Wash. Cities Ins. Auth. v. Ironshore Indem., Inc.

• Decision Date: 06 March 2020
• Docket Number: No. 2:19-cv-0054-RAJ,2:19-cv-0054-RAJ
• Citation: Wash. Cities Ins. Auth. v. Ironshore Indem., Inc., 443 F.Supp.3d 1218 (W.D. Wash. 2020)
• Parties: WASHINGTON CITIES INSURANCE AUTHORITY, Plaintiff, v. IRONSHORE INDEMNITY, INC., Defendant.
• Court: U.S. District Court — Western District of Washington

443 F.Supp.3d 1218

WASHINGTON CITIES INSURANCE AUTHORITY, Plaintiff,

v.IRONSHORE INDEMNITY, INC., Defendant.

No. 2:19-cv-0054-RAJ

United States District Court, W.D. Washington, At Seattle.

Signed March 6, 2020

Brent W Beecher, J William Ashbaugh, HACKETT BEECHER & HART, Franklin Dennis Cordell, Miles C Bludorn, Gordon Tilden Thomas & Cordell LLP, Seattle, WA, for Plaintiff.

Galina Kletser Jakobson, Matthew S Adams, Forsberg & Umlauf, Seattle, WA, William C Morison, Morison & Prough LLP, Walnut Creek, CA, for Defendant.

ORDER DENYING MOTION TO COMPEL ARBITRATION AND ESTABLISHING CHOICE OF LAW AND ARBITRATION PROVISIONS AS VOID

The Honorable Richard A. Jones, United States District Judge

This matter is before the Court on Defendant's motion to compel arbitration(Dkt. # 20) and Plaintiff's motion to establish the choice of law and arbitration provisions as void.(Dkt. # 17).For the following reasons, Defendant's motion to compel is DENIED.Dkt # 20.Plaintiff's motion is GRANTED.Dkt. # 17.

I.BACKGROUND

Plaintiff Washington Cities Insurance Authority ("WCIA"), is "an association of Washington public entities organized under and authorized by RCW § 48.62 for the purpose of jointly self-insuring risks, jointly purchasing insurance or reinsurance, and contracting for joint risk management, claims and administrative services."Dkt. #1 at ¶ 1.1.WCIA alleges that it entered into a contract with Defendant Ironshore Indemnity ("Ironshore"), whereby Ironshore agreed to provide reinsurance up to $10 million "per occurrence" for losses exceeding WCIA's $4 million self-insured layer limit.Dkt. #1 at ¶ 3.3.The Agreement includes an arbitration provision which states, in part: "Any and all disputes or differences arising out of this Agreement, including its formation and validity, shall be submitted to binding arbitration."Dkt. # 19at 9.The Agreement also includes a New York choice of law provision.Id.

The underlying claim at issue in this case arises from a 2018 settlement related to a separate police misconduct lawsuit.Dkt. # 17at 3.According to WCIA, the settlement fell within Ironshore's reinsurance policy but Ironshore refused to pay.Id.Ironshore's denial of coverage is the basis for Plaintiff's suit.Dkt. # 1.The parties also dispute the applicability of the arbitration and choice of law provisions in the Agreement.WCIA moves to void the provisions as prohibited under Washington law.Dkt. # 17.Ironshore separately moves to compel arbitration.Dkt. # 20.¹

II.LEGAL STANDARD

Because the Federal Arbitration Act("FAA") requires courts to "direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed, the FAA limits court involvement to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue."Cox v. Ocean View Hotel Corp. , 533 F.3d 1114, 1119(9th Cir.2008)(internal quotations omitted).

The party opposing arbitration bears the burden of showing that the agreement is not enforceable.SeeGreen Tree Fin. Corp. v. Randolph , 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373(2000);Rodriguez de Quijas v. Shearson/American Exp., Inc. , 490 U.S. 477, 483, 109 S.Ct. 1917, 104 L.Ed.2d 526(1989).

"The FAA limits the district court's role to determining whether a valid arbitration agreement exists, and whether the agreement encompasses the disputes at issue."Nguyen v. Barnes & Noble Inc. , 763 F.3d 1171, 1175(9th Cir.2014)(internal citation omitted).To determine "whether a valid arbitration agreement exists, federal courts‘apply ordinary state-law principles that govern the formation of contracts.’ "Id.(quotingFirst Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985(1995) ).In determining whether an arbitration agreement encompasses the dispute at issue, district courts must be mindful that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."AT & T Technologies, Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L.Ed.2d 648(1986).Any doubts as to the scope of an arbitration agreement should be resolved in favor of arbitrability.Simula v. Autoliv , 175 F.3d 716, 721(9th Cir.1999).

III.DISCUSSION

At issue in this case is Washington's prohibition on the use of arbitration and choice of law provisions in insurance contracts.Washington law bars the enforcement of binding arbitration clauses in insurance contracts.SeeState, Dep't of Transp. v. James River Ins. Co., 176 Wash. 2d 390, 399, 292 P.3d 118(2013)(interpretingRCW 48.18.200(1)(b) ).Although the FAA would normally preempt a conflicting state law under the Supremacy Clause, the McCarran-Ferguson Act creates a system of "reverse-preemption" for insurance law.SeeUnited States Dep't of Treasury v. Fabe , 508 U.S. 491, 501, 113 S.Ct. 2202, 124 L.Ed.2d 449(1993).Under McCarran-Ferguson, "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance...unless such Act specifically relates to the business of insurance."15 U.S.C. § 1012(b).Multiple courts have held, and the parties do not appear to dispute, that under the McCarran-Ferguson Act, RCW 48.18.200 preempts Chapter I of the FAA.SeeJames River , 176 Wash. 2d at 402, 292 P.3d 118;Landmark Am. Ins. Co. v. QBE Ins. Corp. , No. C15-1444 RSM, 2015 WL 12631550, at *6(W.D. Wash.Dec. 9, 2015).

WCIA argues that the arbitration and choice of law provisions in the Agreement violate Washington's arbitration exclusion, rendering them void.Ironshore contends that the Agreement is not an "insurance" agreement under RCW § 48.01.040 and thus not subject to the anti-arbitration provision.In addition, Ironshore argues that a separate provision regulating the purchase of coverage by joint self-insurance programs, preempts the anti-arbitration prohibition, rendering the parties' arbitration and choice of law provisions permissible.Dkt. # 20at 11-12.

There are two key questions that the Court must answer in this case: (1) does "reinsurance" qualify as "insurance" and (2) does the anti-arbitration provision in RCW § 48.18.200 apply to reinsurance agreements where the reinsurance coverage is purchased by a joint self-insurance program.The answer to both questions is yes.

A. Reinsurance is Insurance under RCW § 48.01.040

Ironshore argues that Washington's arbitration exclusion does not apply to reinsurance contracts because reinsurance is not insurance as defined under Washington law.The Court is unpersuaded.RCW § 48.01.040 defines insurance as "a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies."This is consistent with the Agreement's description of coverage which provides, in relevant part: "The Reinsurer agrees to indemnify the Company, on an excess of loss basis, for Ultimate Net Loss paid by the Company as a result of losses occurring under the Company's Coverage Forms underwritten by the Company and covered by this Agreement."Dkt. # 19at 7.The Court finds no basis to support Ironshore's claim that the Agreement does not fall within the RCW § 48.01.040 definition of insurance.²

In addition, nothing in the plain text of the statute expressly excludes reinsurance.RCW § 48.18.200 provides, in relevant part:

(1) No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, shall contain any condition, stipulation, or agreement

(a) equiring it to be construed according to the laws of any other state or country except as necessary to meet the requirements of the motor vehicle financial responsibility laws of such other state or country; or

(b) depriving the courts of this state of the jurisdiction of action against the insurer;...

(2) Any such condition, stipulation, or agreement in violation of this section shall be void, but such voiding shall not affect the validity of the other provisions of the contract.

Instead, the only types of insurance explicitly exempted from this chapter are "ocean marine and foreign trade insurances."RCW 48.18.010("This chapter applies to insurances other than ocean marine and foreign trade insurance.").

This is particularly relevant because in other chapters the legislaturedid expressly carve out reinsurance.See, e.g. , RCW 48.20.002("Nothing in this chapter shall apply to or affect...any policy or contract of reinsurance");RCW 48.23.420(" RCW 48.23.420 through 48.23.520 do not apply to any reinsurance...");RCW 48.19.010("Except as is otherwise expressly provided the provisions of this chapter apply to all insurances...except...Reinsurance...").When interpreting a statutory provision, courts must give effect to the plain meaning of the statute within the context of the act as a whole.

Jametsky v. Olsen , 179 Wash.2d 756, 762, 317 P.3d 1003(2014)(quotingDep't of Ecology v. Campbell & Gwinn, LLC , 146 Wash.2d 1, 11, 43 P.3d 4(2002) ).Within this framework, the Court concludes that reinsurance is not excluded under RCW 48.18.200.

B.The Agreement's Arbitration and Choice of Law Provisions

Ironshore next argues that even if RCW 48.18.200 does apply to reinsurance contracts, the parties' Agreement is still explicitly carved out in Chapter 48.62, a separate, more specific, chapter governing the purchase of reinsurance coverage by local government joint insurance programs.

Dkt. # 20at 11-12.RCW 48.62.011 provides, in relevant part:

This chapter is intended to provide the exclusive source of local government entity authority to individually or jointly self-insure risks, jointly purchase insurance or reinsurance, and to contract for risk management, claims, and administrative services.This chapter shall be liberally construed to grant local government

...