INSURER PRECLUDED FROM ENFORCING POLICY ARBITRATION CLAUSE IN GARNISHMENT ACTION BROUGHT BY INSURED’S ASSIGNEE
Penford Products entered into a contract with C.J. Schneider Engineering (“CJS”) for the construction of an ethanol plant. Penford demanded arbitration under the contract, asserting that the plant was defectively designed and constructed. CJS tendered its defense to Lexington Insurance Company, CJS’s professional liability insurer. After Lexington claimed no coverage and refused to defend, CJS assigned all of its rights against Lexington to Penford. Shortly thereafter, a seven-million dollar arbitration award was issued in Penford’s favor and against CJS. After judgment on the award was entered, Penford initiated garnishment proceedings against Lexington in Iowa state court to collect on the judgment. Lexington moved to compel arbitration, arguing that Penford must abide by the arbitration clause in the Lexington insurance policy issued to CJS. The trial court rejected Penford’s request and the appellate court affirmed holding that, while Penford “stands in the shoes” of CJS for purposes of the garnishment action, Penford was not bound by the arbitration clause in the Lexington/CJS policy. Penford Prods. Co. v. C.J. Schneider Eng’g. Co., No. 1-575/10-1754 (Iowa Ct. App. Dec. 21, 2011).
This post written by Ben Seessel.
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