Safety Nat. Cas. Co. v. Cinergy Corp.

Decision Date21 June 2005
Docket NumberNo. 32A05-0405-CV-269.,32A05-0405-CV-269.
Citation829 N.E.2d 986
PartiesSAFETY NATIONAL CASUALTY COMPANY, Appellant-Plaintiff, v. CINERGY CORPORATION, Appellee-Defendant.
CourtIndiana Supreme Court

James E. Ayers, Wernle Ristine & Ayers, Linden, Andrew K. Epting, Jr., Pratt-Thomas Epting & Walker, Charleston, SC, for Appellant.

George M. Plews, Donna Marron, Indianapolis, for Appellee.



Safety National Casualty Company ("Safety") appeals the trial court's order denying Safety's motion to stay the proceedings and to compel arbitration against Cinergy Corporation ("Cinergy"). Safety raises one issue, which we restate as whether the trial court's findings of fact and conclusions thereon denying Safety's motion to stay litigation and to compel arbitration were clearly erroneous. We reverse and remand.1

The relevant facts follow. Safety is an insurance company that issued excess umbrella insurance policies to utility companies, Cincinnati Gas & Electric ("CG & E") and Public Service Indiana ("PSI") during the 1980's. CG & E and PSI later merged and became Cinergy.2 Safety issued policies UF 1181 IN and UF 1906 IN to PSI for the periods from October 31, 1983 to October 31, 1984 and from October 31, 1984 to October 31, 1985, respectively. Safety issued policies UF 1977 OH and UF 1980 OH to CG & E for the period from July 1, 1984 to July 1, 1985.3 Each of the policies that Safety issued to PSI and CG & E contained an arbitration clause that provided:

11. Arbitration: As a condition precedent to any right of action under this Policy, any dispute arising out of this Policy shall be submitted to a decision of a board of arbitration. The board of arbitration will be composed of two arbitrators and an umpire, meeting in St. Louis, Missouri, unless otherwise agreed.

The members of the board of arbitration shall be active or retired disinterested officials of insurance or reinsurance companies. Each party shall appoint 1 arbitrator, and the two arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within four weeks after being requested to do so by the claimant, the latter shall also appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within four weeks after their nominations, each of them shall name three, of whom the other shall decline two and the decision shall be made by drawing lots.

The claimant shall submit its initial brief within twenty (20) days from appointment of the umpire. The respondent shall submit its brief within twenty (20) days after receipt of the claimant's brief and the claimant may submit a reply brief within ten (10) days after receipt of the respondent's brief.

The board shall make its decision with regard to the custom and usage of the insurance and reinsurance business. The board shall issue its decision in writing based upon a hearing in which evidence may be introduced without following strict rules of evidence but in which cross examination and rebuttal shall be allowed.

If more than one Insured is involved in the same dispute, all such Insureds shall constitute and act as one party for purposes of this Clause and communications shall be made by the Company to each of the Insureds constituting the one party; provided, however, that nothing therein shall impair the rights of such Insureds to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Insureds under the terms of this Policy from several to joint.

Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the umpire. The remaining costs of the arbitration proceedings shall be allocated by the board.

Appellant's Appendix at 165, 185, 196, 210, 336, 356, 367, 381; Appellee's Appendix at 44. Policies UF 1977 OH and UF 1980 OH also contained a "service of suit" endorsement, which provided:

The following Service of Suit Clause is not to become effective unless or until the Insured has notified this Company in each specific claim of its intention to sue.

Service of Suit Clause: It is agreed that in the event of the failure of this Company to pay any amount claimed to be due hereunder, this Company, at the request of the Insured, will submit to the jurisdiction of any Court of Competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

It is further agreed that service of process in such suit may be upon the highest one in authority bearing the title "Commissioner", "Director", or "Superintendent" of Insurance of the state or commonwealth wherein the property covered by this policy is located, and that in any suit instituted against it upon this contract this Company will abide by the final decision of such Court or any Appellate Court in the event of an appeal. The one in authority bearing the title "Commissioner", "Director", or "Superintendent" of Insurance of the state or commonwealth wherein the property covered by this policy is located is hereby authorized and directed to accept service of process on behalf of this Company in any such suit and/or upon the Insured's request to give a written undertaking to the Insured that they will enter a general appearance upon this company's behalf in the event such a suit shall be instituted.

* * * * *

Appellee's Appendix at 57, 62.

In March 2000, the United States filed suit against Cinergy in federal court ("federal lawsuit") and alleged that Cinergy had violated the Clean Air Act and had caused harm to persons and damage to the environment from excessive air emissions at four electricity-generating stations operated by Cinergy in Indiana and Ohio.4 See Cinergy Corp. v. St. Paul Surplus Lines Ins. Co., 785 N.E.2d 586, 589 (Ind.Ct.App.2003), trans. denied. The complaint alleged that some of the violations dated back to the 1980's. The complaint sought for Cinergy to remedy the alleged violations by installing additional emission controls and "to take other appropriate actions to remedy, mitigate and off-set the harm to public health and the environment caused by the violations of the Clean Air Act alleged." Appellee's Appendix at 65. See also Cinergy, 785 N.E.2d at 589.

In July 2000, Cinergy, without mentioning a specific policy, notified Safety regarding the federal lawsuit and requested that Safety "commit to defend and indemnify" Cinergy in the action. Appellee's Appendix at 66. Safety did not respond to Cinergy's letter. In October 2000, Cinergy sent another letter to Safety to notify Safety of Cinergy's settlement negotiation status in the federal lawsuit. In its letter, Cinergy notified Safety that Cinergy faced upwards of $670,000,000 in costs and fees, and Cinergy requested that Safety "please contact [it] immediately." Appellee's Appendix at 67. Safety did not respond to Cinergy's letter. Cinergy also sent letters to Safety in March 2001, December 2001, and February 2002, all of which updated Safety on the status of the federal lawsuit and requested that Safety defend and indemnify Cinergy. Safety did not respond to these letters.

Cinergy also notified its other insurance carriers, including St. Paul Surplus Lines Insurance Company ("St. Paul"), to inform them of its potential liability stemming from the federal lawsuit. In October 2000, St. Paul filed a complaint for declaratory judgment against Cinergy in Hendricks County. See Cinergy, 785 N.E.2d at 589. Cinergy filed an answer and counterclaim against St. Paul. Id. On December 31, 2001, the Hendricks County trial court entered a case management order and allowed the parties until March 31, 2002 to add parties and amend the pleadings without leave of the court. Id.

On February 15, 2002, Cinergy filed a complaint for declaratory judgment and damages in Marion County and named twenty-two of its insurers, including Safety and St. Paul, as defendants.5 Id. Shortly thereafter, Cinergy filed a motion with the Hendricks County trial court to stay or dismiss the Hendricks County action, and the Hendricks County trial court denied that motion. Id. at 590.

On March 5, 2002, St. Paul amended its Hendricks County declaratory judgment complaint by adding Safety and the other twenty insurers named as insurer-defendants in Cinergy's Marion County action as "Additional Plaintiff Insurers." Id. at 590. Cinergy then moved the Hendricks County trial court to dismiss St. Paul's amended complaint, and St. Paul moved the Marion County trial court to dismiss Cinergy's Marion County action. Id.

In April 2002, Safety sent Cinergy a letter demanding arbitration pursuant to policies UF 1906 IN, UF 1181 IN, UF 1977 OH, UF 1980 OH, and Safety filed a motion to stay litigation and compel arbitration in the Marion County action. Cinergy opposed the arbitration but agreed to begin the process for choosing arbitrators and an umpire without waiving its right to object to arbitration.

In May 2002, the Marion County trial court granted St. Paul's motion to dismiss, and in June 2002, the Hendricks County trial court denied Cinergy's motion to dismiss. Id. Cinergy appealed both the Hendricks County and Marion County rulings, and we affirmed both trial courts' rulings. Id. at 597.

In September 2002, Safety filed a motion to dismiss itself as a plaintiff in the Hendricks County litigation on the grounds that the insurance policies issued to Cinergy contained arbitration provisions and that arbitration panel selection process was underway. In October 2002, Cinergy filed a motion to enjoin arbitration, and thereafter, Safety filed a motion opposing Cinergy's motion. In December 2003, Safety filed a motion to stay the proceedings and to compel arbitration. After holding a hearing on...

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