EDWARDS v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SUBSCRIBING TO POLICY NO. PK1021618, LLOYD'S SYNDICATE 2987
Filing
22
OPINION Filed. Signed by Judge Zahid N. Quraishi on 1/29/2025. (jal, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
TYSHON EDWARDS,
Plaintiff,
v.
Civil Action No. 24-6029 (ZNQ) (JBD)
OPINION
CERTAIN UNDERWRITERS AT
LLOYD’S LONDON, SUBSCRIBING TO
POLICY NO. PK1021612, LLOYD’S
SYNDICATE 2987,
Defendant.
QURAISHI, District Judge
THIS MATTER comes before the Court upon a Motion to Compel Arbitration and Stay
Proceedings filed by Defendant, Certain Underwriters at Lloyd’s London Subscribing to Policy
No. PK1021612, Llyod’s Syndicate 2987 (“Underwriters” or “Defendant”). (ECF No. 10.)
Plaintiff Tyshon Edwards (“Plaintiff”) instituted this action by filing a Complaint for declaratory
judgment (“Compl.,” ECF No. 1) against Defendant shortly after the approval of an underlying
settlement agreement and entry of consent judgment between Plaintiff and the City of Trenton.
The settlement conferred an assignment of Trenton’s rights under its insurance policy (the
“Policy”) with Defendant to Plaintiff. Defendant now seeks to challenge that assignment by way
of arbitration. Defendant filed a Memorandum in Support of its Motion. (“Moving Br.,” ECF No.
10-1). Plaintiff filed an Opposition (“Opp’n Br.,” ECF No. 17), to which Defendant submitted a
reply. (“Reply Br.,” ECF No. 18.)
1
The Court has carefully considered the parties’ submissions and decides the Motion
without oral argument pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1.1
For the reasons set forth below, the Court will DENY Defendant’s Motion to Compel Arbitration
and Stay Proceedings.
I.
BACKGROUND AND PROCEDURAL HISTORY
This matter arises out of an underlying civil rights action brought by Plaintiff against the
City of Trenton (“Trenton”). In 2020, Plaintiff sued Trenton and several police officers from the
Trenton Police Department under 42 U.S.C. § 1983 alleging, among other things, Fourth and Sixth
Amendment violations. (Compl. ¶¶ 12–13.) In January 2024, Plaintiff and Trenton executed a
settlement agreement (“Settlement Agreement”) and proposed consent judgment (“Consent
Judgment”). (Id. ¶ 22.) The Court relays the following background information as set forth in the
opinion which approved that agreement and entered the judgment, Edwards v. City of Trenton,
Civ. No. 20-13552, 2024 WL 896358, at *1 (D.N.J. Feb. 4, 2024).
A.
SETTLEMENT AGREEMENT
Under the terms of the Settlement Agreement, a Consent Judgment was entered against
Trenton and in favor of Plaintiff for $5,000,000. (Id.) It was agreed to that $500,000 would be
paid by Trenton with an assignment to Plaintiff of all of Trenton’s rights against Defendant,
Trenton’s insurance carrier, including the right to pursue recovery from Defendant for the
remaining $4,500,000.2 (Id.) Plaintiff then filed a Motion for Approval of Settlement and for
Entry of the Consent Judgment. (Id.) Defendant subsequently filed a Motion to Intervene,
1
Hereinafter, all references to Rules refer to the Federal Rules of Civil Procedure unless otherwise noted.
The Settlement Agreement provides that the Policy’s limit of liability for Law Enforcement Liability Coverage “is
$3,000,000.00 each Occurrence and $6,000,000.00 Annual Aggregate of Liability, subject to a $500,000.00 Self
Insured Retention.” (See ECF No. 1-4, “Settlement Agreement.”) Additionally, pursuant to the Settlement
Agreement, Plaintiff “covenants to not execute upon the Consent Judgment directly against Trenton beyond $500,000.
(Id. ¶ 3.)
2
2
contending that: (1) Defendant is an interested party under Rule 24(a)(2) because “it has a
cognizable legal interest . . . that is threatened by the proposed settlement”; and (2) the existing
parties do not represent its interest in the underlying litigation; both Plaintiff and Trenton opposed
Defendant’s motion. (Id.)
On February 29, 2024, the Honorable Douglas E. Arpert, U.S.M.J. (the “Magistrate
Judge”), granted Plaintiff’s Motion for Approval and denied Defendant’s Motion to Intervene.
First, the Court found that Defendant’s motion was procedurally deficient, but more importantly,
Defendant failed to show, at a minimum, that it had “a sufficient interest in the underlying litigation
to justify intervention.” (Id. at *2.) Ultimately, the Court determined that Defendant’s economic
interest in “mitigating any judgment it may have to pay if the Policy is later found to obligate
[Defendant] to indemnify Trenton” is insufficient. (Id.) To the extent that Defendant reserved its
right to deny coverage under the Policy, the Court found that Defendant’s interest is contingent
because it depends on whether the Policy will ultimately cover Trenton’s liabilities. (Id. at *3.)
Having denied Defendant’s Motion to Intervene, the Magistrate Judge considered
Plaintiff’s Motion for Approval of Settlement and for Entry of Consent Judgment under the
standard set forth in Griggs v. Bertram, 44 A.2d 163 (N.J. 1982). (Id.) In accordance with Griggs,
“where two parties agree to settlement terms that may be enforceable against an insurer,” the Court
found that a $5,000,000 settlement was reasonable and there was no evidence that the parties
negotiated in bad baith. (Id. at *4.) The Court therefore granted Plaintiff’s motion.
As relevant here, paragraph 4 of the Settlement Agreement states,
Assignment of Rights. To the fullest extent possible under the law,
Trenton shall assign to Edwards all of Trenton’s rights and claims
under the Policy in any manner related to coverage for the Litigation
and satisfaction of the Consent Judgment, including but not limited
to claims regarding breach of contract and bad faith for, among other
things, denying coverage under the Policy, refusing to settle, and
3
refusing to indemnify Trenton (“Assignment”). Edwards shall have
sole discretion regarding the prosecution, litigation, and resolution
of all such assigned rights and claims; however, Trenton agrees to
cooperate in good faith with Edwards regarding any such
prosecution and litigation of the same. This Assignment shall not
be effective unless and until the Consent Judgment is entered by the
Court, but upon such entry of the Consent Judgment, the
Assignment shall become immediately effective without need of any
further event.
(Settlement Agreement ¶ 4.)
On March 25, 2024, Plaintiff sent Defendant a demand letter, seeking, as an “assignee,”
indemnification from Defendant in the amount of $2,500,000 which represented the “per
Occurrence” limit under the Policy. (ECF No. 10-3.). In response, Defendant returned an
arbitration demand on Plaintiff, pursuant to the Policy’s arbitration provision, for a determination
that Plaintiff is not a valid assignee of Trenton’s rights under the Policy because Defendant did not
consent to the assignment. (Compl. ¶ 41.) Plaintiff then filed a declaratory judgment action,
seeking a declaration from the Court that (1) the validity of the assignment under the Policy to
Plaintiff is a threshold question of arbitrability for the Court to determine, and (2) the assignment
of interest under the Policy to Plaintiff is in fact valid and binding. (See generally id.) Defendant
then filed the instant Motion to Compel Arbitration and Stay Proceedings. (ECF No. 10).
B.
INSURANCE POLICY
Relevant here, the Policy, which had a period of insurance from March 1, 2018, to March
1, 2019, (“Policy,” ECF No. 10-2), imposed a duty on Defendant to indemnify Trenton and
contains an arbitration provision. The arbitration provision provides:
ARBITRATION: In the event the ASSURED and Underwriters are
unable to agree as to the amount recoverable by the ASSURED from
Underwriters under the terms and conditions of this Policy, each
party shall name a competent and disinterested arbitrator, and the
two so chosen shall, before proceeding further, appoint a competent
and disinterested umpire. The arbitrators together shall calculate the
4
indemnity due, and failing to agree, shall submit their differences to
the umpire.
The award in writing, duly verified by any two, shall determine the
points in question. Both parties shall pay the cost of their arbitrators
and equally pro rate the cost of the umpire. The ASSURED’S
portion of such fee does not accrue to the ULTIMATE NET LOSS.
The decision by the arbitrators shall be binding on Underwriters and
the ASSURED, and that judgment may be entered in any court of
competent jurisdiction.
(Id. at 14.) Additionally, the Policy contains anti-assignment provisions which read: (1) “[t]he
ASSURED shall make no commitment to pay or settle any CLAIMS, OCCURRENCES or SUITS
where Underwriters liability under this Policy is involved without the prior written agreement of
Underwriters. Underwriters shall not withhold agreement without just cause,” (id. at 15), and (2)
“[a]ssignment of interest under this Policy does not bind Underwriters unless Underwriters consent
is endorsed hereon,” (id. at 14).
Lastly, Paragraph 11 of the General Policy Conditions provides that:
DUTIES: Underwriters have no duty to investigate, handle, adjust,
settle or defend any CLAIM, OCCURRENCE, proceeding or
SUIT against the NAMED ASSURED, any ASSURED, or against
any other person or organization for whom the NAMED
ASSURED is, or may be found to be, legally liable; or whom asserts
or claims a right of coverage under the policy. These duties shall be
the responsibility of the NAMED ASSURED.
Underwriters’ duty under the policy shall be to indemnify the
NAMED ASSURED for ULTIMATE NET LOSS in excess of the
applicable SELF INSURED RETENTION, MAINTENANCE
DEDUCTIBLE, or any other applicable deductible or deduction;
and not more than the Specific Excess Limit of Insurance.
(Id. at 17.)
With that background, the parties dispute the threshold issue of arbitrability. That is, the
Complaint seeks a declaration from this Court that (1) the validity of Trenton’s assignment to
5
Plaintiff is a threshold question for the Court to determine; and (2) the assignment is in fact valid
and binding. (Compl. ¶ 53; Opp’n Br. at 89.) Defendant, in challenging any duty owed to plaintiff,
argues that the assignment’s validity should be decided by an arbitrator. (Moving Br. at 9–10, 11
(arguing that the issue over the application of the anti-assignment provision presents a
jurisdictional question that should be decided by an arbitrator)). In its Motion, Defendant
emphasizes that since all matters in dispute between Plaintiff and Defendant “relative to the
Underlying Lawsuit arise out of rights and duties purportedly owed by Underwriters under the
Policy containing the Arbitration Provision,” Plaintiff as a purported assignee, is bound to
arbitrate, rather than litigate, all matters at issue in the Complaint. (Id. at 5.) Plaintiff contends,
however, that the Court should deny Defendant’s Motion because (1) Defendant impermissibly
attempts to compel Plaintiff to contractual arbitration while denying it has ever been bound by a
contract with Plaintiff, and (2) the claims in the Complaint do not fall within the scope of the
arbitration clause of the Policy. (Opp’n Br. at 11.)
II.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”) “establishes a strong federal policy in favor of
compelling arbitration over litigation.” MZM Constr. Co., Inc. v. New Jersey Bldg. Laborers
Statewide Benefit Funds, 974 F.3d 386, 396 (3d Cir. 2020) (quoting Sandvik AB v. Advent Int’l
Corp., 220 F.3d 99, 104 (3d Cir. 2000)). Courts are authorized to compel arbitration “upon being
satisfied that the making of the agreement for arbitration or the failure to comply therewith is not
in issue.” 9 U.S.C. § 4. Under Section 3 of the FAA, parties may “apply to a federal court for a
stay of the trial of an action ‘upon any issue referable to arbitration under an agreement in writing
for such arbitration.’” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (quoting 9
U.S.C. § 3).
6
Before deciding a motion to compel arbitration, a court must first decide whether to employ
the motion to dismiss standard under Rule 12(b)(6) or the summary judgment standard under Rule
56. See Guidotti v. Legal Helpers Debt Resol., LLC, 716 F.3d 764, 767 (3d Cir. 2013).3 The Rule
12(b)(6) standard applies when arbitrability is “apparent, based on the face of a complaint, and
documents relied upon in the complaint.” Id. at 764. However, a Rule 12(b)(6) standard would
not be appropriate “[w]here the complaint does not establish with clarity that the parties have
agreed to arbitrate, or when the party opposing arbitration has come forward with reliable evidence
that it did not intend to be bound by an arbitration agreement,” because “the motion cannot be
resolved without consideration of evidence outside the pleadings, and, if necessary, further
development of the factual record.” Noonan v. Comcast Corp, Civ. No. 16-458, 2017 WL
4799795, at *4 (D.N.J. Oct. 24, 2017) (citations omitted). The parties do not address in their papers
which standard applies. For the reasons set forth below, the Court concludes that a Rule 12(b)(6)
motion to dismiss standard is appropriate.
Here, the Complaint reveals that Plaintiff, as an assignee of Trenton’s rights, sought to be
indemnified by Defendant under the Policy. Although the essence of the Complaint places the
agreement to arbitrate at issue, “the affirmative defense of arbitrability” was apparent from the
face of the complaint and the documents relied upon therein. (See generally Compl.) Plaintiff
also attaches the Consent Judgment, Settlement Agreement, and underlying Policy to the
Complaint. (See id.) Consequently, the Court can look to the incorporated documents to determine
whether the parties have agreed to arbitrate this dispute. Accordingly, the Court will address the
3
In the past, if the complaint and its supporting documents were unclear regarding the agreement to arbitrate, or if the
plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to
arbitrate in issue, then “the parties [were] entitled to discovery on the question of arbitrability before a court entertains
further briefing on [the] question” under a Rule 56 summary judgment standard. Guidotti, 716 F.3d at 776. However,
the Third Circuit in Young v. Experian Information Solutions, Inc, recently clarified its view, and held that “[i]n the
absence of a factual dispute, there is nothing to discover and thus no need to delay a decision on the motion to compel.”
119 F.4th 314, 320 (3d Cir. 2024).
7
instant Motion under a Rule 12(b)(6) standard. See Singh v. Uber Technologies Inc., 939 F.3d
210, 218 (3d Cir. 2019) (“The centerpiece of [Guidotti’s] framework is whether the existence of a
valid agreement to arbitrate is apparent from the face of the complaint or incorporated
documents”); Sorathia v. Fidato Partners, Civ. No. 19-4253, 2020 WL 5121473, at *3 (E.D. Pa.
Aug. 31, 2020) (applying the Rule 12(b)(6) standard where defendants attached agreement
containing arbitration clause to the motion to compel arbitration, plaintiff did not dispute receiving
it, and “the crux of the dispute between the parties center[ed] on the scope and enforceability of
that arbitration agreement”); Doyle v. Ad Astra Recovery Services, Inc., Civ. No. 17-5233, 2018
WL 1169121, at *2 (D.N.J. Mar. 6, 2018) (determining that the motion to dismiss standard applied
because, even though the plaintiff did not attach the agreement that contained the arbitration
provision to the complaint, the plaintiff’s claims derived from the agreement and the plaintiff did
not argue that discovery was required to interpret the agreement).
III.
DISCUSSION
The FAA permits the Court to compel arbitration only once it has determined that (1) “there
is a valid agreement to arbitrate between the parties and, if so,” (2) “the merits-based dispute in
question falls within the scope of that valid agreement.” Zirpoli v. Midland Funding, LLC, 48
F.4th 136, 142 (3d Cir. 2022) (quoting Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir.
2014)). However, “when an arbitration provision, by ‘clear and unmistakable evidence,’ contains
a valid delegation clause, the court’s inquiry is limited to the first step: determining whether a valid
agreement to arbitrate exists.” Smith v. Experian Info. Sols., Inc., Civ. No. 22-6471, 2023 WL
6057377, at *3 (D.N.J. Sept. 14, 2023); see also Coulter v. Experian Info Sols, Inc., Civ. No. 201814, 2021 WL 735726, at *4 (E.D. Pa. Feb. 25, 2021). It is well settled that in these situations,
a court must refer issues of scope to the arbitrator “even if the court thinks that the argument that
8
the arbitration agreement applies to a particular dispute is wholly groundless.” Henry Schein, Inc.
v. Archer & White Sales, Inc., 586 U.S. 63, 68 (2019); Smith, 2023 WL 6057377, at *3 (citing
Henry Schein, Inc., 586 U.S. at 68).
A.
Whether there is a valid agreement between Trenton and Defendant
Applying these standards, the Court must now determine, first, whether a valid arbitration
agreement exists. Notably, all parties acknowledge that the Policy, an insurance contract between
Defendant and Trenton, contains an arbitration provision and that Plaintiff is an assignee of
Trenton’s rights under the Policy. Defendant argues that, because the underlying Policy is a valid
insurance contract between itself and Trenton, the arbitration provision within the contract is
therefore valid and enforceable. (Moving Br. at 6–7.) Plaintiff contends that the issue raised in
his Complaint is of the validity of the assignment to Plaintiff. (Opp’n Br. at 16.) Defendant
responds that he does not dispute that the Settlement Agreement approved by the Magistrate Judge
included an assignment from Trenton to Plaintiff. Instead, Defendant contends that the validity of
the assignment does not challenge the formation of the Policy and, even if it did, that is an issue
for the arbitrator to decide. (Moving Br. at 13.)
Although Defendant strenuously challenges the assignment’s validity on the grounds that
it did not consent to the assignment, there is no dispute that the underlying insurance Policy itself
is valid. Accordingly, the Court finds that there exists a valid arbitration agreement between
Trenton and Defendant.
Defendant would have the Court end the inquiry here and proceed to find that the dispute,
i.e., the assignment’s validity and whether an invalid assignment precludes coverage, falls within
the arbitration provision’s scope and must be resolved by an arbitrator. Plaintiff, however, asks
the Court to pause and consider the implications of Defendant’s position. That is, Defendant
argues that it is essentially not bound to cover the judgment as entered by the Court because it
9
deems the assignment invalid, but yet somehow relies on the very assignment to convince the
Court that it must compel arbitration. Plaintiff argues that the validity of the assignment is a
question of “mutual assent” that is an issue for the Court to determine in the first instance. (Opp’n
Br. at 15–16) (“the Court cannot be satisfied that the making of the agreement for arbitration . . .
is not in issue.”).
The Court agrees with Plaintiff and concludes that to determine whether there is a valid
arbitration agreement between Plaintiff and Defendant, the validity of the underlying assignment
must be reached.4 Importantly, the arbitration provision at issue in the Policy is limited in scope
and does not contain a general delegation clause, or any language delegating the enforceability of
the assignment provision to an arbitrator. See Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 188
(3d Cir. 2010) (“In sum, the [plaintiffs] have failed to adduce clear and unmistakable evidence that
the parties intended to arbitrate questions concerning the validity of the arbitration agreement,
which is fatal to their argument that the District Court should have referred such a question of
arbitrability to the arbitrator.”).
B.
Whether the assignment from Trenton to Plaintiff is valid
The anti-assignment clauses in the Policy state that “Assignment of interest under this
Policy does not bind Underwriters unless Underwriters consent is endorsed hereon.” (Policy at
14.) Additionally, the policy states that “[t]his Certificate shall not be assigned either in whole or
4
This Court is aware of Third Circuit precedent that has opined on the correctness of considering the validity of an
assignment when determining whether a valid arbitration agreement exists. In Zirpoli, the Third Circuit held that
deciding the validity of an assignment under step one would be to prematurely determine the merits of a dispute. 48
F.4th at 143. There, the Third Circuit considered a motion to compel arbitration in the context of an arbitration
agreement that delegated questions of arbitrability to an arbitrator. Id. It determined that to answer whether an
assignment was valid “hides the fact that prematurely answering this question makes asking the ‘who decides’ question
pointless.” Id. Distinguishing the present case from Zirpoli, there is no delegation provision contained in the
arbitration clause at issue, and Defendant does not argue, nor can he, that the parties agreed to arbitrate issues of
validity or enforceability. Therefore, the parties here did not “clearly and unmistakably” intend to delegate the issue
of arbitrability or enforceability of the contract to an arbitrator, as was the case in Zirpoli. This Court therefore does
not risk rendering the “who decides” question pointless because that question is not raised by the facts of this case.
10
in part without the written consent of the Correspondent endorsed hereon,” (id. at 2), and that
“[t]he ASSURED shall make no commitment to pay or settle any CLAIMS, OCCURRENCES
or SUITS where Underwriters liability under this Policy is involved without the prior written
agreement of Underwriters. Underwriters shall not withhold agreement without just cause.” (Id.
at 15.)
Defendant argues that the language in the Policy is clear and that because it did not consent
to Trenton’s assignment of rights to Plaintiff or the settlement, the assignment was invalid.
(Moving Br. at 1.) Plaintiff argues that the assignment is valid despite Defendant’s lack of consent.
(Opp’n Br. at 8–9.) The Court will therefore determine whether the anti-assignment provision
nullifies Trenton’s assignment to Plaintiff.
The New Jersey Supreme Court has held that an anti-assignment clause in an insurance
policy cannot restrict a policyholder’s ability to assign a post-loss claim. Givaudan Fragrances
Corp. v. Aetna Cas. & Sur. Co., 151 A.3d 576, 585 (N.J. 2017). The New Jersey Supreme Court
noted that “[t]he majority rule in the United States is that a provision that prohibits the assignment
of an insurance policy, or that requires the insurer’s consent to such an assignment, is void as
applied to an assignment made after a loss covered by the policy has occurred.” Id. at 586 (citing
3 Couch on Insurance § 35:8 (3d ed. 2016)). There is no doubt that this rule “is an exception to
the general principle that parties to a contract may freely limit assignment of their contractual
rights.” Id.
With that background, this Court concludes that the assignment from Trenton to Plaintiff,
although made without Defendant’s consent, was a post-loss assignment of a claim, and therefore,
the anti-assignment clause is not a barrier to Plaintiff. Under an occurrence policy, like the one
here, “the relevant event giving rise to coverage is the loss event, not the entry of a judgment fixing
11
the amount of damage for that loss.” Id. at 591. Here, the relevant event giving rise to coverage
is the civil rights violations suffered by Plaintiff which occurred prior to the assignment but during
the coverage period between March 1, 2018 and March 1, 2019. The risk of having to provide
coverage that was contractually undertaken by the insurer occurred prior to the assignment, thereby
making this a post-loss assignment of a claim.
Accordingly, the Court finds that the anti-assignment provision does not nullify the
assignment of rights from Trenton to Plaintiff. Because the Court finds that there is a valid
assignment from Trenton to Plaintiff, Plaintiff stands in for Trenton and is privy to the underlying
Policy. In other words, there is a valid, binding agreement between Plaintiff and Defendant which
includes Defendant’s duty to indemnify Plaintiff. Pursuant to the arbitration provision, the Court
takes no position as to the amount Plaintiff may be owed under the Policy as that is left to mutually
agreed upon arbitrators to decide. The Court simply holds today that this Court can address the
validity and application of the anti-assignment provision, and that the assignment from Trenton to
Plaintiff is valid.
Given the Court’s conclusions, it will DENY Defendant’s Motion to Compel Arbitration
and Stay Proceedings.
IV.
CONCLUSION
For the reasons stated above, the Court will DENY Defendant’s Motion to Compel
Arbitration and Stay Proceedings. An appropriate Order will follow.
Date: January 29, 2025
s/ Zahid N. Quraishi
ZAHID N. QURAISHI
UNITED STATES DISTRICT JUDGE
12
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?