Bufkin Enters. v. Indian Harbor Ins. Co.

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BUFKIN ENTERPRISES LLC v. INDIAN HARBOR INSURANCE CO ET AL

No. 2:21-CV-04017

United States District Court, W.D. Louisiana, Lake Charles Division

March 7, 2023

KAY MAGISTRATE JUDGE.

MEMORANDUM ORDER

JAMES D. CAIN, JR., UNITED STATES DISTRICT JUDGE.

Before the Court is Defendants' Motion to Compel Arbitration and Stay Litigation (Doc. 7) by General Security Indemnity Co of Arizona, Indian Harbor Insurance Co, Lexington Insurance Co Old Republic Union Insurance Co, Q B E Specialty Insurance Co, Safety Specialty Insurance Co, Steadfast Insurance Co United Specialty Insurance Co (Doc. 7), wherein Defendants move the Court to send the cases to arbitration in New York. Plaintiff Bufkin Enterprises LLC opposes the motion. Doc. 13. Defendants have replied. Doc. 19.

I. BACKGROUND

This suit arises from an insurance coverage dispute following damage caused by Hurricane Laura on August 27, 2020, to properties^[1] owned by Plaintiff. Doc. 1-3, pp. 1-3.

On May 15, 2020, the Plaintiff purchased a surplus lines insurance policy issued by the following ten insurance companies: Certain Underwriters at Lloyd's, London; Indian Harbor Insurance Company; QBE Specialty Insurance Company; Steadfast Insurance Company; General Security Indemnity Company of Arizona; United Specialty Insurance Company; Lexington Insurance Company; Safety Specialty Insurance Company; HDI Global Specialty SE; and Old Republic Union Insurance Company. Doc. 7-3, p. 3. Plaintiff's insurance agent, which negotiated the terms of the policy coverage for Plaintiff's properties, is McElveen Insurance, L.L.C. (“McElveen”), located in Lake Charles, Louisiana. Doc. 13-6. McElveen used AmWINS Brokerage of Florida, Inc., a Floridabased surplus lines insurance broker that is licensed in Louisiana. Docs. 7-3, p. 1; 13-6, p. 2. Doc. 13-6. The Policy was published by AmRisc, LLC, in Houston, Texas, which placed the policies with the ten issuing insurance companies, supra, pp. 1-2. Doc. 7-3, pp. 1, 128. The Policy was delivered from McElveen to Bufkin via email on August 4, 2020. Doc. 13-6.

The Policy Document contains the terms of coverage as to all the individual issuing companies. Doc. 7-3. It states:

This insurance policy is delivered as surplus lines coverage under the Louisiana Insurance Code. In the event of insolvency of the company issuing this contract, the policyholder or claimant is not covered by the Louisiana Insurance Guaranty Association which guarantees only specific types of policies issued by insurance companies authorized to do business in Louisiana.

Id. at 127. The Declarations Page lists individual policy numbers as to each ten insurers.

Id. at 1. The Contract Allocation Endorsement provides the following:

This contract shall be constructed as a separate contract between the Insured and each of the Underwriters. This evidence of coverage consists of separate sections of a composite insurance for all Underwriter's at Lloyd's combined and separate policies issued by the insurance company(ies), all as identified below. This evidence of coverage does not constitute in any manner or form a joint certificate of coverage by Underwriter's at Lloyd's with any other insurance company(ies).

Id. at 4 (Per the Contract Allocation Endorsement, “Underwriters” is synonymous with “Insurers” and “Company.”). Further, the Contract Allocation Endorsement states:

The liability of each Underwriter on this contract with the Insured is limited to the participation amount shown in the schedule below. The liability of each separate contract listed and for each Underwriter represented thereby for any loss or losses or amounts payable is several as to each and shall not exceed its participation percentage shown below and there is no joint liability of any Underwriters pursuant to this contract. An Underwriter shall not have its liability hereunder increased or decreased by reason of failure or delay of another Underwriter, its successors, assigns, or legal representatives. Any loss otherwise payable under the provisions of the attached policy that exceeds the allocation of "Risk" as defined herein shall be bourne proportionately by the contracts as to their limit of liability at the time and place of the loss bears to the total allocated limits herein.

Id. The Policy Document contains an Arbitration Clause, which states:

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.

Id. at 37.

Separate from Section VII's Conditions Section's Arbitration Clause, the Policy Document includes endorsements that state: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” Id. at 77, 78, 88, 95,102. For example, the Underwriters' Service of Suit Endorsement states: “It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured (or Reinsured) will submit to the jurisdiction of a Court of competent jurisdiction within the United States.” Id. at 77. There are similar Endorsements for the other insurers. Id. at 78, 80, 88, 90, 95, 102.

The individual policies covered the Plaintiff's properties from May 15, 2020, to May 15, 2021, and were effective at the time of loss on August 27, 2020. Doc. 1-3, p. 3. After Hurricane Laura, Plaintiff reported a loss to the insurers. Id. at 4, doc. 7-1, p. 8. Some payments were made to Plaintiff, but a disagreement ensued as to amounts outstanding. Doc. 1-3, pp. 5-6; doc 7-1, p. 9. Plaintiff then brought suit on October 11, 2021, in the 14^thJudicial District Court, Calcasieu Parish, Louisiana, against the eight domestic insurers named in the Policy.^[2] Doc. 1-3, pp. 1-2. Plaintiff raised claims for declaratory relief and damages as a result of breach of contract and violations of Louisiana Revised Statutes sections 22:1892, 22:1973. Id. at 6-8. On November 18, 2021, Plaintiff filed a supplemental and amended petition to add Certain Underwriters at Lloyd's, London, and HDI Global Specialty SE (“foreign insurers”) and thereafter moved to dismiss them with prejudice under each of their insurance contracts with Plaintiff. Doc. 13-2, p. 12. The same day, the 14^th Judicial District Court granted the motion and dismissed all claims against the foreign insurers with prejudice. Id. at 17. On November 19, 2021, Defendants removed the case to this Court under federal question and diversity jurisdiction. Doc. 1., p. 3.

II. LAW & ANALYSIS

Louisiana law prohibits arbitration agreements in insurance policies covering property within the state. La. R.S. § 22:868(A)(2). Under the McCarran-Ferguson Act, state laws regulating insurance are shielded from the preemptive effect of federal law. 15 U.S.C. §§ 1011, 1012. Accordingly, McCarran-Ferguson allows state laws like Louisiana Revised Statute section 22:868(A)(2) to “reverse-preempt” the Federal Arbitration Act's provisions on the enforceability of insurance agreements. See, e.g., Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006). However, this “reverse preemption” applies only to “Acts of Congress” and not to treaties. Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 723 (5th Cir. 2009). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) is one such treaty and requires signatory nations to “‘recognize an agreement in writing under which the parties undertake to submit to arbitration' their dispute ‘concerning a subject matter capable of settlement by arbitration.'” Id. at 719 (quoting Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. II(1), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3)). State insurance law thus has no impact on arbitration agreements arising under the Convention. Id. at 723-24; see also McDonnel Group, LLC v. Great Lakes Ins. Branch SE, UK Branch, 923 F.3d 427 (5th Cir. 2019).

Defendants contend that the Arbitration Clause must be enforced for the following reasons: the Arbitration Clause remains enforceable under the Convention, i.e., the Convention even applies to domestic insurers; the Arbitration Clause must be enforced under the FAA; Louisiana Revised Statutes section 22:868 provides no basis for reversepreemption under McCarran-Ferguson because it does not apply to surplus lines polices; and the Service of Suit Endorsements do not supersede the Arbitration Clause. Bufkin counters that the Convention does not apply because the defendants are wholly domestic insurers; that Louisiana Revised Statutes section 22:868(A) is still an anti-arbitration provision applicable to surplus lines policies; and, in the alternative, that the Service of Suit Endorsements change the Policy related to arbitration. Each argument is taken in turn.

A. Whether the Convention compels arbitration

Defendants argue that the Convention applies because at least one of the parties to the arbitration agreement itself is a citizen of a foreign signatory country. Doc. 7-1, p. 16. Bufkin maintains that its claims are against domestic insurers that do not have valid arbitration agreements and that those domestic insurers therefore cannot be compelled to arbitrate under the Convention. Doc. 13, p. 9.

As an initial matter, in Defendants have relied on the 1983 Supreme Court case of Moses H. Cone Memorial Hospital v. Mercury Construction Corp. for the proposition that the United States, as evidenced by the FAA, has a strong, liberal policy favoring arbitration agreements. Doc. 7-1, pp. 13-14. In 2022, the Supreme Court clipped...