S Development Company et al v. Commercial Industrial Building Owners Alliance Incorporated et al

Filing 75

ORDER, Defendant Ironshore's Motion to Compel Arbitration and Stay Proceedings 59 is granted; directing the parties' to jointly file a status report on or before 5/29/14, and every 90 days thereafter, until the stay is lifted and/or the arbitration proceedings are resolved. Signed by Judge G Murray Snow on 2/27/14. (REW)

Download PDF
1 WO 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE DISTRICT OF ARIZONA 7 8 S Development Company dba Bell Tower Apartments; and Presidio North LP, No. CV-13-00911-PHX-GMS ORDER 9 Plaintiffs, 10 v. 11 Commercial Industrial Building Owners Alliance, Incorporated, a California corporation dba CIBA Insurance Services; Lexington Insurance Company, a Delaware corporation; Ironshore Insurance Limited, a foreign entity; Westchester Fire Insurance Company, a Pennsylvania corporation; Steadfast Insurance Company, a Delaware corporation; Endurance American Specialty Insurance Company, a New York corporation; Lancashire Insurance Company (UK) Limited, a foreign entity; Homeland Insurance Company of New York, a New York corporation; Landmark American Insurance Company, a Georgia company; et al, 12 13 14 15 16 17 18 19 20 Defendants. 21 22 Pending before the Court is Defendant Ironshore Insurance Ltd.’s Motion to 23 Compel Arbitration and Stay Proceedings. (Doc. 59.) For the following reasons, the 24 Motion is granted. 25 BACKGROUND 26 Plaintiffs S Development Company, d/b/a Bell Tower Apartments, and Presidio 27 North L.P. (collectively “Plaintiffs”) own apartment buildings in Phoenix, Arizona. (Doc. 28 1, ¶¶ 1–2.) These properties include the Presidio North Apartments and the Bell Tower 1 Apartments. In 2006, Plaintiffs joined Defendant Commercial Industrial Building Owners 2 Alliance, Incorporated, d/b/a CIBA Insurance Services (“CIBA”), a California-based 3 insurance purchasing group that negotiates with insurance companies to issue property 4 and liability insurance policies to similarly-situated entities. (Id. at ¶¶ 18, 21; Doc. 70 at 5 2–3.) CIBA procures insurance for the members of the purchasing group from a number 6 of insurance companies. The named insured under the policies is CIBA and any associate 7 of CIBA to whom evidence or a certificate of insurance has been issued. While CIBA 8 itself issues Evidences of Insurance for the insured, the actual insurance policies are 9 provided by the various insurance companies, each covering a certain percentage of the 10 insured’s liability. (Doc. 66-1 at 1; Doc. 70 at 3.) 11 On March 4, 2008, CIBA issued Evidences of Property Insurance to Plaintiffs for 12 coverage effective March 31, 2008 through March 31, 2009. (Doc. 66, Ex. 4.) The 13 coverage for this time period was provided by a number of insurers that included 14 Defendant Ironshore Insurance Ltd. (“Ironshore”), a Bermuda-based foreign insurer. On 15 March 28, 2008, Ironshore issued a binding slip for its policy. (Doc. 70-2.) This slip 16 included the terms of its policy, including both a New York choice of law provision and 17 an arbitration clause. (Id. at 5.) On August 14, 2008, Ironshore executed the final version 18 of the policy at issue in this Motion, featuring the same terms as appeared in the slip 19 policy. (Doc. 70 at 3.) The policy provided 12.5% of a $30,000,000 excess liability 20 policy, effective between March 31, 2008 and March 31, 2009. (Id.) As with any of the 21 policies purchased by CIBA, the named insured on the Ironshore policy is CIBA itself 22 and any CIBA associates who were issued an evidence or certificate of insurance. (Id.) 23 The policy provides retroactive coverage beginning on March 31, 2008, and features both 24 a New York choice of law provision and an arbitration clause. (Id.) 25 On or about May 2008 to November 2008, Plaintiffs discovered termite damage at 26 the Presidio North Apartments. (Doc. 1, ¶ 34.) On or about November 2008, Plaintiffs 27 tendered a claim for this damage to Defendants. (Id., ¶ 36.) On or about November 2008, 28 Plaintiffs discovered termite damage at the Bell Tower Apartments and timely tendered a -2- 1 claim for that damage to Defendants. (Id., ¶¶ 53, 55.) 2 Plaintiffs filed the present action and their amended complaint in Maricopa 3 County Superior Court against CIBA, Ironshore, and the other insurance companies, 4 seeking declaratory relief and alleging breach of contract and breach of the implied 5 covenant of good faith and fair dealing. (Doc. 1 at 15–28.) Two of the Defendants 6 removed the action to this Court. (Id. at 1–7.) Defendant Ironshore now moves to stay the 7 proceedings against them and compel arbitration, pursuant to the arbitration clause in the 8 Ironshore policy. (Doc. 59.) DISCUSSION 9 10 Ironshore asserts that this case, or at least the case against it, is governed by the 11 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 12 “Convention”) within the Federal Arbitration Act (“FAA”). 9 U.S.C. § 201 et seq. The 13 Convention governs “[a]n arbitration agreement or arbitral award arising out of a legal 14 relationship, whether contractual or not, which is considered as commercial.” 9 U.S.C. § 15 202. To determine whether to enforce an arbitration agreement under the Convention, a 16 court must address four factors. These factors “require that (1) there is an agreement in 17 writing within the meaning of the Convention; (2) the agreement provides for arbitration 18 in the territory of a signatory of the Convention; (3) the agreement arises out of a legal 19 relationship, whether contractual or not, which is considered commercial; and (4) a party 20 to the agreement is not an American citizen, or that the commercial relationship has some 21 reasonable relation with one or more foreign states.” Balen v. Holland Am. Line Inc., 583 22 F.3d 647, 654–55 (9th Cir. 2009) (quoting Bautista v. Star Cruises, 396 F.3d 1289, 1294– 23 95 (11th Cir. 2005)). Here, each of these four factors is met. The arbitration agreement is 24 in writing, it provides for arbitration in the United Kingdom, a signatory of the 25 Convention, it arises from a commercial legal arrangement, and Ironshore is not an 26 American citizen. 27 Plaintiffs do not address whether the agreement is governed by the Convention or 28 whether these four factors are met. Instead, Plaintiffs argue that the agreement should not -3- 1 be enforced because (1) they did not receive notice of the arbitration clause and thus did 2 not agree to be bound by it; (2) Arizona law prohibits Ironshore from enforcing the 3 clause; and (3) enforcement of the clause is unconscionable. The Court will address each 4 of these arguments in turn. 5 I. Whether the Clause is Unenforceable Due to Lack of Notice to Plaintiffs 6 First, Plaintiffs argue that the arbitration clause should not be enforced because 7 they did not receive notice of the clause and thus did not agree to be bound by it. They 8 note that the Evidences of Insurance they received for the March 31, 2008 to March 31, 9 2009 coverage period mentioned neither Ironshore nor the clause, that they attempted to 10 obtain copies of the CIBA insurance plans and were unable to do so, and that the 11 Ironshore policy was not formally executed until after the coverage period began. (Doc. 12 66 at 3–6.) None of these arguments are persuasive. 13 The Evidences of Insurance Plaintiffs received for the relevant coverage period do 14 not mention Ironshore or any of the other insurance policies actually providing the CIBA 15 coverage, but instead direct the insured to “[r]efer to CIBA master policies for complete 16 terms, conditions, limitations and exclusions.” (Doc. 66–5.) Plaintiffs claim they did not 17 realize that CIBA insurance included a number of policies instead of a single plan until 18 after they initiated this action. (Doc. 66 at 2.) However, Plaintiff offers no explanation 19 why it should not be bound by CIBA’s knowledge in the purchase of the policies that 20 provided its total coverage package. To the extent that CIBA created Plaintiff’s coverage 21 by contracting with various insurers, Plaintiff is not now entitled to claim that because, as 22 CIBA’s associate, it was not familiar with the nuance of each policy that CIBA procured, 23 it is entitled to claim the coverage of each policy without being subject to the provisions 24 pursuant to which that coverage is offered. Similarly, Plaintiffs describe their difficulty 25 obtaining copies of the master insurance policies through their insurance agent and 26 CIBA, but they do not allege they actually requested any information from Ironshore or 27 suggest how CIBA and the insurance agent’s failure can or should be imputed to 28 Ironshore. -4- 1 Further, while Ironshore’s policy was not formally executed until August 14, 2 2008, after the relevant coverage period had begun on March 31, 2008, the policy was 3 executed before the Plaintiffs discovered the loss and filed the claims at issue in this case 4 in November 2008. It is also uncontested that Ironshore executed its slip policy before the 5 coverage period began and that the slip policy contained the arbitration clause and would 6 have provided coverage had there been a covered event prior to the issuance of the formal 7 policy. Thus, the Court finds that the Ironshore policy and its arbitration clause were in 8 effect prior to the loss.1 9 II. Whether Enforcement of the Clause is Barred by Arizona Law 10 Next, Plaintiffs suggest that enforcement of the clause would violate Arizona law. 11 Plaintiffs first suggest that enforcement is barred by Ariz. Rev. Stat. § 20-402 because 12 Ironshore was not authorized to issue insurance in Arizona during the relevant period of 13 coverage. However, Ironshore is plainly excluded from the prohibition in that statute, 14 which states that “[t]he transaction of business in violation of [the statute] by an insurer 15 does not impair the validity of any contract of the insurer and does not prevent the insurer 16 from defending any action at law or suit in equity in any court of the state.” Ariz. Rev. 17 Stat. § 20-402. Here, Plaintiffs brought this action against Ironshore and Ironshore is 18 defending itself in that action, as is permitted by the statute. 19 Next, Plaintiffs allege that Ironshore’s New York choice of law provision is void 20 as it violates Ariz. Rev. Stat. § 20-115, which states that “no policy delivered or issued 21 for delivery in this state” and covering a subject located in the state shall be subject to a 22 condition requiring the application of the law of any other state. Ariz. Rev. Stat. § 20- 23 115(A). Here, the policy was delivered and issued to CIBA in California. In the 24 alternative, were this section to void the choice of law provision, the statute specifies that 25 “such voidance shall not affect the validity of the other provisions of the policy.” Ariz. 26 1 27 28 Further, Plaintiffs may be estopped from arguing that they did not agree to the arbitration clause while seeking to enforce the Ironshore policy. Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1045–46 (9th Cir. 2009) (discussing when equitable estoppel may “preclude[] a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes”) (citations omitted). -5- 1 Rev. Stat. § 20-115(B). Thus, it would not impact the validity of the arbitration clause. 2 Additionally, Plaintiffs contend that enforcement of the choice of law and 3 arbitration clauses would violate their reasonable expectations. The doctrine of 4 reasonable expectations can bar enforcement of a term in a standardized insurance 5 contract in a limited set of circumstances. Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 6 266, 272, 742 P.2d 277, 283 (1987). First, the doctrine may apply “[w]here the contract 7 terms, although not ambiguous to the court, cannot be understood by the reasonably 8 intelligent consumer who might check on his or her rights.” Id. Here, Plaintiffs do not 9 allege that the relevant contract terms are ambiguous. Second, the doctrine may apply 10 “[w]here the insured did not receive full and adequate notice of the term in question, and 11 the provision is either unusual or unexpected, or one that emasculates apparent 12 coverage.” Id. at 372. While Plaintiffs do allege that they did not receive full notice of the 13 terms, that assertion is rejected for the reasons set forth above. Further they do not 14 provide facts or authority to suggest that the provisions are unusual or significantly alter 15 coverage. Finally, reasonable expectations may apply when some activity that is 16 reasonably attributable to the insurer “would create an objective impression of coverage 17 in the mind of a reasonable insured” or “has induced a particular insured reasonably to 18 believe that he has coverage, although such coverage is expressly and unambiguously 19 denied by the policy.” Id. at 373. Plaintiffs allege no such activity. Therefore, the Court 20 finds that the reasonable expectations doctrine does not bar enforcement of the choice of 21 law and arbitration clauses. 22 III. Whether the Clause is Unconscionable 23 Lastly, Plaintiffs seem to allege that enforcement of the clause would be 24 unconscionable. They state that “compelling Plaintiffs to arbitrate this matter in London, 25 England would cause severe financial harm and be unduly oppressive.” (Doc. 66 at 9.) 26 Plaintiffs also filed an affidavit from their President Pat Simone, which states that “[i]f 27 [Plaintiffs] were required to arbitrate their claims against Ironshore in London, England it 28 would cause severe financial harm.” (Doc. 67 ¶ 19.) When “a party seeks to invalidate an -6- 1 arbitration agreement on the ground that arbitration would be prohibitively expensive, 2 that party bears the burden of showing the likelihood of incurring such costs.” Green 3 Tree Fin. Corp. Alabama v. Randolph, 531 U.S. 79, 92 (2000). Here, Plaintiffs provide 4 no such evidence, and instead offer only the conclusory statement that arbitration in 5 England would be prohibitively expensive. This is insufficient to bar enforcement of the 6 clause. Therefore, 7 8 IT IS ORDERED that Defendant Ironshore’s Motion to Compel Arbitration and Stay Proceedings (Doc. 59) is granted. 9 IT IS FURTHER ORDERED directing the parties’ to jointly file a status report 10 on or before May 29, 2014, and every 90 days thereafter, until the stay is lifted and/or 11 the arbitration proceedings are resolved. 12 Dated this 27th day of February, 2014. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7-

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?