Texas Federal Court Rules Insurance Policy Requires Arbitration in England

The Southern District of Texas has ordered a dispute between two insurers over an offshore oil drilling platform injury settlement to arbitration in England.  In Gemini Ins. Co. v. Certain Underwriters at Lloyd’s London Subscribing to Policy No. B0973MA1305152 Issued Through the Office of Osprey Underwriting Agency Limited, No. 4:17-CV-01044 (S.D. Tex., April 13, 2017), Galveston Bay Energy, LLC, secured an insurance policy related to the company’s offshore oil drilling platform work from both Gemini Insurance and Osprey Underwriting.  After a worker was hurt in a maritime accident on a covered oil platform, Galveston Bay Energy and Gemini Insurance entered into a settlement agreement with the injured worker.  Galveston Bay Energy then assigned its rights under the company’s insurance contract with Osprey Underwriting to Gemini.

Next, Gemini attempted to collect $1 million from Osprey over the personal injury settlement.  In response, Osprey initiated arbitral proceedings in England pursuant to the terms of the insurance contract in an effort to seek a judgment stating the insurer was not required to pay anything.  Gemini then filed a lawsuit in a Texas state court seeking payment under the Osprey policy.  In addition, Gemini asked the court to issue a temporary restraining order to prevent Osprey from pursuing arbitration.  The state court issued the requested restraining order and the case was later removed to the Southern District of Texas.

In April, the Southern District of Texas dissolved the temporary restraining order and held:

The Fifth Circuit’s opinion in Crawford controls here. Because incorporation of English law is an implicit delegation clause, the only issue before this court is whether there is an agreement to arbitrate some set of claims. If there is, this case must be sent to arbitration for the arbitrator to decide whether a particular claim is arbitrable and, if so, to submit it to arbitration.

While Gemini initially argued in its state-court petition that there was no valid arbitration provision, in its reply and at the hearing it changed its position. Instead, it argued that the “Law and Practice” provision was a valid arbitration agreement that governed most potential claims arising out of the policy, but that the more specific “Service of Suit” provision overrode that arbitration agreement for claims for “failure . . . to pay any amount claimed to be due” under the policy. Gemini’s concession that there is a valid arbitration agreement means that, given the delegation clause, the arbitrator decides whether the present claims are arbitrable. Kubala, 830 F.3d at 202. Gemini’s argument that the claim here is covered by the “Service of Suit” provision rather than the “Law and Practice” provision is properly directed to the arbitrator.

Additionally, the policy requires arbitration. The policy specifies in its summary section that choice of law and jurisdiction are governed by the “Law and Practice” clause. The “Law and Practice” clause states that arbitration in England is required “[n]otwithstanding anything else to the contrary . . . .” It then adds suspenders to that belt, emphasizing that “[i]n the event of a conflict between this clause and any other provision of this insurance, this clause shall prevail and the right of either party to commence proceedings before any other Court or Tribunal in any other jurisdiction shall be limited to the process of enforcement of any award hereunder.” The “Service of Suit” provision is explicitly subordinated to the “Law and Practice” provision: after describing the various rights and obligations of the parties, it states that it is “[s]ubject, in all respects, to the Osprey Law and Practice Clause . . . .”

This court finds persuasive the the Fifth Circuit’s and the Florida appellate court’s harmonizing interpretation. The best way to harmonize these two provisions is not, as Gemini suggests, to treat the “Service of Suit” provision as a carve-out from the “Law and Practice” provision’s broad sweep. While Gemini is correct that, all else equal, specific provisions control over general provisions, that principle of construction cannot override clear contract language. The contract language cannot bear the interpretation that Gemini suggests. The “Law and Practice” provision is broad; it states that no other provision of the contract can alter the strict and broad arbitration requirement it imposes. It exempts one category of suits: actions to enforce an arbitration award. The “Service of Suit” provision is explicitly subordinated to the “Law and Practice” provision. The “Service of Suit” provision cannot be a general carveout from the “Law and Practice” provision, because the “Law and Practice” provision does not permit the full range of suits for “failure . . . to pay any amount claimed to be due” under the policy. Rather, it only permits one type of suit to be pursued outside of English arbitration: suits to compel the other party to pay an amount due as a result of English arbitration under the “Law and Practice” clause. The “Service of Suit” provision can only apply to that narrow category of actions.

As a result of the Texas federal court’s April opinion, Osprey filed a motion to dismiss the dispute in favor of English arbitration proceedings.  On May 2nd, the Southern District of Texas granted the insurer’s motion and dismissed the case.

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