Atl. Specialty Ins. Co. v. Anthem, Inc.

ATLANTIC SPECIALTY INSURANCE COMPANY, et al., Plaintiffs, v. ANTHEM, INC., Defendant.

No. 1:19-cv-03589-JRS-MJD

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

May 18, 2020

Entry and Order Setting Aside Magistrate Judge's Order (ECF No. 48), Compelling Arbitration, and Staying This Case

This case arises from an insurance coverage dispute between Defendant Anthem, Inc. and two of its insurers, Plaintiffs Atlantic Specialty Insurance Company ("Atlantic") and Bedivere Insurance Company f/d/b/a OneBeacon Insurance Company ("OneBeacon"). Anthem initiated arbitration on August 7, 2019, and Plaintiffs thereafter brought this action seeking declaratory judgment that Anthem is not entitled to coverage and that Plaintiffs are not required to arbitrate their dispute with Anthem.

Plaintiffs moved to stay arbitration, (ECF No. 24), and Anthem moved to stay this case and compel arbitration, (ECF No. 42). The magistrate judge denied Anthem's motion to stay and compel and granted in part Plaintiffs' motion to stay arbitration. (ECF No. 48.) Anthem now objects to the magistrate judge's order. (ECF No. 51.) Because the magistrate judge's order is contrary to law, that order (ECF No. 48) is set aside, Anthem's motion to stay and compel arbitration (ECF No. 42) is granted, and Plaintiffs' motion to stay arbitration (ECF No. 24) is denied.

I. Background

A. The Policies & Alternative Dispute Resolution Provisions

The policies at issue here are both part of a tower of $175 million in professional liability insurance. The base of the tower is a policy issued by ACE American Insurance Company. The Atlantic policy sits directly above the ACE policy, and the OneBeacon policy sits atop the tower. The ACE policy at the base of the tower contains the following Alternative Dispute Resolution provision ("ACE ADR provision"):

T. Alternative Dispute Resolution

1. In the event that any disputes or differences arise under or in connection with this Policy or the breach, termination or invalidity thereof, whether arising before or after termination of this Policy, the Insured and Insurer shall make a good faith attempt to resolve the disputes or differences through informal negotiations.

2. If such disputes or differences remain unresolved, the Insured and Insurer shall submit such disputes or differences to an alternative dispute resolution ("ADR") process as described in paragraph 3 below. Either the Insured or the Insurer may select the type of ADR process; provided, however, the Insured shall have the right to reject the Insurer's choice of the type of ADR process at any time prior to its commencement, in which case the Insured's choice of ADR process shall control. Commencement of the ADR process shall occur when the parties formally retain a mediator or arbitrator to preside over the ADR proceeding.

3. The Insured and Insurer agree that there shall be two choices of ADR process:

a. Non-binding mediation administered by JAMS. The Insured and Insurer shall cooperate with one another in selecting amediator from the JAMS panel of neutrals and in scheduling the mediation proceedings. The parties agree that they will participate in the mediation in good faith and share equally in its costs. The mediation will take place in New York, New York. In the event of mediation, either party shall have the right to commence a judicial proceeding; provided however, no such judicial proceeding shall be commenced until the mediation has been concluded or terminated and at least ninety (90) days shall have elapsed from the date of the conclusion or termination of the mediation.

b. Binding arbitration through JAMS before three arbitrators, with each arbitrator having background and experience relevant to the dispute. Each party shall select one arbitrator, and the two arbitrators shall select the third arbitrator. The arbitration shall be conducted pursuant to the then-current JAMS Comprehensive Arbitration Rules & Procedures. The decision of the arbitrator shall be final, binding and provided to both parties; provided, however, the arbitrator's decision shall be subject to appeal pursuant to Rule 34, Optional Arbitration Procedure, of the JAMS Comprehensive Arbitration Rules & Procedures.

i. Unless the parties otherwise agree, the arbitration shall take place in Indianapolis, Indiana, Chicago, Illinois or New York, New York, to be determined by the mutual agreement of the parties. If the parties cannot agree, then the arbitrators shall choose from one of these three venues.

ii. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The panel will allocate any remaining common expenses of the arbitration.

iii. If an arbitration proceeding has not been commenced within ninety (90) days of the appointment of the arbitrator, the arbitrator may order the commencement of such proceeding at anytime thereafter. It is the intention of the parties that discovery, argument and other process in the arbitration shall be limited to that which, in the discretion of the arbitrator, is necessary to fairly resolve the dispute.

(Compl. ¶ 47, ECF No. 1 at 19-20.)

The Atlantic policy provides that it "will apply in conformance with, and will follow the form of, the terms, conditions, agreements, exclusions, definitions and endorsements of the Underlying Insurance, except [four enumerated exceptions]." (ECF No. 25-1.) See Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 589 (7th Cir. 2001) ("[T]he 'Exclusions' section provides that the slip policy follows the underlying contract 'in every respect' except the one mentioned specifically. This is essential to any follow-form policy."). The Atlantic policy defines "Underlying Insurance" as the ACE policy and a Willis policy (which appears to be referred to elsewhere as "Lloyd's Syndicate AGM 2488" policy number B0080119735P12). Notwithstanding the inclusion of the Willis policy in the definition of "Underlying Insurance," Atlantic concedes that the Atlantic policy follows form to the ACE policy and includes the ACE ADR provision. (Compl. ¶¶ 53, 110-12.) See Sphere Drake Ins. Ltd., 256 F.3d at 589 ("[A] follow-form reinsurance agreement logically includes an arbitration agreement in the underlying contract. This understanding could be overridden, but this slip policy's 'Exclusions' section does not displace the arbitration clause.").

The OneBeacon policy, like the Atlantic policy, provides that it "will apply in conformance with, and will follow the form of, the terms, conditions, agreements, exclusions, definitions and endorsements of the Underlying Insurance, except [four enumerated exceptions]." (ECF No. 1-2 at 8.) The OneBeacon policy defines "Underlying Insurance" as the following policies:

Carrier

Policy Number

Policy Type

ACE American

Insurance Company

MSP G21816097

Managed Care Organization

Errors & Omissions Liability

Lloyd's Syndicate

AGM 2488

B0080119735P12

Managed Care Organization

Errors & Omissions Liability

Excess

BCS Insurance

Company

XS-MCE 121-040

Managed Care Organization

Errors & Omissions Liability

Excess

XL Insurance

(Bermuda) Ltd.

BM00026068EO12A

Managed Care Organization

Errors & Omissions Liability

Excess

Chartis Excess

Limited

28330206

Managed Care Organization

Errors & Omissions Liability

Excess

Endurance

Specialty Insurance,

Ltd.

P011413002

Managed Care Organization

Errors & Omissions Liability

Excess

Iron-Starr Excess

Agency Ltd.

ISF0000810

Managed Care Organization

Errors & Omissions Liability

Excess

Argo Re Ltd.

ARGO-EANDO-12-

000218.3

Managed Care Organization

Errors & Omissions Liability

Excess

Ironshore Specialty

Insurance Company

000926402

Managed Care Organization

Errors & Omissions Liability

Excess

BCS Insurance

Company

XS MCS 121-040B

Managed Care Organization

Errors & Omissions Liability

Excess

Each policy other than the ACE policy is a follow-form excess policy. Four of the excess policies—the Ironshore Specialty policy, the Lloyd's policy, and the two BCS policies—expressly follow form to the ACE policy and contain no provision contrary to the ACE ADR provision. (The Lloyd's policy expressly follows the ACE policy's ADR provision, (ECF No. 42-3 at 96), while the others follow form to the ACE policy generally without any specific mention of ADR.) The remaining five policies—the XLpolicy, the Chartis policy, the Endurance policy, the Iron-Starr policy, and the Argo Re policy—also follow form to the ACE policy but contain ADR provisions requiring arbitration under JAMS International Arbitration Rules in effect on August 1, 2011, by three disinterested, neutral arbitrators in Toronto, London, or Bermuda ("JAMS International provision"). (See ECF No. 42-3 at 134, 144, 180, 190, 206.) Like the ACE ADR provision, the JAMS International provision calls for each party to select one arbitrator, and for those arbitrators to select the third arbitrator. (Id.)

Accordingly, the OneBeacon policy's followed policies all either (1) contain the ACE ADR provision (the ACE policy), (2) follow form to the ACE ADR provision (the Ironshore Specialty policy, the Lloyd's policy, and the two BCS policies), or (3) contain the JAMS International provision (the XL policy, the Chartis policy, the Endurance policy, the Iron-Starr policy, and the Argo Re policy).

B. The Underlying Litigation and Mediation

Anthem was named as a defendant in multiple antitrust class action lawsuits, which were consolidated into a multi-district litigation action (the "MDL") in federal court. Anthem sought coverage for the claims from its insurers, and Atlantic and OneBeacon denied coverage. Anthem invited its insurers to participate in mediation in Bermuda with Layn Phillips, a retired federal judge who had also conducted mediation among the parties in the MDL. Mediation began and ended—without resolution—on April 19, 2019. On August 7, 2019, Anthem initiated arbitration proceedings. Atlantic and OneBeacon thereafter brought...