San Juan Construction, Inc. v. W/R/B Underwriting et al

Filing 41

ORDER: Defendants' Motion for Hearing 39 is DENIED. Defendants' Motion to Compel Arbitration and Stay Proceedings 18 is GRANTED; the instant action is hereby STAYED pending completion of the arbitration proceedings. SO ORDERED by Judge Christine M. Arguello on 5/9/2022. (sphil, )

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 21-cv-03317-CMA-SKC
SAN JUAN CONSTRUCTION, INC.,
Plaintiff,
v.
W.R, BERKLEY SYNDICATE MANAGEMENT LIMITED,
HELVETIA SWISS INSURANCE COMPANY,
GREAT LAKES INSURANCE SE,
ASPEN INSURANCE UK LTD, and
MAPFRE ESPANA, COMPANIA DE SEGUROS Y REASEGUROS, S.A.,
Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO COMPEL ARBITRATION AND
STAY PROCEEDINGS
This matter is before the Court on Defendants’ Motion to Compel Arbitration and
Stay Proceedings (Doc. # 18). The Court finds that oral argument would not materially
assist in resolving the Motion and therefore denies Defendants’ Motion for Hearing
(Doc. # 39). For the following reasons, the Court grants Defendants’ Motion to Compel
Arbitration and Stay Proceedings.
I.

BACKGROUND

This action arises from an insurance coverage dispute related to a claim for
losses associated with a construction project located at the U.S. Army Kwajalein Atoll,
U.S. Marshall Islands. (Doc. # 1 at ¶ 10.) Plaintiff San Juan Construction, Inc. is a

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Colorado corporation that was awarded a contract by the U.S. Army Corps of Engineers
to replace fuel storage tanks on Kwajalein. (Id. at ¶¶ 7, 13.) Plaintiff purchased a project
specific builders’ all risk policy, policy number B128417012W18 (the “Policy”) from
Defendants 1 (collectively, “Insurers”) with effective dates of coverage from November
11, 2018, to December 31, 2020. (Id. at ¶¶ 20–21.) The Policy contains the following
Mediation/Arbitration provision:
13. Mediation/Arbitration
a) Mediation
If any dispute or difference of whatsoever nature arises out of or in
connection with this Policy, including any question regarding its existence,
validity or termination (hereinafter referred to as Dispute) the parties
undertake that prior to a reference to arbitration in accordance with b)
below they will seek to have the Dispute resolved amicably by written
notice initiating that procedure.
All rights of he [sic] parties in respect of the Dispute are and shall remain
fully reserved and the entire mediation including all documents produced
or to which reference is made discussions and oral presentations shall be
strictly confidential to the parties and shall be conducted on the same
basis as ‘without prejudice’ negotiations, privileged, inadmissible not
subject to disclosure in any other proceedings whatsoever and shall not
constitute any waiver of privilege whether between the parties or between
either of them and a third party.
The mediation may be terminated should any party so wish by written
notice to the appointed mediator and to the other party to that effect.
Notice to terminate may be served at any time after the first meeting or
discussion has taken place in the mediation.
If the Dispute has not been resolved to the satisfaction of either party
within 90 days of service of the notice initiating mediation, or if either party
Defendants are W.R. Berkley Syndicate Management Limited, named in Plaintiff’s Complaint
as “W/R/B Underwriting, a W.R. Berkley Corporation,” Helvetia Swiss Insurance Company,
Great Lakes Insurance SE, named in Plaintiff’s Complaint as “Munich RE UK Services Limited,”
Aspen Insurance UK Ltd., and MAPFRE Global Risks. (Doc. # 18 at 1.)

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fails or refuses to participate in the mediation, or if either party serves
written notice terminating the mediation under this clause, then either
party may refer the Dispute to arbitration in accordance with b).
Unless the parties agree otherwise, the fees and expenses of the Mediator
and all other costs of the mediation shall be borne equally by the parties
and each party shall bear their own respective costs incurred in the
mediation regardless of the outcome of the mediation.
b) Arbitration
Subject to clause a), any Dispute shall be referred to an arbitrator
appointed by the parties in accordance with the statutory provisions in
force in the State of (Home State).
In the absence of any such statutory provisions, and unless the parties
agree upon a single arbitrator within thirty days of one receiving a written
request from the other for arbitration, the claimant shall appoint his
arbitrator and give written notice thereof to the respondent. Within thirty
days of receiving such notice, the respondent shall appoint his arbitrator
and give written notice thereof to the claimant, failing which, the claimant
may apply to the appoint or, hereinafter named, to nominate an arbitrator
on behalf of the respondent.
The arbitrator(s) shall have power to set all procedural rules for the
holding of the arbitration, and all costs of the arbitration shall be paid by
the parties and in the manner as directed by the arbitrator(s). The award
of the arbitrator(s) shall be given in writing, with reasons, and both parties
hereby agree to be bound by the award given in accordance with the
above provisions.
Where any difference is by this Condition to be referred to arbitration the
making of an Award shall be a condition precedent to any right of action
against the Insurers.
(Doc. # 1-1 at 33–34.) The Policy further provides that “[i]t is understood and agreed by
the Insured and the Insurers that any dispute between them concerning the
interpretation of this Policy shall be subject to the Laws of Colorado.” (Id. at 31.)
As a result of significant weather events, certain building materials were
damaged at the construction site at Kwajalein. (Doc. # 1 at ¶ 18.) Plaintiff submitted a
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claim to Insurers, which denied coverage on August 13, 2021. (Id. at ¶¶ 29, 36.) Plaintiff
initiated the instant lawsuit against Insurers on December 10, 2021. See generally (Id.)
In its Complaint, Plaintiff asserts causes of action for (1) breach of contract, (2) statutory
bad faith breach of insurance contract, (3) unreasonable delay or denial of benefits
pursuant to Colo. Rev. Stat. §§ 10-3-1115 and -1116, and (4) declaratory judgment.
(Doc. # 1.)
Insurers notified Plaintiff on February 22, 2022, that Insurers were invoking the
Mediation/Arbitration provision in the Policy in connection with all claims Plaintiff
asserted in this litigation. (Doc. # 18-1.) Insurers then filed the instant Motion to Compel
Arbitration and Stay Proceedings on February 25, 2022. (Doc. # 18.) Plaintiff filed its
Response in opposition (Doc. # 34), and Insurers followed with their Reply (Doc. # 36).
II.

LEGAL STANDARDS

The Supreme Court has “long recognized and enforced a ‘liberal federal policy
favoring arbitration agreements.’” Nat’l Am. Ins. Co. v. SCOR Reinsurance Co., 362
F.3d 1288, 1290 (10th Cir. 2004) (quoting Howsam v. Dean Witter Reynolds, Inc., 537
U.S. 79, 83 (2002)). However, the question of whether parties “have a valid arbitration
agreement at all” is a “gateway matter” that is presumptively for the courts to decide.
Bellman v. i3Carbon, LLC, 563 F. App’x 608, 611 (10th Cir. 2014) (unpublished)
(quoting Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 n.2 (2013)). “Whether an
agreement to arbitrate exists ‘is simply a matter of contract between the parties.’” Id.
(quoting Walker v. BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir. 2013)).
The Court applies ordinary state law principles that govern the formation of contracts to
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determine whether the parties have agreed to arbitrate a dispute. Walker, 733 F.3d at
1004. The Court must give due regard to both federal and Colorado policy favoring the
resolution of disputes through arbitration. See Volt Info. Scis., Inc. v. Bd. of Trs., 489
U.S. 468, 475–76 (1989) (“[I]n applying general state-law principles of contract
interpretation to the interpretation of an arbitration agreement within the scope of the
[Federal Arbitration Act (“FAA”)], due regard must be given to the federal policy favoring
arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in
favor of arbitration.”); J.A. Walker Co., Inc. v. Cambria Corp., 159 P.3d 126, 128 (Colo.
2007) (“Colorado law favors the resolution of disputes through arbitration.”).
Under Colorado law, a contract requires a “meeting of the minds.” Schulz v. City
of Longmont, Colo., 465 F.3d 433, 438 n. 8 (10th Cir. 2006). “Interpretation of a written
contract and the determination of whether a provision in the contract is ambiguous are
questions of law.” Dorman v. Petrol Aspen, Inc., 914 P.2d 909, 912 (Colo. 1996)
(internal quotation marks omitted). The mere fact that the parties differ on their
interpretations of a contract does not itself create an ambiguity. Fibreglas Fabricators,
Inc. v. Kylberg, 799 P.2d 371, 374 (Colo. 1990). In determining whether a contractual
provision is ambiguous, the Court examines the contractual language and construes it
“‘in harmony with the plain and generally accepted meaning of the words used,’ with
reference to all of the agreement’s provisions.” Dorman, 914 P.2d at 912 (quoting
Fibreglas Fabricators, Inc., 799 P.2d at 374). A provision is ambiguous if it is
susceptible to more than one interpretation. Id. Further, the Court should seek “to
harmonize and to give effect to all provisions so that none will be rendered
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meaningless.” Copper Mountain, Inc. v. Indus. Sys. Inc., 208 P.3d 692, 697 (Colo.
2009) (quoting Pepcol Mfg. v. Denver Union Corp., 687 P.2d 1310, 1313 (Colo. 1984)).
Where the parties dispute whether an arbitration agreement exists, the party
moving to compel arbitration bears a burden similar to what a movant for summary
judgment faces. Hancock v. Am. Tel. & Tel. Co., Inc., 701 F.3d 1248, 1261 (10th Cir.
2012). If the moving party carries this burden, the burden shifts to the non-moving party
to show a genuine issue of material fact about the formation of the agreement to
arbitrate. Id. Where, as in the instant case, there are no material disputes of fact, “it may
be permissible and efficient for a district court to decide the arbitration question as a
matter of law through motions practice and viewing the facts in the light most favorable
to the party opposing arbitration.” Howard v. Ferrellgas Partners, L.P., 748 F.3d 975,
977 (10th Cir. 2014).
III.

DISCUSSION

The parties dispute whether the Policy’s arbitration provision is mandatory or
permissive. Insurers argue that the Mediation/Arbitration provision, read in harmony with
the entire Policy, details a two-step alternative dispute resolution process whereby the
parties must first undertake mediation and then, if any dispute remains unresolved, the
parties must proceed to arbitration prior to any suit. (Doc. # 18 at 8–10.) Insurers also
aver that the arbitration provision does not allow a party to refuse to participate once
another party invokes arbitration. (Doc. # 36 at 4.) Finally, Insurers note that both
Colorado and federal policy favor arbitration, particularly when arbitration provisions,
like that in the Policy, broadly require the parties to arbitrate any dispute that “arises out
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of or in connection with the Policy.” (Doc. # 18 at 6–7.) Insurers thus request that the
Court compel arbitration and stay this proceeding pending the resolution of arbitration.
(Id. at 11.)
Plaintiff contends that language in the arbitration provision, particularly use of the
word “may” rather than “must” or “shall,” renders the provision permissive rather than
mandatory. (Doc. # 34 at 5.) Further, Plaintiff argues that if the Court finds the provision
to be ambiguous, the Court must resolve all ambiguities in Plaintiff’s favor as the
policyholder. (Id. at 10.) Finally, Plaintiff argues that it would be prejudiced by
mandatory arbitration because its “statutory bad faith claims could be severely limited”
by discovery limitations and potentially being unable to recover attorney fees. (Id. at 15.)
The Court agrees with Insurers that the arbitration provision is unambiguous and
mandatory. The Policy outlines a two-part alternative dispute resolution procedure: First,
“[i]f any dispute or difference of whatsoever nature arises out of or in connection with
this Policy, . . . the parties undertake that prior to a reference to arbitration . . . they will
seek to have the Dispute resolved” through mediation. (Doc. # 1-1 at 33.) The Policy
provides that “[t]he mediation may be terminated should any party so wish by written
notice to the appointed mediator and to the other party to that effect.” (Id.) The Policy
continues:
If the Dispute has not been resolved to the satisfaction of either party
within 90 days of service of the notice initiating mediation, or if either party
fails or refuses to participate in the mediation, or if either party serves
written notice terminating the mediation under this clause, then either
party may refer the Dispute to arbitration in accordance with b).

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(Id.) Clause b) of the Mediation/Arbitration provision then provides that “[s]ubject to
clause a), any Dispute shall be referred to an arbitrator.” (Id.) (emphasis added). After
outlining the procedures for arbitration, the Policy states that “both parties hereby agree
to be bound by the award given in accordance with the above provisions.” (Id. at 34.)
Finally, “[w]here any difference is by this Condition to be referred to arbitration the
making of an Award shall be a condition precedent to any right of action against the
Insurers.” (Id.) (emphasis added). Applying the legal principles of contract interpretation
above, the Court agrees with Insurers that this language unambiguously reflects the
intent of the parties (1) to first seek to resolve a dispute through mediation, and (2) if a
dispute remains unresolved after mediation is invoked, and a party wishes to pursue
resolution, the party may proceed to invoke arbitration. When a party invokes
arbitration, the dispute “shall be referred to an arbitrator,” the arbitration award will be
binding, and the making of an award “shall be a condition precedent to any right of
action.” (Id. at 33–34) (emphases added).
The Court finds unpersuasive Plaintiff’s attempts to construe the
Mediation/Arbitration provision as permissive rather than mandatory. Plaintiff argues
that the clause “either party may refer the Dispute to arbitration” means that arbitration
is merely an option for dispute resolution. (Doc. # 34 at 5–6) (emphasis added).
However, reading the provision as a whole, the Court agrees with Insurers that “may”
does not suggest that a party may either proceed to arbitration or file suit; rather, “may”
indicates that if a dispute remains unresolved after mediation, a party may pursue
further dispute resolution, and the required next step is arbitration. See Hughley v.
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Rocky Mountain Health Maint. Org., Inc., 910 P.2d 30, 33 (Colo. App. 1995) (“[T]he use
of the word “may” [in the arbitration provision] does not reveal any intent that parties are
free to avoid the contract procedure in favor of judicial suit.”), rev’d on other grounds,
Hughley v. Rocky Mountain Health Maint. Org., Inc., 927 P.2d 1325 (Colo. 1996); see
also Held v. Nat’l R.R. Passenger Corp., 101 F.R.D. 420, 425 (D.C.C. 1984) (“[T]he use
of the word ‘may’ in an arbitration agreement does not imply that the parties to the
agreement have the option of invoking some remedy other than arbitration. Rather,
‘[t]he sole option an aggrieved party retained through use of the word ‘may’ was to
abandon its claim.’” (quoting Local 771, I.A.T.S.E. v. RKO Gen., Inc., 546 F.2d 1107,
1116 (2d Cir. 1977)).
Even if the Court were to agree with Plaintiff that invoking arbitration is an
optional alternative to filing suit, the Mediation/Arbitration provision nevertheless
manifests the parties’ intent that arbitration is mandatory once invoked. The Policy
unambiguously states that once a party elects to refer a dispute to arbitration, the
dispute “shall be referred to an arbitrator.” (Doc. # 1-1 at 33.) Thus, when Insurers
invoked arbitration, Plaintiff was contractually required to arbitrate. See Block 175 Corp.
v. Fairmont Hotel Mgmt. Co., 648 F. Supp. 450, 452 (D. Colo. 1986) (concluding that
the presence of the word “may” in the arbitration clause merely gave the party the
option of arbitrating or abandoning a claim: “When either party elects to arbitrate and
serves the proper notice, as was done here, then arbitration must ensue”). The Court
also notes that while provision a) permits any party to terminate mediation if they so
wish, provision b) allows no such latitude for a party to terminate arbitration. See (Doc. #
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1-1 at 33–34.) To interpret the provision to allow a party to decline to participate in
arbitration once arbitration is invoked would be to make the arbitration provision have no
import at all. See, e.g., Chiarella v. Vetta Sports, Inc., No. 94 CIV. 5933 (PKL), 1994 WL
557114, at *3 (S.D.N.Y. Oct. 7, 1994) (“If the clause were wholly optional, as [Plaintiff]
contend[s], it would serve no purpose. Parties can always submit disputes to arbitration
if they both agree to do so, therefore, there would be no reason to include such a
provision.”).
Further, the Court finds that Plaintiff’s permissive interpretation cannot be
reconciled with the final line of the Mediation/Arbitration provision: “Where any
difference is by this Condition to be referred to arbitration, the making of an Award shall
be a condition precedent to any right of action against the Insurers.” (Doc. # 1-1 at 34);
see Greystone Const., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272, 1283–84
(10th Cir. 2011) (“[I]n determining the meaning of a policy, we must ‘interpret a contract
in its entirety with the end in view of seeking to harmonize and to give effect to all
provisions so that none will be rendered meaningless.” (quoting Copper Mountain, Inc.,
209 P.3d at 697)). The proper interpretation of the Mediation/Arbitration provision as a
whole is that the parties must undertake a two-step alternative dispute resolution
process prior to turning to the courts. Arbitration, once invoked, is mandatory.
Accordingly, a valid and enforceable arbitration agreement exists between the parties
and this Court is required to compel arbitration of Plaintiff’s claims.
Finally, although Plaintiff argues that its statutory bad faith claims “could be
severely limited if arbitrated,” Plaintiff provides no authority for why this alleged
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prejudice should require the Court to ignore a valid arbitration agreement. The Policy’s
Mediation/Arbitration provision applies to “any dispute or difference of whatsoever
nature” that “arises out of or in connection with this Policy.” (Doc. # 1-1 at 33.) This
expansive language encompasses any alleged bad faith by Insurers, and Plaintiff is
thus contractually required to arbitrate its statutory bad faith claims. Plaintiff also does
not provide support for the alleged prejudice it may suffer if forced to arbitrate its
statutory bad faith claims; Plaintiff merely speculates that it “may be unable to recover
its attorneys’ fees” and may not be able to “fully prosecute its bad faith claims due to
discovery limitations” in arbitration. (Doc. # 34 at 15.) The Court does not find that this
constitutes grounds to undermine the valid arbitration agreement in the Policy.
For the foregoing reasons, the Court concludes that the Policy sets forth the clear
intent of the parties to arbitrate any dispute arising from the Policy. Insurers’ Motion to
Compel Arbitration is therefore granted, and this case shall be stayed pending the
outcome of that arbitration. See 9 U.S.C. § 3 (“If any suit or proceeding be brought in
any of the courts of the United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such suit is pending, upon
being satisfied that the issue . . . is referable to arbitration . . . shall on application of one
of the parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement . . . .”); Colo. Rev. Stat. § 13-22-207(7) (“If
the court orders arbitration, the court on just terms shall stay any judicial proceeding
that involves a claim subject to the arbitration.”).

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IV.

CONCLUSION

For the foregoing reasons, it is ORDERED as follows:
•

Defendants’ Motion for Hearing (Doc. # 39) is DENIED;

•

Defendants’ Motion to Compel Arbitration and Stay Proceedings (Doc. # 18)
is GRANTED;

•

the instant action is hereby STAYED pending completion of the arbitration
proceedings; and

•

the parties shall file a joint status report within 60 days of this Order, and
every 60 days thereafter, informing the Court of the status of arbitration and
advising the Court whether this case can be closed.

DATED: May 9, 2022
BY THE COURT:
_____________________________
CHRISTINE M. ARGUELLO
United States District Judge

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