SCOTTSDALE INSURANCE COMPANY v. KINSALE INSURANCE COMPANY
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 5/26/17. 5/26/17 ENTERED AND COPIES E-MAILED.(rv)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SCOTTSDALE INS. CO.,
KINSALE INS. CO.,
M E M O R A N D U M
EDUARDO C. ROBRENO, J.
May 26, 2017
This action arises from a claim by Plaintiff
Scottsdale Insurance Company (“Scottsdale”) that Defendant
Kinsale Insurance Company (“Kinsale”) is liable under an
insurance policy issued by Defendant Kinsale to AJA Skies the
Limit, Inc. (“AJA Skies the Limit”) for the costs of Plaintiff
Scottsdale’s defense and indemnification of its own insured, P.
Tamburri Steel, LLC (“Tamburri”), with respect to an underlying
action based on a written subcontract (the “Subcontract”)
between Tamburri and AJA Skies the Limit. Kinsale removed the
case to federal court on the basis of diversity, and now moves
to compel arbitration. For the reasons that follow, the Court
will grant the motion to compel arbitration and dismiss the
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Scottsdale’s insured is Tamburri. Kinsale’s insured is
AJA Skies the Limit. See Notice of Removal ¶ 1, ECF No. 1. The
Subcontract at issue concerns steel erection services that were
to be performed at a certain Pennsylvania construction project.
Compl. ¶ 18, ECF No. 1. Under the Subcontract, a company called
AJA Services, Inc. (“AJA Services”) agreed to indemnify and hold
harmless Tamburri with respect to all personal injury claims
arising out of or resulting from the performance of the steel
erection work performed on the project. Id. ¶ 20.
Two separate actions filed in the Court of Common
Pleas of Philadelphia County are relevant to the instant
lawsuit. The first of these is Buckman v. Gwynedd Mercy
University, et al., No. 2342 (Pa. Ct. Com. Pl. filed Feb. 14,
2014) (the “Buckman Action”). See id. ¶ 2. This was a personal
injury action in which a plaintiff steel worker claimed to have
slipped and fallen on wet steel decking at a construction site.
See id. ¶ 14. On January 22, 2015, the Court of Common Pleas
entered a default judgment in favor of the plaintiffs1 and
against AJA Skies the Limit and AJA Services for failure to
answer the complaint within the required time limit. See id. ¶
21. Nearly a year later, on January 12, 2016, the case settled
The wife of the injured steel worker was also a
plaintiff in this action.
for a total amount of $1,209,717.69. See id. ¶ 22. On April 28,
2016, the Court of Common Pleas held a bench trial and
subsequently entered a finding of liability and order of
judgment against AJA Skies the Limit and in favor of Tamburri in
the amount of $1,154,491, representing the reasonable cost of
settlement and the reasonable cost of attorneys’ fees and
expenses incurred in defending against this action. Id. ¶¶ 2325. Scottsdale incurred and paid the above defense and indemnity
amounts on behalf of Tamburri. Id. ¶ 26.
The second action relevant to the instant case is P.
Tamburri Steel, LLC v. AJA Skies the Limit, Inc., et al., No.
0855, (Pa. Ct. Com. Pl. filed Jan. 25, 2017) (the “Tamburri
Action”). See id. ¶ 2. In the Tamburri Action, Tamburri--the
defendant contractor in the Buckman Action--sought declaratory
relief to reform the Subcontract that was at issue in the
Buckman Action. Id. ¶ 28. On January 14, 2015, the Court of
Common Pleas entered default judgment against AJA Skies the
Limit. Id. ¶ 29. On February 23, 2015, the Court of Common Pleas
signed an order granting Tamburri’s motion for entry of judgment
and order on default, thereby equitably reforming the
Subcontract to name “AJA Skies the Limit, Inc.”--rather than the
originally named “AJA Services, Inc.,”--as the steel erector
with whom Tamburri subcontracted with respect to the
construction project at issue in the Buckman Action.2 Id. ¶ 32.
The following diagram illustrates the relationships
between the various actors implicated in this case:
personal injury claims
AJA Skies the Limit
In the instant case here in federal court, Scottsdale
seeks, in both its individual capacity and as a subrogee of
Tamburri, to recover from Kinsale the monies spent and incurred
for its defense and indemnity of Tamburri in the Buckman Action.
See Notice of Removal ¶ 15 (citing Compl. ¶ 1). Kinsale “has
consistently denied coverage under [its] Policy with respect to
the claims alleged in the underlying Philadelphia county
actions, claiming that AJA Skies the Limit, Inc. was the only
named insured under Kinsale’s Policy.” Compl. ¶ 38.
The Court does not express any opinion as to the
reformation by the Court of Common Pleas. Throughout this
memorandum and for purposes of this decision, the Court refers
to the entity insured by Kinsale as “AJA Skies the Limit.”
On October 20, 2014, Scottsdale sent Kinsale a letter
tendering the underlying claims against Tamburri to Kinsale and
requesting that Kinsale undertake the defense, indemnity, and
handling of the claims against Tamburri in the Buckman Action
pursuant to the terms of the Subcontract. Id. ¶ 42. Scottsdale
cautioned in the letter that Kinsale’s “failure, refusal[,] or
neglect to undertake the defense and to indemnify Tamburri would
result in Kinsale being bound by the result of a trial or
settlement of the underlying Buckman Action.” Id. ¶ 43.
Kinsale denied coverage for Scottsdale’s tender on
behalf of Tamburri, asserting that Tamburri’s Subcontract was
not with Kinsale’s insured, AJA Skies the Limit, but instead was
with AJA Services, Inc., which was not an insured or additional
insured under Kinsale’s policy. Id. ¶ 44.
Following the issuance of the February 23, 2015, order
reforming the Subcontract to name “AJA Skies the Limit” instead
of “AJA Services,” Scottsdale retendered the defense of Tamburri
to Kinsale on March 6, 2015. Id. ¶ 45. Kinsale again denied
coverage, and this cycle happened twice more in 2015. See id.
¶¶ 47-49. In December 2015, Kinsale characterized the February
23, 2015, order as a “sham [o]rder” constituting a “fiction”
created by Scottsdale. Id. ¶ 49. Kinsale again denied the
existence of any written contract between Tamburri and AJA Skies
the Limit sufficient to trigger coverage under Kinsale’s policy.
Based on the foregoing facts, Scottsdale now brings
six distinct causes of action and requests for relief against
Kinsale, all of which stem from Scottsdale’s expenses incurred
in defending AJA Skies the Limit in the Buckman Action. These
include unjust enrichment, quantum meruit, equitable request for
reimbursement of defense costs, equitable contribution and
indemnification, equitable subrogration, and reformation of the
Kinsale Insurance Policy. Id. ¶¶ 50-93. Scottsdale demands total
compensation in excess of $75,000. Notice of Removal ¶ 16.
On January 25, 2017, Kinsale removed the instant
action to this Court on the basis of diversity.3 ECF No. 1. On
February 6, 2017, Kinsale filed a motion to dismiss and compel
arbitration. ECF No. 5. Scottsdale responded in opposition to
this motion on February 21, 2017. ECF No. 8. On March 7, 2017,
the Court held an initial pretrial conference and hearing on the
motion to dismiss and compel arbitration. See ECF Nos. 7, 11.
Scottsdale is an Ohio corporation having its principal
place of business in Scottsdale, Arizona. Notice of Removal ¶ 7.
Kinsale is an Arkansas corporation having its principal place of
business in Richmond, Virginia. Id. ¶ 8.
MOTION TO DISMISS AND COMPEL ARBITRATION
The arbitration agreement in Kinsale’s policy is
governed by the Federal Arbitration Act (“FAA”), which provides
in relevant part as follows:
A written provision in . . . a contract evidencing a
arbitration a controversy thereafter arising out of
such contract . . . , shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.
9 U.S.C. § 2. The Third Circuit has held that “when it is
apparent, based on ‘the face of a complaint, and documents
relied upon in the complaint,’ that certain of a party’s claims
‘are subject to an enforceable arbitration clause, a motion to
compel arbitration should be considered under a Rule 12(b)(6)
standard without discovery’s delay.’” Guidotti v. Legal Helpers
Debt Resolution, LLC, 716 F.3d 764, 776 (3d Cir. 2013) (quoting
Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F.
Supp. 2d 474, 482 (E.D. Pa. 2011)).
“Before compelling a party to arbitrate pursuant to
the FAA, a court must determine that (1) there is an agreement
to arbitrate and (2) the dispute at issue falls within the scope
of that agreement.” Century Indem. Co. v. Certain Underwriters
at Lloyd’s, 584 F.3d 513, 523 (3d Cir. 2009). “Arbitration is
strictly a matter of contract,” and, accordingly, “[i]f a party
has not agreed to arbitrate, the courts have no authority to
mandate that he do so.” Bel–Ray Co., Inc. v. Chemrite (Pty)
Ltd., 181 F.3d 435, 444 (3d Cir. 1999).
“[A] non-signatory cannot be bound to arbitrate unless
it is bound ‘under traditional principles of contract and agency
law’ to be akin to a signatory of the underlying agreement.”
E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 F.3d 187, 194 (3d Cir. 2001) (quoting
Bel–Ray, 181 F.3d at 444). One of these “traditional
principles”--and the one implicated in the instant case--is
[T]here are two theories of equitable estoppel in this
context. First, courts have held non-signatories to an
arbitration clause when the non-signatory knowingly
exploits the agreement containing the arbitration
clause despite having never signed the agreement.
Second, courts have bound a signatory to arbitrate
with a non-signatory “at the nonsignatory’s insistence
because of the close relationship between the entities
involved, as well as the relationship of the alleged
wrongs to the nonsignatory’s obligations and duties in
the contract . . . and [the fact that] the claims were
intimately founded in and intertwined with the
underlying contract obligations.”
Id. at 199 (alteration in original) (quoting Thomson-CSF, S.A.
v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995))
(internal quotation marks and citations omitted).
“Under the first theory, courts prevent a nonsignatory from embracing a contract, and then turning its back
on the portions of the contract, such as an arbitration clause,
that it finds distasteful.”4 Id. at 200; see also Invista
S.A.R.L. v. Rhodia, S.A., 625 F.3d 75, 85 (3d Cir. 2010)
(equitable estoppel “prevents a non-signatory from ‘cherrypicking’ the provisions of a contract that it will benefit from
and ignoring other provisions that don’t benefit it or that it
would prefer not to be governed by (such as an arbitration
clause)”). Critical to this inquiry is an analysis of whether
the non-signatory’s claim “implicates, at least in part, the
very [a]greement [the non-signatory] repudiates to avoid
arbitration.” E.I. DuPont, 269 F.3d at 201; see also id. at 200
(examining whether, “at bottom, [the non-signatory’s] claims
against [the defendant] arise, at least in part, from the
The issue in this case is whether Scottsdale, a nonsignatory of the agreement between Kinsale and AJA Skies the
Limit, can be compelled to arbitrate its claims against Kinsale
under the arbitration provision contained in the agreement
between Kinsale and AJA Skies the Limit.
The second theory involves “claims about parent
companies who have not signed agreements containing arbitration
clauses entered into by related entities.” Friedman v. Yula, 679
F. Supp. 2d 617, 628 (E.D. Pa. 2010) (Robreno, J.). This theory
is not applicable here.
The arbitration provision in Kinsale’s policy provides
in relevant part as follows:
All disputes over coverage or any rights afforded
under this policy, including whether an entity or
person is a named insured, an insured, an additional
Supplementary Payments provisions of this policy or
the effect of any applicable statutes or common law
upon the contractual obligations owed, shall be
submitted to binding arbitration, which shall be the
sole and exclusive means to resolve the dispute.
Either party may initiate the binding arbitration.
O’Neill Decl. Ex. A, at Endorsement CAS2007 0110, p. 3, ECF No.
The parties here do not dispute either the facts of
this case or the applicable law. Specifically, they do not
dispute that Kinsale’s policy contains a valid and enforceable
binding arbitration clause, nor do they dispute that Scottsdale
was not a signatory to Kinsale’s policy. Instead, they dispute
only whether Scottsdale “knowingly exploit[ed]” Kinsale’s
policy, “despite having never signed the agreement.” E.I.
DuPont, 269 F.3d at 199.
Kinsale argues that Scottsdale’s claims “are entirely
dependent on Kinsale’s obligation (if any) to provide coverage
under the Kinsale Policy for the underlying claim.” Mot. Dismiss
Mem. at 12, ECF No. 5-1. Kinsale frames broadly both the
arbitration clause itself and Scottsdale’s claims, arguing that
“[t]he Kinsale Policy contains a broad, unconditional,
unqualified arbitration provision” under the “plain terms” of
which “the questions of whether Kinsale has any coverage
obligations under the Kinsale Policy, and the possible scope of
those obligations (if any), are subject to binding arbitration.”
Id. at 1.
For its part, Scottsdale responds that it is
“asserting claims that are based upon the relative relationship
that exists between two liability insurers that insured a common
risk or event, as opposed to seeking to obtain a direct benefit
from the contractual duties embodied in Kinsale’s policy.” Pl.’s
Resp. Mem. at 8, ECF No. 8-2. Scottsdale argues that it would be
unfair to invoke equitable estoppel in this case because
“Scottsdale has alleged equitable claims based upon principles
of contribution and indemnity, which do not flow directly from
any contractual benefits afforded under Kinsale’s policy.” Id.
For legal support, Kinsale relies on several cases
that it finds analogous to the instant case. The first of these
is Sanford v. Bracewell & Giuliani, LLP, 618 F. App’x 114, 11618 (3d Cir. 2015) (non-precedential), a case in which a husband
and wife sought legal counsel but only the husband signed the
engagement agreement with the law firm the couple used. The
Third Circuit found that, although the wife was not a signatory
to the engagement agreement, she was “nevertheless bound by the
arbitration clause under equitable estoppel principles” because
she had “asserted a breach of contract claim and identified the
written [e]ngagement [a]greement as the contract allegedly
breached.” Id. at 118. The Third Circuit described this “attempt
to ‘claim the benefit of the contract and simultaneously avoid
its burdens’” as “precisely the situation the doctrine of
equitable estoppel seeks to prevent.” Id. (quoting E.I. Dupont,
269 F.3d at 200).
Kinsale also cites a case that this Court decided in
2010 involving a plaintiff father who alleged that, “as a result
of certain misrepresentations and oral agreements made by [the
defendants],” he transferred his interest in a vending machine
business to his son. Friedman v. Yula, 679 F. Supp. 2d 617, 628
(E.D. Pa. 2010) (Robreno, J.). Despite the plaintiff having
never signed the agreement at issue, this Court found that,
“having embraced the written agreement . . . to prove his claims
and his damages, [the plaintiff] cannot now walk away from the
arbitration clauses in the [relevant agreements],” and
accordingly compelled arbitration. Id.
Scottsdale argues that the cases Kinsale cites are
inapposite because the plaintiffs in those cases sought “direct
benefits” under the contracts that were at issue, whereas here,
“Scottsdale never entered into any direct contractual
relationship with Kinsale, nor has Scottsdale pursued a direct
breach of contract claim against Kinsale in this case.” Pl.’s
Resp. Mem. at 9. Scottsdale instead points to Danaher Corp. v.
Travelers Indem. Co., No. 10-121, 2014 WL 7008938, at *8
(S.D.N.Y. Dec. 12, 2014), in which the court found that
Travelers’ Insurance Company (“Travelers”) should not be
compelled to arbitrate under insurance contracts to which it was
not a party:
Industria and Trygg–Hansa contend that Travelers is
bound by the arbitration clauses in their respective
insurance policies covering Atlas Copco, although
Travelers is not a party to those agreements. The
Court disagrees. Travelers’ cause of action against
these insurers sounds in contribution, under the
“well-settled principle” that permits “one party
jointly liable on an obligation [that] pays more than
its pro rata share [to] . . . compel the co-obligors
to contribute their share of the amount paid.” Md.
Cas. Co. v. W.R. Grace & Co., 218 F.3d 204, 210 (2d
Cir. 2000). Travelers, in seeking contribution, did
not knowingly accept a direct benefit of Trygg–Hansa’s
and Industria’s insurance contracts with Atlas Copco.
The benefit of these insurance policies ran to Atlas
Copco, the insured party. Instead, the interest that
Travelers seeks is an “indirect” one, because rather
than “flowing directly from the agreement,” it
“exploits the contractual relation” between the
insurers and Atlas Copco that may require Trygg–Hansa
and Industria to defend or indemnify Atlas Copco
against certain claims--which, in turn, may give rise
to a contribution claim by Travelers.
Id. (footnotes and internal citations omitted). Scottsdale
argues that this is analogous to the present case because “[t]he
gravamen of Scottsdale’s claims concern the equitable right to
recover amounts that should have been paid by Kinsale.” Pl.’s
Resp. Mem. at 12; see also id. at 15 (“Scottsdale’s equitable
contribution and indemnity claims are not based directly on the
terms of the Kinsale policy, but arise out of the equitable and
common law rights and obligations that exist between co-insurers
that cover a common event or risk.”).
Finally, Scottsdale notes that, when Kinsale filed a
Demand for Arbitration and Statement of Claim with the American
Arbitration Association (“AAA”) in April 2016 to obtain a
declaratory judgment,5 Kinsale identified Scottsdale only as an
“other interested party” and “chose not to seek any declaratory,
or other relief, against Scottsdale in the AAA Statement of
Claim.” Id. at 18-19. Scottsdale argues that “Kinsale’s decision
not to seek any direct relief against Scottsdale in the AAA
provides highly probative evidence that Kinsale never considered
Scottsdale’s claims to fall within the plain meaning of the
Kinsale arbitration provision.” Id. at 19.
The Court finds that Scottsdale’s claims depend almost
entirely on the scope of Kinsale’s policy and the coverage
Kinsale owes Tamburri under that policy, if any. Specifically,
Scottsdale brings claims for unjust enrichment, quantum meruit,
and reformation of Kinsale’s policy to include AJA Services,
Inc., as a named insured. See Compl. ¶¶ 50-93. These claims
In that arbitration action, Kinsale specifically
sought “a declaratory judgment that there is no coverage for
Tamburri as an additional insured” under the policy that Kinsale
had issued to AJA Skies the Limit. See Statement of Claim,
Apollo Decl., Ex. A, ¶ 7, ECF No. 8-5.
clearly “arise, at least in part, from the [agreement at
issue].” E.I. DuPont, 269 F.3d at 200. Additionally, Scottsdale
brings claims for indemnification and equitable subrogation,
meaning that Scottsdale seeks essentially to step into the shoes
of Tamburri and exercise the rights and remedies--specifically,
the rights to defense and indemnity by AJA Skies the Limit’s
insurance company, Kinsale--that are available to Tamburri under
the Subcontract. The Kinsale policy is what provides Tamburri
(and Scottsdale, as subrogee) the defense and indemnity that
Scottsdale ultimately seeks. In other words, without the Kinsale
policy, there is no defense or indemnity available to Tamburri
It is true that there is no allegation in this case
that Scottsdale “embraced” Kinsale’s policy “during the lifetime
of the [agreement],” nor is there evidence that Scottsdale
received “any direct benefit” from that agreement. Id. The
absence of either or both of these factors, however, does not
fatally undermine Kinsale’s argument that Scottsdale’s claims
“are entirely dependent on Kinsale’s obligation (if any) to
provide coverage under the Kinsale Policy for the underlying
claim.” Mot. Dismiss Mem. at 12.
E.I. DuPont is not to the contrary. There, the Third
Circuit noted expressly that it would not invoke equitable
estoppel regarding the arbitration provision at issue in that
case not because the relevant agreement was not
“embraced . . . during [its] lifetime” or because no “direct
benefit” flowed from the agreement to the party opposing
arbitration. E.I. Dupont, 269 F.3d at 200-01. Instead, what
“save[d] the day” and prevented the court from compelling
arbitration was the fact that the case involved a “separate oral
agreement” that lay “at the core of [the] case” but nonetheless
remained “wholly apart” from the question of whether there was
any breach of the written agreement containing the arbitration
clause. Id. at 201. In other words, the plaintiff’s claims in
that case were dependent, unlike here, not upon the agreement
containing the arbitration provision, but instead upon a
separate oral agreement subject to no arbitration clause. The
instant case does not involve any separate agreement that shifts
the basis of Plaintiff’s claims away from the written agreement
that contains a broad and binding arbitration provision.
Nor is Danaher is helpful here because Danaher
involved a contribution question, see Danaher, 2014 WL 7008938
at *8, whereas the instant case concerns equitable subogration.
Subrogation is an equitable doctrine “intended to place the
ultimate burden of a debt upon the party primarily responsible
for the loss.” 14A Summ. Pa. Jur. 2d Insurance § 24:1 (2d ed.)
In contrast, “the aim of equitable contribution is to apportion
a loss between two or more insurers who cover the same risk.”
Id. Unlike in Danaher, the two insurance companies here did not
insure the same party. Scottsdale is not seeking contribution
from Kinsale for any risk that the two companies both covered,
but is instead seeking to place the burden of the loss--i.e.,
the monies spent and incurred for the defense and indemnity of
Tamburri in the Buckman Action--against the party primarily
responsible for that loss--i.e., AJA Skies the Limit (insured by
Under the circumstances of this case, given that
Scottsdale’s claims are entirely dependent on Kinsale’s
obligation to provide insurance coverage under the Kinsale
policy, Scottsdale is equitably estopped from objecting to the
arbitration clause in the Kinsale policy.
For the foregoing reasons, the Court will grant the
motion to compel arbitration and dismiss the case. An
appropriate order follows.
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