there was environmental pollution at the Crawfordsville facility, which was likely to entail substantial clean-up costs. Raybestos carried insurance against this risk from several different providers, including Reliance Insurance, United States Fidelity & Guaranty Company (USF&G), and Westchester Fire Insurance Company. Some of the plans were for different years, others were for excess coverage; some plans included arbitration clauses, others did not.

Initially, Raybestos submitted a claim only to Reliance for indemnification of these costs. In January 1997, invoking the diversity jurisdiction of the court, Reliance (an Illinois company with its principal place of business in Pennsylvania) filed this action against Raybestos (a Delaware corporation with its principal place of business in Indiana), seeking a declaration of noncoverage. Five years of litigation followed over a variety of aspects of that insurance contract. Throughout this time, presumably for strategic reasons, Raybestos was not actively pursuing payment from any of its other carriers. This turned out to be a bad choice when Reliance filed for bankruptcy and it became apparent that it would be unable to pay the full amount of the clean-up costs (assuming that Raybestos prevailed on the merits).

At that point, Raybestos turned to the other three carriers, filing a third-party complaint against USF&G (a Maryland corporation with its principal place of business in Minnesota), Westchester (a New York corporation with its principal place of business in New York), and National Union (a Pennsylvania corporation with its principal place of business in New York).

There is some evidence that, despite the long delay, Raybestos had attempted to give USF&G notice of the claim back in February 1997; Westchester received no notice of the claim until the third-party complaint was filed. The question of the timeliness or adequacy of Raybestos's notices is not before us at this point, however, and thus we have nothing further to say about it. What is important is the fact that the third-party complaint alleged that USF&G and Westchester had failed to defend and indemnify Raybestos in breach of two specific USF&G policies and seven specific Westchester policies, identified by policy number and dates of coverage. These contracts each included the following arbitration clause:

6. ARBITRATION

Should any dispute arise out of or related to this endorsement and contract of insurance which cannot be resolved in the normal course of business with respect to the validity or interpretation of this insurance contract, or the performance of the respective obligations of the parties to this insurance contract, then, upon written demands of either party to the contract, the matter or matters upon this [sic] [which?] agreement cannot be reached shall be settled by arbitration in accordance with the rules of the American Arbitration Association, or the Defense Research Institute arbitration program. The election as to which of these arbitration programs will be used will be made by the party to this contract who did not make written demand for arbitration. If that party fails to make that election within twenty days, then the party making written demand for arbitration shall have the right to make that election. It is agreed that no award for punitive damages may be made in any arbitration proceeding regardless of the rules of the arbitration program selected.

Invoking that clause, USF&G and Westchester filed a motion in the district court seeking an order compelling arbitration. National Union notified Raybestos that it believed that it too had at least one contract containing an arbitration clause, but that none of its other contracts did. Raybestos then dismissed the part of the case against National Union that depended on the contract with the arbitration clause.

Pointing out that at least the remaining claims based on the National Union policies were inevitably going to remain before the district court, Raybestos opposed the motions to compel arbitration. It argued that it was unfair to force it to litigate and arbitrate essentially the same claims (though against different companies, and under different policies) at the same time. It points out, correctly, that inconsistent results are possible: the court might find that USF&G or Westchester must pay but not National Union, while the arbitrators might find the reverse. Relying exclusively on these policy-based concerns, the district court denied the USF&G/Westchester motion and refused to compel arbitration and to stay the litigation pending arbitration. The two insurance companies have appealed, as they are permitted to do under 9 U.S.C. § 16(a)(1)(A) and (B).

II

Before turning to the district court's reasons for refusing to compel arbitration, we look first at the question whether the dispute between Raybestos and USF&G and Westchester fall within the scope of the arbitration clause. If not, of course, then this would be an independent ground on which we might affirm the district court's result, particularly because our review of a decision refusing to compel arbitration is de novo, Kresock v. Bankers Trust Co., 21 F.3d 176, 177-78 (7th Cir. 1994), except insofar as it rests on findings of fact, in which case we use the clearly erroneous standard, Fyrnetics (Hong Kong) Ltd. v. Quantum Group, Inc., 293 F.3d 1023, 1027 (7th Cir.2002).

The two insurance companies argue that even the question of arbitrability should be submitted to the arbitrators here, but we think this goes too far. The Supreme Court held in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), that arbitrability issues are normally for the court, unless there is "clear and unmistakable evidence" that the parties agreed to arbitrability. Id. at 944, 115 S.Ct. 1920 (internal marks omitted). We find no such evidence here. Nonetheless, this is of little help to Raybestos, when one looks to the underlying issues. They include the following questions: (1) whether a notice from the ...