McCullough et al v. Royal Caribbean Cruises Ltd et al
Filing
505
ORDER denying 467 Defendants' Motion to Compel Arbitration and Dismiss Plaintiffs' Third-Amended Complaint [ECF No. 467]. is DENIED. This case shall be STAYED and ADMINISTRATIVELY CLOSED until coverage under the Policy has been established. Either party may move to reopen when warranted. All pending motions are DENIED AS MOOT. Signed by Judge Darrin P. Gayles See attached document for full details. (lfn)
Case 1:16-cv-20194-DPG Document 505 Entered on FLSD Docket 05/10/2019 Page 1 of 8
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 16-cv-20194-GAYLES
LYNN McCULLOUGH and
WILLIAM McCULLOUGH,
Plaintiffs,
v.
ROYAL CARIBBEAN CRUISES, LTD., et al.,
Defendants,
/
ORDER
THIS CAUSE comes before the Court on Defendant’s, AIG Insurance Hong Kong
Limited (“AIG”), Motion to Compel Arbitration and Dismiss Plaintiffs’ Third Amended
Complaint (the “Motion”) [ECF No. 467]. The Court has carefully considered the Motion, the
record, and is otherwise fully advised. For the following reasons, the Motion is DENIED.
BACKGROUND
This case involves a tragic accident that occurred during a shore excursion. 1 Plaintiffs
William and Lynn McCullough (“the McCulloughs”) were traveling on a Royal Caribbean cruise
ship, which stopped at St. Lucia. During the stop, the McCulloughs participated in an “AdrenaLine” zip line course. During a rappelling portion of the course, Mrs. McCullough was not properly
secured to the harness and, as a result, she fell nearly fifty feet from the platform to the ground
below. She sustained severe injuries and was rendered a quadriplegic.
1
This case has been intensely litigated for three years, and the Court will recount only the portions relevant to the
instant proceedings. For clarity’s sake, the Court adopts and incorporates the recitation of facts in its prior Order on
Defendants’ Joint Motion to Dismiss Second Amended Complaint [ECF No. 301].
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The McCulloughs sued numerous parties including Royal Caribbean, various insurance
companies, and the excursion operators: Rain Forest Adventures (Holdings), Ltd.; Rain Forest Sky
Rides, Ltd.; Rain Forest Tram, Ltd.; and Harald Joachim von der Goltz (collectively “the Rain
Forest Defendants”). Following the denial of their summary judgment motions, the Rain Forest
Defendants went to mediation with the McCulloughs and then to binding arbitration. The arbitrator
entered an award in favor of the McCulloughs. [ECF No. 433-1]. The Court subsequently entered
Final Judgment in their favor and against the Rain Forest Defendants jointly and severally. [ECF
No. 436].
At the time of the incident, Harald Joachim von der Goltz was covered by an insurance
policy (the “Policy”) issued by AIG, a Hong Kong corporation. The Policy contained a Disputes
Clause, which stated:
8.9 Disputes
Except as otherwise specifically provided, any dispute regarding any aspect of this
policy or any matter relating to cover thereunder which cannot be resolved by
agreement within six (6) months, shall first be referred to mediation at Hong Kong
International Arbitration Centre (HKIAC) and in accordance with its Mediation
Rules.
If the mediation is abandoned by the mediator or is otherwise concluded without
the dispute or difference being resolved, then such dispute or difference shall be
referred to and determined by arbitration at HKIAC and in accordance with its
Domestic Arbitration Rules.
[...]
The Policy carried liability coverage of up to $5,150,000.00. Other provisions of the Policy limit
AIG’s liability for “Bodily Injury and Property Damage.” Because of the exclusion provisions,
AIG consistently disputed coverage under the Policy. E.g., [ECF No. 467]. AIG offered to fund a
settlement for $350,000 based on its evaluation of von der Goltz’s exposure. But at no point did
the McCulloughs seek verification of coverage through litigation.
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In their Third Amended Complaint [ECF No. 444], the McCulloughs allege that AIG acted
in bad faith by failing to settle the McCullough’s claims against the Rain Forest Defendants within
the Policy’s limits. AIG then filed the instant Motion, which is now ripe for review.
DISCUSSION
AIG argues that the McCulloughs’ third party bad faith insurance claim should be
dismissed and sent to arbitration in accordance with the Disputes Clause of the Policy because
coverage under the Policy has not been determined. The McCulloughs counter that they are not
subject to the Policy’s arbitration clause because (1) their action is for common law bad faith, a
Florida cause of action separate and apart from the underlying insurance action, and (2) they were
not signatories to the Policy.
I.
Common Law Bad Faith Claim
“In Florida, a bad faith action against an insurance company may be brought not only by
the insured to whom the duty of good faith was owed or his or her formal assignee, but also by a
third party whose claim against the insurance policy was the subject of alleged bad faith.”
Progressive Express Ins. Co. v. Scoma, 975 So. 2d 461, 465 (Fla. 2d DCA 2007). A bad faith claim
may be brought by a third party absent an assignment from the insured. See id. The first issue
presented is whether a third party can bring a bad faith claim against an insurer before coverage
has been determined.
Florida courts limit third party bad faith actions against an insurer to cases where coverage
has been determined. Blanchard v. State Farm, 575 So. 2d 1289, 1291 (Fla. 1991) (holding that
an insurer cannot be held liable for bad faith conduct unless it is first established that the insured
was entitled to benefits under the policy). A coverage determination is necessary because a bad
faith failure to settle claim is “founded upon the obligation of the insurer to pay when all conditions
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under the policy would require an insurer exercising good faith and fair dealing towards its insured
to pay.” See Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000). An injured third party
must therefore first obtain “‘a resolution of some kind in favor of the insured’ on the coverage
issue” before pursuing his bad faith claim against the insurer. E.g., Levesque v. Gov’t Emps. Ins.
Co., No. 15-14005-CIV, 2015 WL 6155897, at *4 (S.D. Fla. Oct. 20, 2015) (citing Brookins v.
Goodson, 640 So. 2d 110, 113 (Fla. 4th DCA 1994), disapproved of in part on other grounds,
State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 62 (Fla. 1995); Quadomain Condo. Ass’n,
Inc. v. QBE Ins. Corp., No. 07-60003-CIV, 2007 WL 1424596, at *5 (S.D. Fla. Sept. 24, 2009)
(noting that claims for statutory bad faith “cannot proceed until the underlying coverage dispute
has been resolved”) (citing Blanchard, 575 So. 2d at 1291). Where coverage is undetermined, a
claim for bad faith is premature. Blanchard, 575 So. 2d at 1291.
Here, AIG contests coverage under the Policy because it excludes payment for bodily
injury. Moreover, there is no underlying determination of coverage—only a Final Judgment
against the Rain Forest Defendants on the issue of their liability. Because a threshold issue in this
case is whether there is coverage under the Policy, the McCulloughs’ bad faith claim is premature.
II.
Jurisdiction under the Convention
AIG seeks to compel the McCulloughs to arbitration, pursuant to the Policy’s Disputes
Clause, for a determination of coverage. AIG reasons that, since the McCulloughs stand in the
shoes of von der Goltz for purposes of their bad faith insurance claim, they should also be subject
to the Policy’s terms. The McCulloughs counter that they are not signatories to the arbitration
agreement or assignees of the policy. The second issue presented is whether a signatory to an
arbitration agreement can compel a nonsignatory to arbitration under the Convention on the
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Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201–08 (the
“Convention”).
It is undisputed that the McCulloughs did not sign the arbitration agreement. At the hearing
on April 29, 2019, AIG also conceded that there is no written assignment delegating von der
Goltz’s rights under the insurance policy to the McCulloughs. [ECF No. 501]. AIG attempts to
circumvent these facts by relying on two equitable arguments. First, AIG argues that the
McCulloughs stand in the shoes of von der Goltz, the insured, because their action seeks to vitiate
his rights under the Policy. See Kong v. Allied Professional Ins. Co., 750 F.3d 1295, 1302 (11th
Cir. 2014) (noting that, in Florida, “a number of cases have found that [] nonsignatories may be
compelled to arbitrate . . . if the nonsignatory has received something more than an incidental or
consequential benefit of the contract”) (citing Germann v. Age Inst. of Fla., Inc., 912 So. 2d 590,
592 (Fla. 2d DCA 2005)). Second, AIG argues that a third party bad faith action like the one
brought by the McCulloughs requires that a plaintiff “stand in the shoes of the insured for purposes
of standing to bring [the claim].” Scoma, 975 So. 2d at 465.
The Convention requires that contracting states, including the United States and Hong
Kong, recognize and enforce foreign arbitral agreements. Suazo v. NCL (Bahamas), Ltd., 822 F.3d
543, 546 (11th Cir. 2016). The Convention “generally establishes a strong presumption in favor of
arbitration
of
international
commercial
disputes.”
Indus.
Risk
Insurers
v.
M.A.N.
Gutehoffnungshutte GmbH, 141 F.3d 1434, 1440 (11th Cir. 1998). It creates two causes of action
in federal court for a party seeking to enforce an arbitration agreement that falls under the
Convention: a motion to compel arbitration “in accordance with the agreement,” 9 U.S.C. § 206;
and a motion to “confirm” an arbitral award, id. § 207 (emphasis added). The Court’s inquiry on a
motion to compel arbitration under the Convention is limited to determining whether the
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arbitration agreement at issue meets those causes. Bautista v. Star Cruises, 396 F.3d 1289, 1294
(11th Cir. 2005).
The Court must grant a motion to compel arbitration so long as four jurisdictional
prerequisites are met, the first of which is at issue here: whether “there is an agreement in writing
within the meaning of the Convention.” Outokumpu Stainless USA, LLC v. Converteam SAS, 902
F.3d 1316, 1325 (11th Cir. 2018) (citing Bautista, 396 F.3d at 1294 n.7). “Parties have an
‘agreement in writing’ under the Convention if there is ‘an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’”
Quiroz v. MSC Mediterranean Shipping Co. S.A., 522 F. App’x 655, 661 (11th Cir. 2013) (citing
Convention, Art. II(2)); Hodgson v. Royal Caribbean Cruises, Ltd., 706 F. Supp. 2d 1248, 1256
(S.D. Fla. 2009) (granting motion to compel where agreement set forth the terms of the arbitration
and contained the signatures of the relevant parties). Before compelling arbitration pursuant to the
Convention, courts typically require that the parties be signatories to the arbitration agreement,
which protects the interests of parties who have not knowingly agreed to arbitrate. See Outokumpu,
902 F.3d at 1326; Stanfield v. Fly Low, Inc., No. 15-20224-CIV, 2015 WL 4647902, at *2 (S.D.
Fla. Aug. 5, 2015) (“[A] party cannot be required to submit to arbitration any dispute which he has
not agreed so to submit.”) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 582 (1960)).
The Eleventh Circuit has unequivocally determined that non-signatories cannot be bound
to arbitration agreements under the Convention under theories of estoppel or third party
beneficiary. In Outokumpu, a signatory to an arbitration agreement sought to bind a non-signatory
to that agreement. 902 F.3d at 1326. Although the contract containing the arbitration agreement
specifically defined the non-signatory’s role as a third party subcontractor, the non-signatory did
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not sign or otherwise bind itself to any of the terms of the contract. Id. Accordingly, the Eleventh
Circuit held that the contract—including the arbitration clause—bound only the signatories. Id.
(“Private parties . . . cannot contract around the Convention’s requirement that the parties actually
sign an agreement to arbitrate their disputes in order to compel arbitration.”). The Court
distinguished the requirements of the Convention from those of the Federal Arbitration Act, 9
U.S.C. §§ 1–16 (“FAA”), which permits a non-signatory to be compelled to arbitration based on
equitable considerations: “Although parties can compel arbitration through estoppel under Chapter
1 of the FAA, estoppel is only available under Chapter 1 because Chapter 1 does not expressly
restrict arbitration to the specific parties to an agreement. But the Convention imposes precisely
such a restriction.” Id. at 1326–27 (internal quotations and citations omitted). This explicit
language severely restricts any attempt to bind a non-signatory through theories of equity.
AIG offers no Eleventh Circuit precedent to counter Outokumpu, which plainly rejected
using arbitration by estoppel and other equitable theories to bind non-signatories to arbitration in
cases arising under the Convention. Thus, because there is no agreement signed by both parties,
the McCulloughs cannot be compelled to arbitrate.
*
*
*
A final matter is whether the Court must stay or dismiss this action pending resolution of
the coverage issue. Because the McCulloughs’ bad faith claim is premature until coverage under
the Policy has been established, this case shall be stayed.
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CONCLUSION
Based on the foregoing, it is ORDERED AND ADJUDGED that the Defendants’ Motion
to Compel Arbitration and Dismiss Plaintiffs’ Third-Amended Complaint [ECF No. 467]. is
DENIED. This case shall be STAYED and ADMINISTRATIVELY CLOSED until coverage
under the Policy has been established. Either party may move to reopen when warranted. All
pending motions are DENIED AS MOOT.
DONE AND ORDERED in Chambers at Miami, Florida, this 10th day of May, 2019.
________________________________
DARRIN P. GAYLES
UNITED STATES DISTRICT JUDGE
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