Union Elec. Co. v. Energy Ins. Mut. Ltd., Case No. 4:10-CV-1153 (CEJ)
| Decision Date | 19 September 2013 |
| Docket Number | Case No. 4:10-CV-1153 (CEJ) |
| Parties | UNION ELECTRIC COMPANY d/b/a AMERENUE, Plaintiff, v. ENERGY INSURANCE MUTUAL LIMITED, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
This matter is before the court following remand by the court of appeals for a determination of whether enforcement of the forum selection clause in the parties' contract violates Missouri's public policy against enforcement of mandatory arbitration provisions in insurance agreements. Also before the court is the defendant's request for oral argument. The parties have filed memoranda, and the issues are fully briefed.
Plaintiff Union Electric Company (Union Electric) owns and operates the Taum Sauk hydroelectric power plant in Missouri. On December 14, 2005, the upper reservoir experienced a sudden catastrophic breach, causing extensive damage to the surrounding area. Plaintiff sought coverage from defendant Energy Insurance Mutual Limited (EIM), pursuant to a second-layer excess liability policy with a coverage limit of $100 million. Defendant paid $68 million. In this action, plaintiff asserts claims of breach of contract and vexatious refusal to pay. Plaintiff seeks damages as well as declaratory and injunctive relief.
Defendant moved to dismiss the complaint on two bases: First, the contract required the parties to engage in a "mini-trial" as a condition precedent to bringingsuit.1 Second, defendant argued that venue in this district was improper because the parties' contract contains the following forum selection clause:
To the extent that any claim or controversy between the Insured and the Company hereunder is not subject to arbitration for any reason whatsoever, the United States District Court for the Southern District of New York shall have exclusive jurisdiction hereof.
Previously, the court agreed with defendant on both grounds, holding that the mini-trial requirement and forum-selection clause were valid and enforceable. The United States Court of Appeals for the Eighth Circuit reversed, finding that this court's analysis of the forum-selection clause was incorrect. Union Electric Co. v. Energy Insurance Mutual Limited, 689 F.3d 968, 973 (8th Cir. 2012). Specifically, the appellate court held that it was error not to address whether "enforcement of the forum selection clause in favor of New York courts would result in enforcement of the mandatory arbitration provision, thereby contravening Missouri's public policy against the enforcement of such provisions." Id. at 974 (citing Sturgeon v. Allied Professionals Ins. Co., 344 S.W.3d 205, 210 (Mo. Ct. App. 2011)). The Eighth Circuit declined to address this court's decision on the mini-trial issue. Id. at 975 n.5.
"[A] district court sitting in diversity jurisdiction and applying federal law must apply the standard articulated in Bremen to the question of whether to enforce a forum selection clause through dismissal." Union Electric Co., 689 F.3d at 973 (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)). "Forum selection clauses areprima facie valid and are enforced unless they are unjust or unreasonable or invalid." M.B. Restaurants, Inc. v. CKE Restaurants, Inc., 183 F.3d 750 (8th Cir. 1999) (citing Bremen). When "the forum selection clause is the fruit of an arm's-length negotiation, the party challenging the clause bears an especially 'heavy burden of proof' to avoid its bargain." Servewell Plumbing, LLC v. Federal Ins. Co., 439 F.3d 786, 789 (8th Cir. 2006) (citing Bremen, 407 U.S. at 17). "While inconvenience to a party is an insufficient basis to defeat an otherwise enforceable forum selection clause, a party can avoid enforcement of the clause by showing that proceeding in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court." Union Electric Co., 689 F.3d at 974 (internal citations and quotations omitted). In the Eighth Circuit, the analysis under Bremen must also include consideration of the public policy of the forum state. Id. (citing Farmland Industries, Inc. v. Frazier-Parrott Commodities, Inc., 806 F.2d 848, 852 (8th Cir. 1986)). "A contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision." Bremen, 407 U.S. at 15.
Missouri law deems arbitration agreements in insurance contracts to be unenforceable and against public policy. The Missouri Arbitration Act provides:
A written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance or contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Contracts which warrant new homes against defects in construction and reinsurance contracts are not "contracts of insurance or contracts of adhesion" for purposes of the arbitration provisions of this section.
§ 435.350, Mo.Rev.Stat. (emphasis added).
After the dismissal order was entered in this case, the Missouri Court of Appeals issued a ruling in a case involving an insurance policy provision that designated California law as the governing law. Sturgeon v. Allied Professionals Ins. Co., 344 S.W.3d 205, 210 (Mo. Ct. App. 2011). The contract in that case also had a mandatory arbitration provision. The court of appeals "recognize[d] that generally parties may choose the state whose law will govern the interpretation of their contractual rights and duties." Id. Missouri courts will not honor the parties' choice of law, however, if doing so is contrary to a fundamental policy of Missouri. Id. And, the court stated, § 435.350 was an expression of Missouri's public policy by the legislature. Id. The court concluded that application of California law would be contrary to Missouri public policy because it would allow enforcement of the arbitration clause in the policy. Id. Thus, Sturgeon makes clear that it is against Missouri's public policy to enforce an insurance contract's (1) mandatory arbitration provision or (2) choice-of-law or forum-selection provision if doing so is likely to result in enforcement of an arbitration provision.
Defendant argues that the public policy concern does not apply to the insurance contract in this case. Initially, the defendant notes that the parties are both "large sophisticated parties with equal bargaining power." However, § 435.350 declares arbitration clauses in insurance contracts, other than reinsurance contracts, void and unenforceable. See Sturgeon 344 S.W.3d at 217 () (emphasis in original). Defendant's argument that the statute does not apply between parties of equal bargaining power would require the court to read into the statute an exception that does not appear there. See Rich v. Peters, 50 S.W.3d 814, 820 (Mo. Ct. App. 2001)( argument that statute referring to "all county officers" did not apply to county collectors as contrary to the statute's plain meaning).
Defendant describes itself as "a joint venture among utilities, structured as a mutual insurance company" and owned by the insureds. Def. Supp. Memo at 4 [Doc. #47]. The insurance contract was drafted by the member insureds, who decided it was in their collective best interest to select a common governing law, and agreed upon the law of New York. See policy § IV(I) (). Thus, defendant asserts, the parties' contract does not fall within the terms of § 435.350. Plaintiff correctly argues that these facts are irrelevant because, again, the court cannot read into the statute an exception for mutual insurance companies.
Defendant notes that plaintiff signed a renewal application in which it specifically warranted that it had "received and reviewed the mandatory Choice of Law and Arbitration provisions contained in the current policy and agrees to be bound by such mandatory provisions should a policy be issued." Def. Supp. Memo at 2 [Doc. #47]. In addition, plaintiff has elsewhere asserted that substantively identical arbitration clauses in insurance policies are enforceable. Defendant argues, with some justification, that plaintiff "cannot have it both ways." Id. at 3. However, as defendant concedes, parties cannot waive or change public policy by agreement. Id. at 14 and 15. See High Life Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493, 498 (Mo. 1992) (en banc) (). "Having enacted paternalistic legislation designed to protect those that could not otherwise protect themselves, the Missourilegislature would not want the protections of [a statute governing cancellation of franchises] to be waived by those deemed in need of protection." Id. (quoting Electrical and Magneto Service Co., Inc. v. AMBAC International Corp., 941 F.2d 660 (8th Cir. 1991)). Defendant has not cited any case to support its argument that plaintiff's self-serving inconsistencies somehow vitiate Missouri's public policy against enforcement of arbitration provisions in insurance contracts.2
The parties selected the United States District Court for the Southern District of New York as the proper forum for litigation and the law of New York as the governing law. As...
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