Alabama Municipal Insurance Corporation v. Munich Reinsurance America, Inc.

Filing 33

MEMORANDUM OPINION AND ORDER: For the reasons stated herein, it is hereby ORDERED as follows: 1. AMICs Motion to Stay Pending Arbitration (Doc. # 20 ) is GRANTED and this case is ORDERED stayed pending arbitration of AMICs claim. 2. The Plaintiff must submit its claim against Munich to arbitration in accordance with the terms of the arbitration agreement. 3. The parties are to file a status report with the court within 10 days of when the arbitration has concluded. Signed by Honorable Judge W. Harold Albritton, III on 9/7/2017. (kh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
ALABAMA MUNICIPAL INSURANCE
CORPORATION, a non-profit corporation,
Plaintiff,
v.
MUNICH REINSURANCE AMERICA,
INC., a foreign corporation,
Defendant.

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Case No.: 2:16-cv-948-WHA-SRW
(WO)

MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This cause is before the court on a Motion to Stay Pending Arbitration filed by the Plaintiff
Alabama Municipal Insurance Corporation (“AMIC”) (Doc. # 20).
AMIC filed a Complaint on December 7, 2016, bringing a claim against Munich
Reinsurance America, Inc. (“Munich”) for breach of a reinsurance contract, Casualty Excess of
Loss Reinsurance Agreement No. 1236-0018. On April 18, 2017, AMIC filed an Amended
Complaint which again asserted one claim for breach of contract, but this time identifying the
breached contract as Casualty Excess of Loss Reinsurance Agreement No. 1236-0013, which was
endorsed by Endorsement No. 1236-0009-E003 (Doc. # 18).
On May 17, 2017, AMIC filed a Motion to Stay Pending Arbitration, which the court has
construed as a motion to compel arbitration. (Doc. # 20). Munich opposes arbitration. For the
reasons that follow, the court concludes AMIC’s claim in its Amended Complaint is due to be
compelled to arbitration.
II. STANDARD FOR A MOTION TO COMPEL ARBITRATION

Pursuant to the Federal Arbitration Act (“FAA”), a written arbitration “provision in
any . . . contract evidencing a transaction involving commerce . . . [is] valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. When a party to an enforceable arbitration agreement fails to arbitrate a dispute that
falls within the scope of an agreement containing an arbitration clause, the aggrieved party may
petition the court “for an order directing that such arbitration proceed.” 9 U.S.C. § 4. If the court
is “satisfied that the making of the agreement for arbitration or the failure to comply therewith is
not in issue,” the court is required to “make an order directing the parties to proceed to arbitration
in accordance with the terms of the agreement.” Id. If, however, “the making of the arbitration
agreement” is a disputed issue, the court must first adjudicate whether the agreement is enforceable
against the parties. See Bess v. Check Express, 294 F.3d 1298, 1304 (11th Cir. 2002).
III. FACTS
AMIC is a non-profit entity with its principal place of business in Montgomery, Alabama.
AMIC continuously insured the City of Gulf Shores, Alabama from May 1, 2002 to October 31,
2015. During that time, AMIC was reinsured by Munich, a New Jersey corporation. Over the
course of that thirteen (13) year period, the parties entered into a series of reinsurance agreements;
one per year, except for the first agreement, which covered the first two years; which sought to
reinsure AMIC for a variety of lines of business liabilities.
The first two reinsurance agreements between Munich and AMIC, including Agreements
No. 1236-0009 and No. 1236-0013, covered claims made to AMIC for occurrences happening
between May 2002 and May 2005. Agreement No. 1236-0013 covered claims between May 2004
and May 2005 for only the Law Enforcement Liability (LEL), Public Officials Liability (POL),
and Employees’ Benefits Liability (EBL) lines of business. Endorsement Agreement No. 1236-

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0009-E003, which operated between May 2004 and May 2005, covered additional lines of
business.
In addition, the first two agreements, Agreements No. 1236-0009 and No. 1236-0013,
contained an arbitration clause, stating, in relevant part:
As a condition precedent to any right to action hereunder, any
dispute arising out of this Agreement shall be submitted to the
decision of a board of arbitration composed of two arbitrators and
an umpire, meeting in Montgomery, Alabama unless otherwise
agreed.
(Doc. # 20-1, p. 17).
The City of Gulf Shores was sued by a group of fifty-five (55) plaintiffs due to “continued
and repeated exposure” to flooding caused by Gulf Shores’s undersized drain pipes. (Doc. # 18, p.
3, ¶ 9). AMIC settled all fifty-five (55) suits for $981,250 with expenses amounting to
$306,670.79, totaling $1,287,920.79.
AMIC paid the City of Gulf Shores on its policy for the first $350,000 and, pursuant to its
reinsurance agreements, submitted a claim for the remainder $937,920.79 to Munich. Munich,
however, only paid $587,920.79 of the total $937,920.79 request. Therefore, AMIC filed a
complaint in this court asserting a claim for breach of Agreement No. 1236-0018 against Munich
for the remaining $350,000 balance. (Doc. # 18).
Munich answered on January 2, 2017 (Doc. # 5), denying liability under Agreement No.
1236-0018 and stating that Agreement No. 1236-0009, endorsed by Agreement No. 1236-0009E003 applied to AMIC’s claims.
After the parties submitted their Rule 26(f) planning meeting report and a Uniform
Scheduling Order was entered by the court, AMIC filed a Motion for Leave to Amend its
Complaint (Doc. # 13). AMIC sought to assert a claim for breach of Agreement No. 1236-0013,

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endorsed by Agreement No. 1236-0009-E003. Munich did not oppose the amendment. (Doc. #
16). The court granted AMIC’s Motion (Doc. # 17), and on April 18, 2017, AMIC filed its
Amended Complaint (Doc. # 18).
Munich answered the Amended Complaint on May 2, 2017 (Doc. # 19).
After filing its Amended Complaint, AMIC noticed the depositions of two Munich
employees (Docs. # 23-4, 23-5).
On May 17, 2017, AMIC filed a Motion to Stay Pending Arbitration under Agreement No.
1236-0013, endorsed by Agreement No. 1236-0009-E003 (Doc. # 20). Munich responded (Doc. #
23) and AMIC replied (Doc. # 26).
Later, on June 22 and 23, 2017, AMIC took the previously noticed depositions of Munich’s
employees. Afterwards, Munich filed an additional Reply to Plaintiff’s Response in Support of its
Motion to Stay Pending Arbitration (Doc. # 29), and AMIC replied (Doc. # 32).
IV. DISCUSSION
In seeking arbitration, AMIC contends that the claim for breach of a contract is subject to
the arbitration clause within that contract, whereas in opposing arbitration, Munich agrees that a
written agreement to arbitrate exists, but contends that the claim brought in this case is not
arbitrable and that the right to arbitrate was waived by AMIC. The court addresses each of these
contentions.
A. Arbitrability of AMIC’s Claim
Whether a claim is subject to arbitration is a matter of contract law. See AT & T Techs.,
Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986). The court must decide the scope of
the arbitration agreement, that is, whether claims are arbitrable, and, if it finds that the claims are
arbitrable under the agreement, it is for the arbitrator to decide the merits of those claims. See Klay

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v. United Healthgroup, Inc., 376 F.3d 1092, 1109 (11th Cir. 2004). In other words, a court must
decide whether “a particular dispute falls within the scope of an arbitration clause,” and an
arbitrator decides “disputes over whether a particular claim may be successfully litigated anywhere
at all (due to concerns such as statute of limitations, laches, justiciability, etc.), or has any
substantive merit whatsoever.” Id. “Whether a claim falls within the scope of an arbitration
agreement turns on the factual allegations of the complaint.” Gregory v. Electro-Mechanical
Corp., 83 F.3d 382, 384 (11th Cir. 1996). “In analyzing the scope of an arbitration clause, [courts
consider] how the factual allegations in the complaint match up with the causes of action asserted
and measure that against the language of the arbitration clause.” Doe v. Princess Cruise Lines,
Ltd., 657 F.3d 1204, 1221 n.13 (11th Cir. 2011).
Munich argues that AMIC’s claim in this case is not subject to arbitration because the
agreement AMIC has sued under is inapplicable to AMIC’s claims. This argument is based on
Munich’s interpretation of the insurance contracts between the parties. Munich argues that
AMIC’s claim for coverage is not governed by the arbitration clause of Agreement No. 1236-0013,
on which AMIC relies, because the losses AMIC suffered did not occur within the coverage period
for that agreement, but instead occurred during the coverage period for a different agreement which
lacks an arbitration clause.
In its Reply, AMIC states that reinsurance Agreement No. 1236-0013 contains an
arbitration agreement and the only claim brought in this case is for breach of Agreement No. 12360013, endorsed by Agreement No. 0009-E003. Therefore, AMIC argues, the issue of whether
Munich breached Agreement No. 1236-0013 should be decided by an arbitrator.
AMIC’s Amended Complaint states that Munich was required to pay AMIC for a loss
pursuant to reinsurance contract “ ‘Casualty Excess of Loss Reinsurance Agreement No. 1236-

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0013,’ which was endorsed by ‘Endorsement 1236-0009-E003.’” (Doc. # 18, p. 4, ¶ 16–17). The
copy of Agreement 1236-0013 which has been provided to the court contains an arbitration clause
which states, in relevant part, that “any dispute arising out of this Agreement shall be submitted to
the decision of a board of arbitration.” (Doc. # 20-1, p. 17). Whether Munich performed its
obligations under the agreement is a dispute “arising out of” that agreement. See Gregory, 83 F.3d
382 (ordering arbitration for all claims that “touch matters” covered by the agreement at issue).
Munich’s merit-based defenses are arguments to support a finding that AMIC cannot
receive an award for breach of Agreement 1236-0013 because there was no breach of that
agreement. Munich’s interpretation of the contracts, however, does not change the fact that when
AMIC amended its Complaint, AMIC pled only one claim, which is a claim for breach of a specific
contract which contains an arbitration clause. Accordingly, the only claim brought in this case,
that Munich breached Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003,
which contains an arbitration clause, is subject to arbitration.
B. Waiver of Right to Compel Arbitration
Munich argues that even if AMIC’s claim is covered by an arbitration agreement, AMIC
should not be allowed to seek arbitration because it has waived that right. See Morewitz v. W. of
Eng. Ship Owners Mut. Prot. & Indem. Ass’n, 62 F.3d 1356, 1365 (11th Cir. 1995) (stating
“[a]rbitration should not be compelled when the party who seeks to compel arbitration has waived
that right.”). A party has waived its right to arbitrate if, “ ‘under the totality of the circumstances,
the ... party has acted inconsistently with the arbitration right,’ and, in so acting, has in some way
prejudiced the other party.” S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514
(11th Cir. 1990)(citations omitted). Because there is a “federal policy favoring arbitration,” the
party arguing waiver has a heavy burden of proof. See Burch v. P.J. Cheese, Inc., 861 F.3d 1338,

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1352 (11th Cir. 2017)(citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983)).
Munich argues that AMIC waived its right to compel arbitration because it substantially
invoked the litigation process when AMIC (1) sued Munich in federal court, (2) participated in the
parties’ Rule 26(f) planning meeting, (3) prepared and served initial disclosures, (4) moved to file
deposition notices requesting depositions of Munich employees, and (5) deposed two of Munich’s
corporate employees. Of these identified events, only the notices of deposition and depositions
occurred after the Amended Complaint was filed.
This case is somewhat unusual in that the party seeking arbitration is the party which
originally filed the case. However, the Complaint originally filed in this case brought a claim for
breach of a contract which did not contain an arbitration agrement. It was not until AMIC filed its
Amended Complaint that AMIC contended that Munich had breached a contract which contained
an arbitration clause.
Under facts presenting the opposite scenario, that is, where a defendant sought to compel
arbitration after a plaintiff amended its complaint, the Eleventh Circuit reasoned that “when a
plaintiff files an amended pleading that unexpectedly changes the shape of the case, the case may
be ‘so alter[ed] ... that the [defendant] should be relieved from its waiver.’” Krinsk v. SunTrust
Banks, Inc., 654 F.3d 1194, 1203 (11th Cir. 2011). While Munich argues that no new claim has
been asserted, it appears to the court that actions which AMIC took toward litigation before its
Amended Complaint should not be considered waiver of the right to seek arbitration because it
was not until AMIC filed the Amended Complaint that it alleged breach of a contract which
contained an arbitration clause. In other words, the scope of the case changed because arbitration
only became relevant once the Amended Complaint was filed.

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The actions which occurred after AMIC filed its Amended Complaint also do not appear
to this court to be sufficient to establish waiver because those actions, including depositions,
occurred while AMIC was bound by a Uniform Scheduling Order which the court had entered
before AMIC sought arbitration. Cf. Burch, 861 F.3d at 1351 (stating that a party's “orderly
participation in [a] lawsuit,” after a district court decides to delay a final ruling on a determination
on arbitrability is not inconsistent with the party's right to arbitrate.”).
Furthermore, the Eleventh Circuit requires more participation in the litigation process to
evince an intent inconsistent with the right to arbitrate. See, e.g., Garcia v. Wachovia Corp., 699
F.3d 1273, 1278 (11th Cir. 2012) (finding waiver where party conducted discovery for over a year,
including taking more than 15 depositions, serving and answering interrogatories, and producing
approximately 900,000 pages of documents); S.H. Contractors, Inc., 906 F.2d at 1514 (finding
waiver where parties had litigated for eight months, filed two substantive motions, and conducted
five depositions prior to making a demand for arbitration).
Even if the court found that AMIC had substantially participated in the litigation process,
Munich has failed to demonstrate that it was prejudiced. The Eleventh Circuit evaluates the
prejudice prong of the waiver analysis by “consider[ing] the length of the delay in demanding
arbitration and the expense incurred by [the] party [alleging prejudice] from participating in the
litigation process.” S.H. Contractors, Inc., 906 F.2d at 1514. “Prejudice has been found in
situations in which the party seeking arbitration allows the opposing party to undergo the types of
litigation expenses that arbitration was designed to alleviate.” Morewitz, 62 F.3d at 1366.
Munich argues that the present litigation has been ongoing since December 7, 2016, so
there was a five-month delay before AMIC sought arbitration, during which time Munich
expended significant time and resources. In an attempt to establish prejudice, Munich points to

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the following events undertaken by Munich: filing two Answers, responding to a show cause
order, attending a Rule 26(f) Parties’ Planning Meeting, jointly preparing and submitting a Rule
26(f) Parties’ Planning Meeting Report, preparing and filing a Rule 7.1 Corporate Disclosure
Statement, preparing and submitting Rule 26 Initial Disclosures and reviewing over 1,794
documents, making two Defendant employees available for depositions that lasted over a period
of two days in New Jersey, having counsel travel and prepare for the depositions, preparation of
depositions of two AMIC representatives, noticing a deposition, and preparing specialized requests
for documents.
AMIC responds that the period of time to be considered is the period between its Amended
Complaint and Motion to Stay, a delay of less than one month. AMIC also argues that Munich did
not incur expenses in this case that it would not have incurred if the case were sent to arbitration,
even considering the depositions, because this case would likely be governed by arbitration rules
which allow for depositions and other discovery. (Doc. #32 at p.5).
The Eleventh Circuit has found delays longer than the delay after the Amended Complaint
was filed in this case to be insufficient under the prejudice prong. See Benoay v. Prudential-Bache
Sec., Inc., 805 F.2d 1437, 1440 (11th Cir. 1986) (holding that a 10-week delay was insufficient).
Furthermore, many of the litigation events pointed to by Munich as being prejudicial occurred
before the Amended Complaint was filed and, therefore, do not establish prejudice. See id. (stating
“when a claim is not arbitrable at the time an action is commenced and a timely request has been
made, mere participation in discovery does not cause prejudice sufficient to constitute a waiver.”).
Moreover, even considering all of the litigation events pointed to by Munich, and even
assuming that they caused Munich to incur some expenses that arbitration was designed to
alleviate, Munich has not demonstrated the amount of its expenses or the hours spent on the

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litigation events. See Citibank, N.A. v. Stok & Assoc., P.A., 387 Fed. App’x. 921, 925 (11th Cir.
2010)(considering the fact that the defendant had not presented any evidence of “the amount of
money it spent or the number of hours it dedicated to conducting litigation-specific discovery and
preparing litigation-specific documents” in its determination that the defendant was not prejudiced
by the plaintiff’s conduct). While Munich states in brief that it has not produced deposition billing
records because they are privileged, although they could be produced in camera, Munich does not
provide even an estimate of the expenses incurred. See Grigsby & Assocs., Inc. v. M Sec. Inv., 635
F. App'x 728, 734 (11th Cir. 2015) (finding lack of evidence of prejudice and noting that “[e]ven
without the legal bills or other such records, Grigsby could have submitted an affidavit or other
evidence estimating his expenses, but he failed to do so.”). Therefore, the court finds that Munich
has not born its burden to prove prejudice.
In this case in which the parties engaged in litigation but then AMIC changed the scope of
its claim to include only a breach of a contract claim based on a contract which contained an
arbitration clause, and within one month of that filing sought to arbitrate its dispute, the facts
viewed from the totality of the circumstances do not support a finding that AMIC substantially
participated in the litigation process to a point inconsistent with an intent to arbitrate, or that
Munich has established that it was prejudiced. See Morewitz, 62 F.3d at 1366. AMIC has not
waived its right to compel arbitration.
V. CONCLUSION
For the reasons stated herein, it is hereby ORDERED as follows:
1. AMIC’s Motion to Stay Pending Arbitration (Doc. # 20) is GRANTED and this case
is ORDERED stayed pending arbitration of AMIC’s claim.

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2.

The Plaintiff must submit its claim against Munich to arbitration in accordance with
the terms of the arbitration agreement.

3. The parties are to file a status report with the court within 10 days of when the
arbitration has concluded.
Done this 7th day of September, 2017.
_/s/ W. Harold Albritton
W. HAROLD ALBRITTON
SENIOR UNITED STATES DISTRICT JUDGE

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