Summary
In Source One, the insurance company and the insured entered into insurance policies and a separate Payment Agreement, which required the insured "to provide significant collateral to cover losses on claims under the Policies within the deductible" where the "amount of deductible required under the Payment Agreement was to be calculated in part based on respondent's loss history for claims under the Policies."
Summary of this case from Am. Zurich Ins. Co. v. Country Villa Serv. Corp.Opinion
No. 652366/10.
2012-07-25
NATIONAL UNION FIRE COMPANY OF PITTSBURGH, P.A., on Behalf of itself and each of the related Insurers that Provided Insurance Coverage to Respondent, Petitioner, v. SOURCE ONE STAFFING, LLC, Respondent.
Michael S. Davis, Anthony I. Giacobbe, Jr. and Paul J. Monsanto of Zeichner, Ellman & Krause LLP, for Petitioner. Rene F. Hertzog and Alex D. Hardiman of Anderson Kill & Olick, P.C., for Respondent.
Michael S. Davis, Anthony I. Giacobbe, Jr. and Paul J. Monsanto of Zeichner, Ellman & Krause LLP, for Petitioner. Rene F. Hertzog and Alex D. Hardiman of Anderson Kill & Olick, P.C., for Respondent.
EILEEN BRANSTEN, J.
Petitioner National Union Fire Insurance Company of Pittsburgh, PA provided worker's compensation insurance coverage to respondent Source One Staffing, LLC. Coverage began in October of 2004 pursuant to a series of documents, including insurance policies (the “Policies”), a payment agreement (the “Payment Agreement”) and a 2004 Addendum. The Payment Agreement required respondent to provide significant collateral to cover losses on claims under the Policies within the deductible. The amount of deductible required under the Payment Agreement was to be calculated in part based on respondent's loss history for claims under the Policies.
The Payment Agreement contains an arbitration clause. That clause directs that all disputes arising under the Payment Agreement are subject to arbitration, including questions as to the arbitrability of the dispute. According to respondent, at some point, petitioner failed to reasonably adjust claims against it under the Policies, and made improper demands that respondent increase its collateral under the Payment Agreement.
On October 27, 2010, petitioner filed a demand for arbitration of its payment dispute with respondent. On December 8, 2010, respondent filed a lawsuit in the California Superior Court for the County of Los Angeles against petitioner and other defendants (the “California Action”).
Respondent disputes the enforceability of the arbitration clause on the basis of California Insurance Code § 11658. Section 11658 requires that a worker's compensation policy cannot be issued unless the insurer files a copy of the policy with the rating organization. The parties agree that the neither the Payment Agreement nor the 2004 Addendum were filed with the rating organization. Respondent asserts that the arbitration clause is therefore unenforceable. Conversely, petitioner contends that the Payment Agreement and the 2004 Addendum are not policies within the meaning of the Insurance Code.
Petitioner previously moved to compel arbitration. Although petitioner argued that the Federal Arbitration Act (the “FAA”) preempts California regulatory law, in a decision and order dated June 27, 2011 (the “Decision”), this court found that petitioner had not shown that the McCarren–Ferguson Act, which effectuates the policy of leaving regulation and taxation of the insurance industry to the FAA, preempts the Insurance Code. The court then found that “[w]hether the Payment Agreement and 2004 Addendum are policies or components of policies within the meaning of the Insurance Code is a dispositive question.” Decision, at 8. The court further found that “[b]ecause the parties have not addressed those issues sufficiently to permit the court's decision thereof, Petitioner's petition is denied with leave to replead.” Id. Petitioner then filed the First Amended Verified Petition.
Motion Sequence Nos. 003 and 004 are consolidated for disposition. In Motion Sequence No. 003, petitioner moves, pursuant to CPLR § 7503(a), for an order granting the relief requested in the First Amended Verified Petition and directing respondent to arbitrate the disputes asserted in the Demand for Arbitration dated October 27, 2010 and in the complaint filed by respondent in the California Action.
In Motion Sequence No. 004, petitioner moves, pursuant to CPLR 2221(d), for an order requesting leave to reargue that portion of the court's decision dated July 27, 2011 that held that the McCarren–Ferguson Act, 15 USC § 1011 et seq. permits the California Insurance Code § 11658 to preempt the Federal Arbitration Act, 9 USC § 1 et seq., and upon reargument, ordering respondent to arbitrate the disputes asserted in the Demand for Arbitration dated October 27, 2010 and in the complaint filed by respondent in the California Action.
For the reasons set forth below, petitioners' motions are denied.
I. Petitioner's Motion for Reargument (Motion Sequence No. 004)
In support of its motion for reargument, petitioner argues that the Decision overlooked governing law establishing that the McCarren–Ferguson Act does not permit the Insurance Code to preempt the FAA.
“A motion for reargument, addressed to the discretion of the court, is designed to afford a party an opportunity to establish that the court overlooked or misapprehended the relevant facts, or misapplied any controlling principle of law.” Foley v. Roche, 68 A.D.2d 558, 567 (1st Dep't 1979); see alsoCPLR 2221(d)(2); McGill v. Goldman, 261 A.D.2d 593 (2d Dep't 1999); Opton Handler Gottlieb Feiler Landau & Hirsch v. Patel, 203 A.D.2d 72 (1st Dep't 1994). It is not designed to provide the unsuccessful party with successive opportunities to argue once again the very issues previously decided. William P. Pahl Equip. Corp. v. Kassis, 182 A.D.2d 22 (1st Dep't), lv. dismissed in part, denied in part80 N.Y.2d 1005 (1992); Matter of Bliss v. Jaffin, 176 A.D.2d 106 (1st Dep't 1991). Leave to reargue is also not an opportunity to present arguments different from those originally asserted. Foley v. Roche, 68 A.D.2d 558,supra.
Petitioner's motion for reargument is denied. Petitioner fails to demonstrate that this court overlooked or misapplied any controlling principle of law in denying the petition to compel arbitration. SeeCPLR 2221(d)(2); Spinale v. 10 W. 66th St. Corp., 193 A.D.2d 431 (1st Dep't 1993) (denying motion for leave to reargue since there was no showing that the court overlooked or misapprehended relevant facts or controlling law in prior decision); see also Daluise v. Sottile, 15 AD3d 609 (2d Dep't 2005); Matter of Armstead v. Morgan Guar. Trust Co. of NY, 13 AD3d 294 (1st Dep't 2004). Rather, petitioner merely restates the same arguments that were already considered and rejected in the original decision.
For instance, petitioner argues once again that the McCarren–Ferguson Act is not applicable to this case. Petitioner argues that because California has not enacted a prohibition of the arbitration of insurance disputes, the FAA is controlling. Thus, petitioner merely repeats and rehashes the same arguments that were originally presented and rejected on the prior motion. This is insufficient to grant a motion for reargument. See Pro Brokerage, Inc. v. Home Ins. Co., 99 A.D.2d 971 (1st Dep't 1984); Foley v. Roche, 68 A.D.2d 558,supra; see, e.g., O'Kelly v. North Fork Bank, 2008 WL 3243826, 2008 N.Y. Slip Op 32153[U], * 7 (Sup.Ct., Nassau County 2008) (denying motion for reargument of opposition to motion to dismiss the plaintiffs' claims where “the same arguments advanced in support of reargument were made by the plaintiffs in support of their original cross motion, considered by the Court and rejected in a detailed decision”).
Accordingly, petitioner's motion for reargument is denied.
II. Petitioner's Motion to Compel Arbitration (Motion Sequence No. 003)
A. First–to–File Doctrine
First, this court rejects respondent's argument that this action should be dismissed or stayed in favor of the California Action pursuant to the CPLR 3211(a)(4) (the “first-to-file” doctrine) or on forum non conveniens grounds. In making these arguments, respondent completely ignores the fact that the Payment Agreement is subject to a mandatory forum selection clause that mandates that this action proceed only in New York. See Payment Agreement, at A008 (“any action or proceeding concerning arbitrability, including motions to compel or stay arbitration, may be brought only in a court of competent jurisdiction in the City, County and State of New York ) (emphasis added).
In any event, respondent's “first-to-file” argument fails because the California Action was a defensive response to petitioner's demand for arbitration. Petitioner served a demand for arbitration on October 27, 2010, over a month before respondent filed the California action on December 8, 2010.
Respondent's filing of the California Action as a response to petitioner's demand for arbitration is not entitled to first-filed priority. New York courts have “broad discretion” to decide whether or not to dismiss a later-filed action under CPLR 3211(a)(4). Whitney v. Whitney, 57 N.Y.2d 731 (1982). Courts will not defer to a first-filed out of state lawsuit if it was “instituted to obtain some unjust or inequitable advantage.” White Light Prods. v. On the Scene Prods., Inc., 231 A.D.2d 90, 96 (1997). Thus, the first-in-time rule does not apply where the initial action was a preemptive strike to provide a tactical advantage to defendants seeking a more favorable forum. L–3 Comm. Corp. v. SafeNet, Inc., 45 AD3d 1 (1st Dep't 2007). For instance, in Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S.1 (1983), the U.S. Supreme Court held that it was an abuse of discretion to allow first-filed priority to a suit seeking to block an arbitration because it is “obvious” that a party that commences arbitration cannot be the first to file in court. See, e.g., National Union Fire Ins. Co. of Pittsburgh, P.A. v. Las Vegas Prof. Football Ltd. Partnership, 409 Fed. Appx. 401 (2d Cir.2010) (compelling arbitration under New York forum selection clause, and holding that Florida action brought after arbitration demand was not entitled to first-filed priority). B. Forum Non Conveniens
Respondent has also failed to meet its heavy burden of demonstrating that it is entitled to dismissal on forum non conveniens grounds. “Forum selection clauses are prima facie valid and are enforced because they provide certainty and predictability in resolving disputes ... [m]andatory forum selection clauses preclude traditional [forum non conveniens] analysis in favor of a stricter standard.” March USA Inc. v. Hamby, 28 Misc.3d 1214(A), 2010 N.Y. Slip Op 51320(U), *2 (Sup.Ct., N.Y. County 2010). Thus, the “challenging party must make a strong showing in order to set aside such a clause.” Id. Respondent has failed to make any such showing. See Banco Ambrosiano v. Artoc Bank and Trust, 62 N.Y.2d 65, 68 (1984) (“[b]road allegations that ... witnesses and documents are located outside New York are not sufficient for this purpose”).
As this court previously determined, the sole remaining issue in the Amended Petition is “whether the Payment Agreement and 2004 Addendum are policies or components of policies within the meaning” of Insurance Code Section 11658, which provides that:
A worker's compensation insurance policy or endorsement shall not be issued by an insurer to any person in this state unless the insurer files a copy of the form or endorsement with the rating organization pursuant to subdivision (e) of Section 11750.3 and 30 days have expired from the date the form or endorsement is received by the commissioner from the rating organization without notice from the commissioner, unless the commissioner gives written approval of the form or endorsement prior to that time Insurance Code Section 11658(a).
Respondent argues that the Payment Agreement is part of the insurance policies that petitioner sold to respondent, and that the arbitration provision and forum selection clauses are void because petitioner failed to comply with the Insurance Code.
Petitioner argues that the Payment Agreement is not a policy or endorsement under the Insurance Code. Rather, the Payment Agreement is a credit agreement that permits respondent to defer a significant portion of its premium and claim reimbursement obligations arising under the Policies and, as such, does not establish or govern the insurer's obligation to pay benefits to injured workers under California law.
Contrary to petitioner's arguments, it is clear that the Payment Agreement forms a part of the workers compensation policies at issue here. Several provisions of the Payment Agreement reflect petitioner's contractual intent to treat it and the Policies as part of the same collective agreement.
First, the section entitled “WHAT HAVE YOU AND WE AGREED TO” states:
We have agreed to the following:
to provide You insurance and services according to the Policies and other agreements; and
to extend credit to You by deferring our demand for full payment of the entire amount of your Payment Obligation if You make partial payments according to this Agreement.
To induce us to agree as above
You have agreed to do the following:
to pay us all Your Payment Obligations and to perform all Your other obligations to this Agreement and Schedule for all entities covered by the Policies;
to provide us with collateral according to this Agreement and Schedule
Hertzog Aff., Ex. 2, at A003. This section expressly links petitioner's and respondent's obligations under both the Payment Agreement and the Policies. This section also expressly states that respondent's promises of payment obligations and collateral “induced” petitioner to enter into both the Payment Agreement and the Policies ( id.).
Second, the section entitled “ARE YOU AUTHORIZED TO MAKE THIS AGREEMENT” was amended in a 2006 Addendum to state:
This Agreement together with the Schedules, Addenda, Policies and any related agreement between You and Us, constitute the basis for a program of insurance coverage. We would not have entered into any of them without your agreement on all of them. For that reason, you should review all such documents together when making any accounting, tax or legal determinations relating to the insurance program
Id. at A040. This language similarly expresses the intent that all of the contract documents be taken together as a single agreement, as petitioner states that it would not have entered into them without respondent's agreement on all of them.
Third, the sections of the Payment Agreement entitled “WHAT IS DEFAULT?” and “WHAT MAY WE DO IN CASE OF DEFAULT,” which grant petitioner the right to cancel or withhold payment of benefits under the Policies if respondent defaulted under the Payment Agreement, id. at A007–08, also demonstrate an intent to treat the Payment Agreement and the policies as a single contract. SeeCalifornia Civil Code section 1642 (multiple contract documents part of the same transaction are taken as a single contract).
In addition, in Ceradyne, Inc. v. Argonaut Ins. Co., 2009 WL 1526071 (Cal.App.2009
), the California Court of Appeals found that agreements like the Payment Agreement were subject to California Insurance Code Section 11658. The court found that the failure to file an arbitration and forum selection provision with the California Department of Insurance rendered the provision “unenforceable.” In Ceradyne, the carrier argued, as petitioner argues here, that the documents like the Payment Agreement are not subject to the submission requirements of Section 11658 because they are not policy forms or endorsements. Id. The court rejected that argument, stating:
While Ceradyne is unpublished and citation of such decisions by California courts is restricted pursuant to California Rule of Court 8.1115, there is no such rule in New York which prevents the citation of unpublished decisions.
As evidenced by Argonaut's own policy, a standard workers' compensation policy includes more than just a statement of indemnity obligations. To adequately and efficiently regulate and monitor rates and insurance companies, the Commissioner and the WCIRB must review more than indemnity and liability terms. Under California law, employers have no choice but to secure workers' compensation insurance ... and consequently, the entire system is highly regulated. If dispute resolution by arbitration was intended to be part of the insurance program' with Ceradyne, we conclude the provision required review and approval by the Insurance Commissioner and the WCIRB.
Id. at 11. Because the insurer failed to comply with Section 11658, the court held that the arbitration and forum selection clauses were void and unenforceable. Id. In that case, as here, the Insurance Plan Agreement (comparable to the Payment Agreement) was found to be “part and parcel of the complete insurance plan offered.” Id.
Thus, the Payment Agreement is intrinsically linked to the Policies, and the broad language of the arbitration provision, which purports to require arbitration for any disputes about payment obligations, “as well as any other unresolved dispute arising out of this Agreement.” Accordingly, petitioner's failure to comply with Section 11658 renders the arbitration and forum selection clauses void and unenforceable.
Although petitioner cites to Grove Lumber & Building Supply, Inc. v. Argonaut Ins. Co., 2008 WL 2705169 (C.D.Cal.2008), an earlier decision that reached a different conclusion, that case is distinguishable. The payment agreement in that case included a provision stating that it “does not change any of the terms or conditions of the Policies or of our obligations or duties spelled out in the Policies.” Id. at *2. No such provision appears in the Payment Agreement at issue here.
Moreover, Grove is a federal court decision that was decided before Ceradyne, and which explicitly noted that it did not follow the trial court's decision in Ceradyne because the matter was on appeal at that time. In re Argonaut Ins. Co. v. Grove Lumber & Building Supply, Inc., 2008 N.Y. Misc. LEXIS 9418 (Sup.Ct., N.Y. County 2008), a related decision upon which petitioner also relies, was also similarly decided before Ceradyne.
Indeed, Ceradyne is consistent with a directive issued by the California Department of Insurance on February 14, 2011 to the Workers Compensation Insurance Review Board (the “WCIRB”) regarding the kind of workers compensation collateral agreements that are at issue in this matter. The California Department of Insurance found that, under California law, such agreements were required to be filed with the WCIRB, and stated that it “is particularly concerned with arbitration provisions contained in unattached collateral agreements and considers such terms unenforceable unless the insurer can demonstrate that the arbitration agreement was expressly agreed to by the insured at the time the policy was issued.” Hertzog Aff., Ex. 5.
Under California law, when an administrative agency is charged with enforcing a particular statute, its interpretation of the statute will be accorded great respect by the courts “and will be followed if not clearly erroneous.” Judson Steel Corp. v. Workers' Comp. Appeals Bd., 22 Cal.3d 658, 668 (1978); Yamaha Corp. of Am. v. State Bd. of Equalization, 19 Cal.4th 1, 7 (1998) (holding that “administrative interpretation ... will be accorded great respect by the courts and will be followed it not clearly erroneous”).
Petitioner has not carried its burden of proving that the Payment Agreement was either filed as part of the Policies with the WCIRB, or that the arbitration agreement was expressly agreed to at the time the policy was issued. Accordingly, this court must defer to the opinion of the California Department of Insurance, and the Petition must be denied. C. Prior Admissions
The court also notes that petitioner has already admitted in prior litigation that, when it sells insurance policies subject to a payment agreement, those documents are to be taken as single agreement.
It is well settled that a party's admissions in one proceeding constitute an evidentiary admission in a subsequent proceeding. Matter of Liquidation of Union Indemnity Ins. Co. of NY, 89 N.Y.2d 94 (1996). Moreover, “[i]n addition to being a declaration of a party, an informal judicial admission may be found to be a declaration of a representative or predecessor in interest of a party.' “ Tamily v. General Contr. Corp., 270 A.D.2d 751, 753 (3d Dep't 2000) (citation omitted).
In 2009, in an action originally venued in the United States District Court for the Central District of California captioned American Home Assurance Co. v. UMG Recordings, Inc., American Home Assurance Company (“AHAC”) argued that its payment agreement and the policies “constitute one comprehensive agreement.” Hertzog Aff., Ex. 3, at 35–37; Ex. 4 at 13–19. The payment agreement at issue in the UMG case was issued by petitioner on behalf of itself and AHAC. Id., Ex. 4, at 14, n. 1. Likewise, AHAC is a party to the Payment Agreement at issue here, and petitioner is acting on its behalf under the terms of the Payment Agreement and this litigation. Payment Agreement, at A001. Accordingly, any statements made by AHAC in the UMG case constitute admissions by petitioner in this litigation and vice versa. See Tamily v. General Contr. Corp., 270 A.D.2d 751,supra.
Just as respondent argues here, in UMG, AHAC argued that California Insurance Code section 1642 required finding that the documents were a single agreement: “Because of their obvious interrelatedness, the documents comprising the Insurance Program must be read together.” Hertzog Aff., Ex. 3, at 37. Based on that contention, AHAC argued that controversies arising under its insurance policies are subject to the arbitration provision in its Payment Agreements: “In addition, where, as here, the Payment Agreement, Schedules and LRRPs are all part of the same transactional documents, they must be read together as a whole for purposes of applying the Arbitration Clause.” Id., Ex. 3, at 33.
Although petitioner now claims that the Payment Agreement is not part of the same agreement as the Policies, this court finds that, because petitioner, through AHAC, previously admitted that the Payment Agreement and Policies constitute a single agreement, they cannot now credibly take the opposite position. See Matter of Liquidation of Union Indemnity Ins. Co. of NY, 89 N.Y.2d 94,supra . D. Compliance With the Insurance Code
Finally, petitioner argues that compliance with the Insurance Code is not required because, even though the Payment Agreement is a collateral agreement, it need not have been attached to and made part of the Policies. In support of this argument, petitioner cites to the California Code of Regulations, title 10, § 2268, which states that:
No collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made part of the policy, provided, however, that if such agreements are attached and in way restrict or limit the coverage of the policy, they shall conform in all respects to these rules.
Petitioner contends that section 2268 only requires collateral agreements that “modify, restrict or limit the coverage obligation of the insurer and insured under the policy” must be attached to the policy. Petitioner's Mem., at 14. However, petitioner completely misreads section 2268.
Pursuant to the plain terms of section 2268, any collateral agreement must be attached to the policy to which it applies, as long as the collateral agreement “modifies the obligation of either” party. Moreover, if the collateral agreement limits coverage, it must conform to the other requirements of the California Code of Regulations. This court finds that the plain language of the statute does not require that the collateral agreement restrict coverage in order to have been required to be attached.
Here, the Payment Agreement is plainly a collateral agreement that modifies the obligations of the parties, and, therefore, was required to have been attached to and made part of the Policies.
Thus, petitioner's motion to compel arbitration is denied.
ORDER
Accordingly, petitioner National Union Fire Insurance Company of Pittsburgh, PA's motion for reargument (Motion Sequence No. 003) and motion to compel arbitration (Motion Sequence No. 004) are denied.
This constitutes the order and decision of the court.