Flintkote Company v. Aviva PLC

Filing 28

MEMORANDUM OPINION re pending motions. Signed by Judge Leonard P. Stark on 9/30/13. Associated Cases: 1:13-cv-00935-LPS, 1:13-cv-00103-LPS(ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
THE FLINTKOTE COMPANY,
Plaintiff,
C.A. No. 13-935-LPS

v.
INDEMNITY MARINE ASSURANCE
COMPANY LTD.,
Defendant.

THE FLINTKOTE COMPANY,
Plaintiff,
C.A. No. 13-103-LPS

V.

AVIV A PLC, formerly known as
COMMERCIAL UNION ASSURANCE
COMPANY LTD.,
Defendant.

Michael P. Kelly, Katharine L. Mayer, McCARTER & ENGLISH, LLP, Wilmington, DE
Gita F. Rothschild, Louis A. Chiafullo, McCARTER & ENGLISH, LLP, Newark, NJ
Attorneys for The Flintkote Company.
Thaddeus J. Weaver, DILWORTH PAXSON LLP, Wilmington, DE
Fred L. Alvarez, Arthur J. McColgan, II, WALKER WILCOX MATOUSEK LLP, Chicago, IL
Attorneys for Indemnity Marine Assurance Company Limited and Aviva PLC, formerly
known as Commercial Union Assurance Company Limited.

MEMORANDUM OPINION
September 30, 2013
Wilmington, Delaware

f~~'~
s\.JK,
U.S. District Judge:

Pending before the Court are Plaintiff The Flintkote Company's ("Plaintiff' or
"Flintkote") Motions to Compel Arbitration in two related cases. (D.I. 5, C.A. No. 13-935; D.I.
9, C.A. No. 13-103) Also pending before the Court is Defendant Indemnity Assurance Company
Ltd.'s ("Indemnity Marine") Motion for Summary Judgment (D.I. 11, C.A. No. 13-935) and
Defendant Aviva PLC, formerly known as Commercial Union Assurance Company Ltd.'s
("Aviva") Motion to Dismiss or, in the Alternative, Transfer (D.I. 13, C.A. No. 13-1 03).
I.

BACKGROUND
The pending motions involve several agreements, including a general liability insurance

Policy No. 547/620242RM (the "Policy") (D.I. 6 Ex. A, C.A. No. 13-935 (showing subscription
chart)), the Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement") (id.
Ex. B), and a 1989 agreement between Flintkote and Aviva (the "1989 Agreement") (D.I. 11 Ex.
B, C.A. No. 13-103). Genstar Corporation, Flintkote's parent, entered into the Policy on March
15, 1981, for a four-year period. (D.I. 12 Ex. 2 at ,-r 5, C.A. No. 13-935) The Policy lists A viva,
Indemnity Marine's corporate parent, as holding a 2.0780% and 2.597% share of the Policy.
(D.I. 6 Ex. A, C.A. No. 13-935) Indemnity Marine was not licensed to provide insurance in
Canada, and therefore entered into a separate agreement with Aviva to provide the 2.597% share
of the Policy. (D.I. 12 Ex. 2 at ,-r,-r 3-4, 6, C.A. No. 13-935) Thus, Indemnity Marine was to
reimburse Aviva for the 2.597% share. (!d. at ,-r 6)
On June 19, 1985, Flintkote and several of its insurers 1 entered into the Wellington

1

Underwriters at Lloyd's, London, Insurance Company ofNorth America (U.K.) Limited,
Phoenix Assurance Company, Sphere Insurance Company, and Drake Insurance Company. (D.I.
15-1 at ,-r 4, C.A. No. 10-103)

Agreement, which requires that disputes over coverage be resolved through a three-step
alternative dispute resolution ("ADR") process. (D.I. 6 Ex. B at 28, C.A. No. 13-935) The
Wellington Agreement contains a provision mandating that "Subscribing Producers and
Subscribing Insurers shall resolve through alternative dispute resolution ... any disputed issues
within the scope of the Agreement and the Appendices hereto." (!d. at 5 VIII.6) Appendix C of
the Wellington Agreement sets forth the ADR process, and Schedule D identifies the insurance
policies within the scope of the Wellington Agreement, including the Policy. Aviva is not a
signatory to the Wellington Agreement, but Indemnity Marine is.
Aviva and Flintkote subsequently entered into the 1989 Agreement, which calls for
dispute resolution through litigation. (D.I. 11 Ex. B, C.A. No. 13-1 03) The 1989 Agreement
provides that "Flintkote and [Aviva] shall resolve through litigation any disputed issues to this
Agreement, and nothing contained in any provision of this Agreement or in any provision of the
Wellington Agreement, as applied to this Agreement, shall require [Aviva] and Flintkote to
resolve any disputes that may arise between them relating to this Agreement through ADR under
the Wellington Agreement." (!d. at 13)
For the past six years, the parties have been engaged in mediation. (D.I. 11 at ,-r,-r 10-11,
C.A. No. 13-103) The Mediation Agreement provides that the parties' conduct and statements
made in the course of mediation are confidential. In 2012, A viva and F1intkote determined that
they had reached an impasse. (D.I. 15-2 at ,-r 7, C.A. No. 13-103) The parties exchanged draft
arbitration agreements, but ultimately failed to execute a final arbitration agreement. (Id at ,-r 8;
D.I. 11 Exs. F, G, C.A. No. 13-103)
In December 2012, A viva sought to exercise its right under the 1989 Agreement to

2

resolve its dispute in Court. (D.I. 15-2 at ,-r 9, C.A. No. 13-103) On December 24,2012, Aviva
moved in the United States Bankruptcy Court for the District of Delaware to lift the automatic
stay imposed on Flintkote as a bankrupt debtor pursuant to 11 U.S.C. § 362(d), intending to file
suit in the Northern District of California. (D.I. 14 Ex. E, C.A. No. 13-103) On February 4,
2013, the Bankruptcy Court lifted the stay, effective on February 19, 2013. (Id. Ex. G)
In the meantime, on January 17, 2013, before the stay was lifted, Flintkote filed the
instant suit against Aviva here in the District of Delaware. (D.I. 1, C.A. No. 13-103) On
February 18,2013, Flintkote moved to compel arbitration pursuant to Section 4 ofthe Federal
Arbitration Act, 9 U.S.C. § 1, et seq. ("FAA"), to determine Aviva's responsibility to provide
insurance for asbestos claims. (D.I. 9, C.A. No. 13-103) On February 19,2013, as soon as it
could do so after the bankruptcy stay was lifted, Aviva filed suit in the Northern District of
California. (D.I. 1, C.A. No. 13-711-SI) On March 1, 2013, Aviva moved to dismiss the
Delaware case, or in the alternative, transfer it to the Northern District of California. (D.I. 13,
C.A. No. 13-103) On May 14,2013, the Honorable Susan Illston stayed the Northern District of
California case pending this Court's ruling on the motion to dismiss. (D.I. 31, C.A. No. 13-711SI)
On May 3, 2013, Indemnity Marine informed Flintkote that it would no longer participate
in the ADR proceedings, arguing that it was not subject to the Policy and, thus, the Wellington
Agreement. (D.I. 6 Ex. 1 at ,-r 12, C.A. No. 13-935) Two weeks later, Indemnity Marine
confirmed its belief that it was not subject to the Policy. (!d. Ex. F) On May 24, 2013, Flintkote
filed suit against Indemnity Marine here in the District of Delaware (D.I. 1, C.A. No. 13-935)
and, on June 10,2013, moved to compel arbitration pursuant to Section 4 ofthe FAA, 9 U.S.C.

3

§ 1, et seq. to determine Indemnity Marine's responsibility to provide insurance for asbestos

claims (D.I. 5, C.A. No. 13-935). On June 21, 2013, Indemnity Marine moved for summary
judgment. (D.I. 11, C.A. No. 13-935)
On July 31, 2013, the Court heard oral argument on all pending motions in both related
actions. (See D.I. 27, C.A. No. 13-103)

II.

LEGALSTANDARDS
"A motion to compel arbitration calls for a two-step inquiry into (1) whether a valid

agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that
agreement." Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005). There is a
presumption of arbitrability where a contract contains an arbitration clause, "unless it may be
said with positive assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute." AT&T Techs., Inc. v. Commc 'ns Workers ofAm., 475 U.S. 643, 650
(1986).

III.

DISCUSSION
A.

Motion to Compel Indemnity Marine (C.A. No. 13-395)

Flintkote argues that in addition to being a signatory to the Wellington Agreement,
Indemnity Marine is subject to arbitration because the question of whether it owes
responsibilities under the Policy is properly considered within the scope of that agreement's
broad arbitration provision. 2 Indemnity Marine contends that it does not owe insurance coverage

2

Flintkote requests that if the Court is inclined to deny the motion to compel, then the
Court should allow Flintkote to conduct limited discovery on the issue of a direct
insurer/policyholder relationship, including evidence pertaining to the relationship between
Indemnity Marine and Aviva, as well as Indemnity Marine's payments on the Policy. (D.I. 19 at
10, C.A. No. 13-935) As the Court will be granting Flintkote's motion, the request for discovery
4

under the Policy because the Policy was issued to Aviva. Indemnity Marine also argues that
whether it is subject to the Policy does not fall within the scope ofthe arbitration provision.
The Wellington Agreement broadly provides that "Subscribing Producers and
Subscribing Insurers shall resolve through [ADR] ... any disputed issues within the scope of the
Agreement and the Appendices hereto." (D.I. 6 Ex. Bat 5, C.A. No. 13-935) The Wellington
Agreement defines Subscribing Insurers and Producers to mean any insurers or producers "that
have become signatories to the Agreement." (!d. at 16) As signatories to the Wellington
Agreement, Flintkote is a Subscribing Producer and Indemnity Marine is a Subscribing Insurer.
Thus, Indemnity Marine is bound by the terms of the Wellington Agreement, including the
provision to resolve disputes within the scope of the Agreement through the ADR process
described in Appendix C.
The remaining dispute is whether Indemnity Marine's responsibility under the Policy
comes within the scope of the Wellington Agreement. The Court concludes that it does. The
Wellington Agreement's broad arbitration provision covers all "disputes concerning insurance
coverage." (!d. at 1) The arbitration provision is expansive, expressly including threshold issues
such as whether insurance policies were issued at all, or were subsequently cancelled. (!d. at 26)
The Court cannot conclude on this record that the Wellington Agreement "is not susceptible of
an interpretation that covers the asserted dispute." AT&T Techs., Inc. v. Commc 'ns Workers of
Am., 475 U.S. 643, 650 (1986). As "any doubts concerning the scope of arbitrable issues should

be resolved in favor of arbitration," Moses H. Cone Mem. Hasp. v. Mercury Constr. Corp., 460
U.S. 1, 24-25 (1983), the issue oflndemnity Marine's responsibility under the Policy falls within

is moot.
5

the Wellington Agreement, and is therefore subject to arbitration. 3
B.

Motion to Compel A viva (C.A. No. 13-103)

Flintkote asserts three grounds to compel arbitration: (1) Aviva waived its rights under
the 1989 Agreement, (2) Aviva entered into an implied contract to arbitrate, and (3) Aviva is
bound to arbitrate under a theory of estoppel. Aviva notes that it is not a signatory to the
Wellington Agreement and further argues that the 1989 Agreement's anti-ADR provisionproviding that the parties "shall resolve through litigation any disputed issues to this Agreement"
-requires denial ofFlintkote's motion. (D.I. 11 Ex. Bat 13, C.A. No. 13-103)
The Third Circuit has described two situations in which courts have held that nonsignatories are bound by an arbitration agreement through estoppel: (1) "when the non-signatory
knowingly exploits the agreement containing the arbitration clause despite having never signed
the agreement;" and (2) "because ofthe close relationship between the entities involved ... and
the fact that the claims were intimately founded in and intertwined with the underlying contract
obligations." E.!. DuPont de Nemours & Co. v. Rhone Poulence Fiber & Resin Intermediates,
S.A.S., 269 F.3d 187, 199 (3d Cir. 2011) (internal quotation marks omitted). The Court is
persuaded that the first scenario is applicable here.
As discussed above, A viva participated in a six-year mediation with Flintkote, exploiting
the Wellington Agreement to its advantage. This is evidenced in Aviva's July 16, 2012 letter to
Flintkote, relating to "the pending Alternative Dispute Resolution proceeding pursuant to the
[Wellington Agreement]," in which Aviva requested "reimbursement or off-set," as well as

3

It follows that Indemnity Marine's motion for summary judgment will be denied as

moot.
6

"interest under Sub-part 4 of Section XX" pursuant to the Wellington Agreement. (D.I. 11 Ex. E,
C.A. No. 13-103) In making such demands, Aviva's counsel explicitly relied upon the
Wellington Agreement, stating that "[a]bsent resolution of the issues in the pending Wellington
ADR, the Certain London Companies [including Aviva] intend to include the issues raised in this
letter in the Wellington Arbitration." (!d.) The Court is persuaded that A viva relied upon and
attempted to leverage its participation in the Wellington Agreement to secure a favorable
resolution of disputes. "To allow a plaintiff to claim the benefit of the contract and
simultaneously avoid its burdens would both disregard equity and contravene the purposes
underlying enactment of the Arbitration Act." DuPont, 269 F.3d at 200.
Further, both parties recognize that estoppel is proper if a party "by his conduct
intentionally or unintentionally leads another, in reliance upon that conduct, to change position to
his detriment." Great Am. Credit Corp. v. Wilmington Housing Auth., 680 F. Supp. 131, 134 (D.
Del. 1988). The Court concludes that Flintkote reasonably believed that the parties were engaged
in the Wellington ADR process. In addition to the six years of mediation and the July 16 letter
discussed above, the parties also exchanged draft arbitration agreements. Although the parties
failed to execute an agreement, statements included in the drafts support a finding that Flintkote
reasonably believed Aviva was binding itself to the Wellington Agreement procedures. For
instance, Aviva's draft agreement included the statement that "the Parties agree that they have
been unable to resolve their disputes through mediation and negotiation and now desire to
commence binding arbitration pursuant to the Wellington Agreement." (D.I. 11 Ex. Fat 3, C.A.
No. 13-103) Similarly, Aviva sought to include in the parties' agreement a provision that "[t]he
terms and provisions ofthe Wellington Agreement ... shall govern and control the conduct of

7

this binding Arbitration .... " (Id.) Based on Aviva's conduct and statements, Flintkote
reasonably believed Flintkote and Aviva were engaged in the Wellington ADR process.
The next question is whether Flintkote changed its position to its detriment in reliance on
its belief that Aviva intended to pursue the ADR process of the Wellington Agreement. Flintkote
argues that it would be detrimentally harmed if Aviva were not held to the Wellington
Agreement's ADR process at this point because, had it known Aviva was reserving the right to
litigate, Flintkote would have brought suit "years ago." (D.I. 18 at 6, C.A. No. 13-1 03) Flintkote
further contends that had litigation started years ago, the disputes may have already been
resolved, and Flintkote would not have lost the time value of money or spent six years attempting
to reach resolution through mediation. (Id. at 6, 8) The Court concludes that these
considerations demonstrate detrimental reliance by Flintkote. Accordingly, the Court will
compel arbitration. 4

IV.

CONCLUSION
For the foregoing reasons, the Court will deny as moot Indemnity Marine's Motion for

Summary Judgment (D.I. 11, C.A. No. 13-935), deny as moot Aviva's Motion to Dismiss or, in
the Alternative, Transfer (D.I. 13, C.A. No. 13-103), and grant Flintkote's Motions to Compel
Arbitration (D.I. 5, C.A. No. 13-935; D.I. 9, C.A. No. 13-103). An appropriate Order follows.

4

lt is unnecessary for the Court to address Flintkote' s remaining theories for compelling
arbitration.

8