1010 Common, LLC v. Certain Underwriters at Lloyd's

1010 COMMON, LLC v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON ET AL

CIVIL ACTION NO. 20-2326 SECTION "B"(5)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

December 9, 2020

ORDER AND REASONS

Before the Court is defendants' "Motion to Compel Arbitration and Dismiss Claims Against Insurers or Alternatively, Stay Litigation Pending Arbitration" (Rec. Doc. 4), plaintiff's "Opposition to Defendants' Motion to Compel Arbitration and Dismiss" (Rec. Doc. 10), plaintiff's Motion to Remand (Rec. Doc. 9) and defendants' "Opposition to Motion to Remand" (Rec. Doc. 13). For the reasons discussed below,

IT IS ORDERED that the plaintiff's motion to remand is DENIED; the defendants' motion to compel arbitration is GRANTED; and the matter is DISMISSED WITHOUT PREJUDICE.

I. FACTUAL AND PROCEDURAL HISTORY

Plaintiff 1010 Common LLC ("1010 Common") owned two buildings both located in the City of New Orleans on 1010 Common Street and 210 Baronne Street ("Properties"). Rec. Doc. 1-1 at 3. Defendant Underwriters at Lloyd's of London ("Underwriters") issued to 1010 Common commercial property insurance coverage for all risks of direct physical loss or damage to the Properties, "unless specifically excluded." Id. According to plaintiff, this insurance was issued on a quota share basis with each insurer assuming a percentage of the total risk insured. Id. From March 24, 2019 to March 24, 2020, the Policy went into effect, and its coverage was subject to a limit of $208,045,000 with a $2,000,000 annual aggregate limit for flood at the 1010 Common Street building; the insured would determine the value upon which coverage would be provided - either on an Actual Cash Value or Repair or Replacement Cost Value basis. Id. at 3-4.

Per the plaintiff's state complaint, on July 9, 2019 and July 10, 2019, New Orleans underwent severe weather conditions that caused extensive water damage and flooding through the Central Business District. Id. at 4. As such, the 1010 Common Street and 210 Baronne Street Properties suffered significant property damage as a result of the flooding and also wind-driven damage suffered by the latter property ("The Loss"). On July 10, 2019, the plaintiff notified its broker Southern Insurance Agency of the Loss, who subsequently submitted a claim to the National Flood insurance Program. Id.

On September 26, 2019, Southern Insurance submitted a claim to Underwriters for the full amount of the loss not covered by the national Flood Insurance Program, seeking coverage for flood damage sustained at 1010 Common Street in excess of the Policy's flood deductible, and all food and wind-driven rain damage at 210 Baronne Street in excess of the Policy's windstorm or haildeductible. Id. According to the plaintiff, Underwriters retained Sedgwick Claims Management Services to adjust the Loss, which then contracted with the Synergy Adjusting Corporation, who retained Madison, Kneppers & Associates, Inc. ("MKA") to prepare a valuation report of the Loss. Id. at 4-5. 1010 Common alleges that it elected to take the actual cash value valuation of the Claim, but MKA's valuation report was limited to the amount actually incurred in repairing or replacing damaged property and notably omitted any coverage for quoted work. Id. at 5.

Per the state complaint, MKA'S valuation is allegedly inconsistent with the Policy's Section IV, Valuation Provision which provides, ". . .If the property is not repaired, rebuilt or replaced as soon as reasonably possible after the loss or damage, the value of the property will be determined on an Actual Cash Value basis." Id. Although 1010 Common maintains that MKA's report was improper throughout, it alleges that a section of MKA'S report specifically accounted for $934,930.97 of the Claim. Id. Nonetheless, MKA allegedly reduced the claim's value to $0 for 1010 Common's failure to provide an invoice for completed work, despite the plaintiff's actual cash value election. Id.

According to 1010 Common, on April 5, 2020, Underwriters, via Sedgwick, notified 1010 Common that it was not entitled to coverage under the Policy because the value of the covered Loss within the Claim did not exceed the Policy's applicable deductible. Id.Plaintiff further noted that Section D(5)(d) of the Policy's supplemental declarations permitted Underwriters to apply the windstorm wind-driven rain deductible for 1010 Common Street to the Claim. Id.

1010 Common indicates that the Policy provides separate deductible calculations for Flood and Windstorm "perils", but the Policy also contained the following provision, "If two or more peril deductible amounts provided in this Policy apply to a single Occurrence, the total to be deducted shall not exceed the largest deductible applicable, unless otherwise stated in this Policy. Id. at 5-6. Accordingly, Plaintiff alleges that the Underwriters misused this provision as a means to apply the highest deductible (in this case the wind-driven rain deductible) to the entire amount of the loss, despite that the 1010 Common Street property did not suffer any wind-driven rain loss. Id. at 6.

Additionally, Plaintiff alleges that MKA's report arbitrarily valued many individual line items of the Claim at significantly less than their actual cash value. Id. Thus, according to 1010 Common, MKA's valuation report (1) properly approached parts of the Claim based on the actual cash value but dramatically undervalued them and (2) improperly approached the other parts of the Claim and required invoices for completed work - rather than acknowledging coverage for the actual cash value as elected. Id. Thus, as a result of the allegedly faulty valuation and improperinterpretation and application of the Policy's deductible provisions, 1010 Common alleges that Underwriters wrongfully denied coverage for the entirety of the Loss by claiming that the covered amounts of the Loss did not exceed the deductible. Id.

On July 8, 2020, 1010 Common filed a petition for damages in the 24th Judicial District Court for the Parish of Jefferson. Rec. Doc. 1-1 at 1. 1010 Common brought claims therein against the defendants for breach of contract under the Policy, seeking compensation for the full value of the Claim in addition to extra-contractual damages, mental anguish and attorney's fees pursuant to La. R.S. 22:1292 and 1973. Id. at 7; Rec. Doc. 4-1 at 2.

On August 21, 2020, the defendants removed the matter to this Court by invoking federal question under 28 U.S.C. §§ 1441 and 1446. Rec. Doc. 1 at 1-2. Accordingly, the defendants assert that there is a valid arbitration clause under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("Convention") and claim that this Court has original jurisdiction pursuant to 9 U.S.C. § 202, 203, and 205. Id. at 2.

On that same date, the defendants invoked their alleged right to arbitrate the matter and filed the instant motion to compel arbitration and dismiss claims against the insurers or, in the alternative, stay litigation pending arbitration. Rec. Doc. 4. According to Underwriters, the Loss to the Property was covered under the Policy, which contains the following Arbitration Clause:

C. ARBITRATION CLAUSE: All matters in difference between the Insured and the Companies (hereinafter referred to as "the parties") in relation to this insurance, including its formation and validity, and whether arising during or after the period of this insurance, shall be referred to an Arbitration Tribunal in the manner hereinafter set out. . .

The Arbitration Tribunal shall have power to fix all procedural rules for the holding of the Arbitration including discretionary power to make orders as to any matters which it may consider proper in the circumstances of the case with regard to pleadings, discovery, inspection of documents, examination of witnesses and any other matter whatsoever relating to the conduct of the Arbitration and may receive and act upon such evidence whether oral or written strictly admissible or not as it shall in its discretion think fit. . .

The seat of the Arbitration shall be in New York and the Arbitration Tribunal shall apply the law of New York as the proper law of this insurance. . .

A decision agreed to by any two members of the Arbitration Tribunal shall be binding. The award of the Arbitration Tribunal shall be in writing and binding upon the parties who covenant to carry out the same. If either of the parties should fail to carry out any award the other may apply for its enforcement to a court of competent jurisdiction in any territory in which the party in default is domiciled or has assets or carries on business.

Rec. Doc. 4-1 at 3.

On September 21, 2020, 1010 Common timely filed an opposition, arguing that the arbitration provision is void as a matter of law, as the Policy contains a Service of suit endorsement, which effectively modified the Policy. Rec. Doc. 10 at 3. According to Plaintiff, following the basic coverage form of the Policy, thereare a number of Amendatory Endorsements, including the following endorsement pertaining to Lloyd's of London:

WITH RESPECT TO THE COVERAGE PROVIDED BY CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, THE FOLLOWING CLAUSES (SERVICE OF SUIT and APPLICABLE LAW) SHALL APPLY:

It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriter hereon, at the request of the Insured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction within the United States.

***

This insurance shall be subject to the applicable state law to be determined by the court of competent jurisdiction as determined by the provision of the Service of Suit Clause (USA).

Id. at 3.

On September 21, 2020, Plaintiff also filed a motion to remand, alleging there is no complete diversity between the parties nor does the claim exceed the $75,000 threshold required by 28 U.S.C. § 1332. Rec. Doc. 9-2 at 1. Additionally, they claim that the Convention's...