Reinsurance Focus

A court compelled arbitration governed by the Federal Arbitration Act, rather than by state law, in a dispute related to insurance coverage for transported equipment that was damaged by a train derailment. When the insurer denied coverage for the equipment damage, the railway transport companies filed breach of contract and negligence claims against their insurer and the insurer’s agent, respectively. A dispute then arose between the insurer and its agent, in which both parties demanded indemnification from the other pursuant to their underlying agency agreement.

After the insurer demanded arbitration under the agency agreement with respect to the indemnification dispute, the agent objected to the FAA’s application, contending that the arbitration should be governed by New York law. The agent reasoned that the relevant transaction was the procurement of the insurance, which was completed entirely within New York, amongst New York parties. The court rejected the agent’s argument, finding that the FAA did apply because interstate commerce was, in fact, implicated. The relevant transaction was the (interstate) agency agreement between the New York agent and the California insurer, not the (intrastate) procurement of insurance. Even if procurement of the insurance policy was relevant, “insurance is not an entirely intrastate industry” and the FAA would still apply. The court also denied the agent’s request to stay the arbitration until the transport companies’ breach of contract and negligence claims were resolved, holding that the indemnification claims were not intertwined with the coverage dispute, that the potential for inefficiency is not a valid basis for stay under the FAA. Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC, Case No. 1:11-cv-03238 (USDC S.D.N.Y. Aug. 20, 2013).

This post written by Michael Wolgin.

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