Polluted Water Analysis

Coverage disputes between insurance carriers and policyholders are ripe for resolution through arbitration.  ARIAS•U.S. is working on a project to create an arbitration pathway, including modified rules and requirements for certified arbitrators, for these types of disputes and others.  But unless the parties agree or the insurance contract contains an arbitration clause, the arbitration option is not available.

There are, however, a number of insurance policies written for industrial companies by the global insurance marketplace that contain arbitration clauses.  Where non-US insurers are involved and where a coverage dispute arises, can these non-US insurers compel arbitration?  That question was recently answered by a New Jersey federal court.

In Cornell-Dubilier Electronics, Inc. v. Allianz Versicherungs AG, No. 18-5947 (SDW)(SCM) (D. N.J. Feb. 6, 2019), a coverage dispute arose between a policyholder–a former subsidiary of a large global energy company–with Superfund liability for a site located in New Jersey and a set of non-US general liability insurers.  The policyholder brought suit in New Jersey state court and the insurers removed the case to New Jersey federal court where they moved to compel arbitration and stay the litigation.  The policies (or at least some of them) had an arbitration clause allowing arbitration of “any difference arising between the Insured and the Insurers with reference to this insurance” in New York.

In granting the motion to compel arbitration, the court noted the strong federal policy in favor of arbitration.  It laid out the requirements to compel arbitration under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention), and found that all four factors existed.  There was no dispute that a written agreement existed (the insurance contracts) and that the written agreement provided for arbitration in the territory of a signatory to the New York Convention (the US is a signatory and its participation is implemented by chapter 2 of the Federal Arbitration Act).  The court found that the written agreement was commercial in nature (insurance and reinsurance agreements, said the court, are commercial in nature) and the dispute is not entirely domestic (the non-US insurers were citizens of France and the United Kingdom).  Given that all four factors existed, under long-standing precedent, the court noted that it must order arbitration unless it determines that the agreement is null and void.  That it could not do.

The court rejected the policyholder’s argument that arbitration was inappropriate because the insurance companies challenged the policyholder’s claim for coverage.  The court stated that any question of whether any prerequisites to arbitration have been met is for the arbitrators to decide, not the court.  The court also rejected the argument that because not all insurers joined in the motion to compel arbitration that the motion could not be granted.  The court held that nothing in the arbitration provision required that all insurers join a single motion to compel arbitration.  Giving a silent nod to recent Supreme Court arbitration cases, the court stated that it would not read such a requirement into the contractual language.

This case is consistent with the overwhelming trend of enforcing arbitration provisions in insurance contracts (and other commercial contracts).