Court enforces international arbitration provision in marine insurance policy

Milad Emam and Jason P Minkin of Chicago-based lawyers Bates Carey have reported that a US federal district court recently granted a motion to compel arbitration based on a marine-insurance policy’s provision requiring that insurance disputes be referred to London for arbitration.

(Malin v. Osprey Underwriting Agency Ltd., 3-20-CV-00119-JWS, 2022 WL 960456 (D. Alaska Mar. 30, 2022).)

In so holding, the court rejected arguments that a service-of-suit clause in the policy rendered the arbitration provision ambiguous and that enforcing the arbitration provision would be against public policy.

The dispute arose from an underlying lawsuit alleging that the captain of a vessel assaulted crewmembers aboard. The crewmembers filed suit against the vessel owner, captain, and others under the Jones Act – asserting claims for negligence and intentional tortious acts – as well as a claim under general maritime law for payment of maintenance and cure benefits.

While the vessel owner’s London-based marine insurer refused to defend or indemnify the action, the underlying parties settled the case and the underlying defendants assigned their insurance claims to the plaintiff crewmembers.

In the ensuing coverage action in the US District Court for the District of Alaska, the crewmembers filed suit against the vessel owner’s maritime insurers, alleging breach of contract and bad faith based on the denial of coverage for the underlying lawsuit.

The insurers moved to dismiss or stay this coverage action and to compel arbitration in London. Their arbitration provision provided that, “[n]otwithstanding anything else to the contrary, this insurance is subject to English law and practice and any dispute under or in connection with this insurance is to be referred to Arbitration in London” and “[i]n the event of a conflict between this clause and any other provision of this insurance, this clause shall prevail and the right of either part to commence proceedings before any Court or Tribunal in any other jurisdiction shall be limited to the process of enforcement of any award hereunder.”

Based on this provision, the court granted the insurers’ motion. According to the court, under their international agreement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”), there were four prerequisites to compelling arbitration:

  • there must be an agreement to arbitrate in writing;
  • the agreement must provide for arbitration in the territory of a signatory of the Convention;
  • the agreement must arise out of legal relationship which is considered commercial; and
  • one of the parties to the agreement must not be a US citizen, or the commercial relationship underpinning the agreement must have some reasonable relation with a foreign state.

The court held that all four prerequisites were satisfied, compelling arbitration under the Convention.

While the plaintiffs did not contest that the latter three prerequisites were satisfied, they argued that there was not an adequate agreement to arbitrate, because the service-of-suit clause rendered the arbitration provision ambiguous and because the provision was against public policy.

The court rejected the plaintiffs’ argument that the service-of-suit clause rendered the arbitration provision unenforceable. Under the service-of-suit clause, the insurers were required to “submit to the jurisdiction of a court of competent jurisdiction within the United States of America” at the insured’s request.

According to the court this clause did not vitiate the policy’s arbitration provision because, “[b]y its own terms, this provision prevails over any allegedly conflicting terms.” Reading these provisions together, the court held that the service-of-suit clause simply afforded a means for compelling arbitration or enforcing an arbitration award in an American court.

The court also noted that, under the policy’s separate choice-of-law provision, “dispute[s] concerning the interpretation of this Policy shall be governed by the Law and Jurisdiction of England and Wales in accordance with the [arbitration provision].”

Finally, the court maintained that, even if the service-of-suit clause did create an ambiguity, ambiguities should be resolved in favour of arbitration. Accordingly, the court rejected plaintiffs’ argument based on the service-of-suit clause.

The court also rejected the plaintiffs’ argument that public policy considerations rendered the arbitration provision unenforceable. The plaintiffs argued that the application of English law in an English forum would violate public policy by depriving them of their bad faith claim and remedies, as well as their underlying statutory rights. The court stated that, because the plaintiffs’ coverage action raised claims for breach of contract and bad faith, they did not face the risk of foregoing a statutory claim and its remedies. Also, in the court’s view, issues of public policy would be implicated only where foreign policy “foreclosed the possibility of any relief whatsoever and thus any opportunity for subsequent review.”

The court found that, even if statutory remedies were implicated here, plaintiffs’ contractual claims afforded the “possibility of relief and subsequent court review.” Accordingly, given that no “statutory right [wa]s threatened to be nullified,” the court held that “less favourable remedies or reduced defences” in English arbitration were not adequate justifications for disregarding an arbitration requirement. Likewise, while plaintiffs also invoked “Alaska’s interest in this case and the convenience of resolving this dispute in Alaska” as public-policy considerations, the court deemed these considerations to be inadequate bases for allowing plaintiffs’ coverage action to proceed in Alaska. As such, the court dismissed plaintiffs’ coverage action and granted the insurers’ motion to compel arbitration in London.

https://www.batescarey.com/blog/court-enforces-international-arbitration-provision-in-marine-insurance-policy/