International ADR: Insurance Coverage Disputes' Arbitration Forum Clauses (Web)

The Fifth U.S. Circuit Court of Appeals held that an arbitration clause determining the forum for the resolution of insurance coverage disputes between a chemical company and foreign insurers relates to an intentional torts suit against the company and the insurers under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act, 9 U.S.C. § 201. Acosta v. Master Maintenance & Construction, No. 05-30126, 2006 WL 1549959 (5th Circuit June 8, 2006)(available at: http://www.ca5.uscourts.gov/opinions/pub/05/05-30126-CV0.wpd.pdf).

The court also considered whether the unanimity rule applicable to removals under 28 U.S.C. § 1441(a) applies to Convention removals, but did not ultimately decide this question.

The appellants were three people out of more than 2,000 who brought state law tort claims in Louisiana based on injuries stemming from the September 1996, release of a mustard gas agent at a Georgia Gulf Corp. facility in Plaquemine, La. The plaintiffs initially named as defendants Georgia Gulf and several contractors. They also named two foreign insurers, Primex Ltd. and X.L. Insurance Co. Ltd., whose policies included arbitration clauses governing coverage disputes.

The plaintiffs amended their complaint, adding intentional tort claims against Georgia Gulf. As a result, Primex and X.L. disputed their coverage. Primex and XL commenced arbitration pursuant to their policies’ arbitration clauses.

At this point a subset of defendants involved in the case was severed by joint motion of the Acosta parties. Primex and X.L. removed the case to federal court arguing that allegations of intentional torts created a coverage dispute between them and Georgia Gulf. The insurers invoked the policies’ arbitration clauses and removal provisions.

The plaintiffs filed a motion to remand to state court, which the district court denied.

Primex filed a motion to compel arbitration while the plaintiffs requested immediate appeal of the remand motion. A settlement was negotiated with other injured parties, but the three Acosta appellants pursued litigation, which eventually was dismissed on summary judgment. The plaintiffs appealed to the Fifth Circuit.

The parties agreed that the insurance policy arbitration clauses fell under the Convention, as defined by 9 U.S.C. § 202, because it was an arbitration agreement arising out of a covered relationship and involved citizens of different countries. They disputed, however whether the case should have been removed under 9 U.S.C. § 205, which requires the court to consider whether the suit “relates to” the arbitration clauses under the agreement.

The Fifth Circuit noted that Section 205 does not define when an action relates to an arbitration clause falling under the convention. But the unanimous panel noted that federal courts recognize that the removal statute’s “plain and expansive language” indicates “Congress’s desire to provide federal courts broad jurisdiction” over Convention cases for the purposes of uniformity in such decisions, and to ensure the same type of treatment from other Convention signatories.

The appeals court noted that the Section 205 removal provision is “one of the broadest . . . in the statute books,” as uniformity would best be served by having federal court jurisdiction for Convention cases.

The court next looked to what the term “relates to” means and how it should be interpreted. The panel court noted that the Fifth Circuit had held that “relates to” is a broad term and that whenever an arbitration agreement “conceivably could affect the outcome of a plaintiff’s suit, the agreement ‘relates to’ the plaintiff’s suit.” Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002).

The appellants asserted that federal court jurisdiction was lacking because Louisiana has a direct action statute that cancels arbitration clauses, so that whatever is decided in arbitration proceedings would not affect the litigation outcome and thus would not relate to litigation. The panel responded that Beiser did not establish a comprehensive rule on the subject of what related to means, and it continued to look at other meanings of the term “related to.”

It noted that “relate” means having a “connection, relation, or reference.” The panel held that there was a connection between the arbitration agreement and the insurance claims, and that common sense dictated that the policy provisions and the tort claims were related.

The Fifth Circuit stated as a rule that forum determination clauses for the resolution of certain disputes are related to suits seeking the resolution of such disputes. Thus, the court held that the district court was correct in finding the agreement clause and suit claims related.

Finally, the court considered whether there is a requirement that all defendants in the case unanimously consent to removal, which was an issue since a group of defendants had been severed from the suit. The court did not determine this issue because, it held, the severed defendants were nominal parties whose consent would not be required even if there was a unanimity rule. The court emphasized that the appellants voluntarily requested the severance, and that the court could reach a final judgment consistent with equity and good conscious even without these defendants.

--Marika Maris, Summer Law Clerk, White & Case LLP, New York