Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC

967 F. Supp. 2d 756, 2013 WL 4453061
CourtDistrict Court, S.D. New York
DecidedAugust 20, 2013
DocketNo. 11 Civ. 3238(ALC)(GWG)
StatusPublished
Cited by52 cases

This text of 967 F. Supp. 2d 756 (Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC, 967 F. Supp. 2d 756, 2013 WL 4453061 (S.D.N.Y. 2013).

Opinion

ORDER AND OPINION

ANDREW L. CARTER, JR., District Judge:

A train derailment has set off a chain reaction of lawsuits and cross-claims. The [759]*759present motion was brought by Third-Party Defendant, Fireman’s Fund Insurance Company (“FFIC”) to sever and compel arbitration of the cross-claim brought by Third-Party Defendant City Underwriting Agency (“CUA”). CUA brings a cross motion to stay arbitration should be stayed pending decision of the underlying third-party claim.

For the reasons set forth below, FFIC’s motion to compel arbitration of CUA’s cross-claim is GRANTED. Its motion to sever the cross-claim is denied in part and granted in part. CUA’s motion to stay arbitration is DENIED.

BACKGROUND

I. The Derailment

On March 14, 2010, a train operated by Kansas City Southern Railway (“KCSR”) transporting cargo, including two electric transformers, owned by Prolec GE International (“Prolec”), derailed in Texas. The transformers were allegedly damaged beyond repair or use. Prolec and its subrogee, Chartis Seguros, thus commenced a lawsuit against KCSR, HLI Rail & Rigging (“HLI”) — the company responsible for the transport — and Fresh Meadow Mechanical Corporation (“Fresh Meadow”), which operates HLI as a wholly-owned subsidiary.1

Prior to the derailment, Fresh Meadow had obtained an insurance policy offered by FFIC, through its insurance broker CUA. HLI was a “named insured” on Fresh Meadow’s insurance policy.2 HLI/Fresh alleges that CUA assured them that the insurance would cover the transport. CUA is an agent for FFIC and allegedly gave the assurance without actually receiving the go-ahead from FFIC. After the derailment, FFIC denied HLI/ Fresh’s claim because its policy excluded coverage for the property of others when the insured is acting as a carrier for hire or arranger of transportation.

II. The Third-Party Complaint

On July 11, 2012, HLI/Fresh filed a third-party complaint against CUA and FFIC, alleging breach of contract, negligent misrepresentation and, as to CUA only, negligence. On August 23, 2012, CUA filed its answer in which it also asserted a cross-claim against co-defendant FFIC. The cross-claim states:

Third-Party defendant CUA, at all times relevant to the procurement of the subject policies of insurance through [FFIC] acted within the scope of their authority as an agent of FFIC.
If it is adjudged that the third-party defendant CUA is liable to third-party plaintiff while acting as an agent for FFIC as alleged in third-party plaintiffs’ Third-Party Complaint, which liability is herein denied, and third-party plaintiffs recover judgment against the third-party defendant, then such liability and judgment will have been brought about by reason of the acts, omissions, breach of fiduciary duty and/or breach of contract of third-party defendant FFIC.

CUA Answer, Cross-Claim ¶¶ 51-52 (Dkt. No. 80).

On or about August 31, 2012, FFIC also demanded indemnification from CUA. On September 13, 2012, in its Answer to the [760]*760Cross-Claim, FFIC denied that it owed indemnification to CUA (Dkt. No. 83, ¶¶ 2-3).

III. CUA as Agent of FFIC

FFIC appointed CUA as an agent for issuance of insurance coverage3 in New York State by written agreement signed March 10, 2008 (“Agency Agreement”). The Agency Agreement was later modified to amend CUA’s commissions on personal insurance policies, effective July 1, 2009 and to terminate CUA’s authority as an agent for middle market and personal insurance policies, effective July 1, 2012.

CUA’s cross claim alleges that CUA was acting as an agent of FFIC and to the extent it is adjudged liable to HLI/Fresh, it is because of FFIC’s acts or omissions. This claim and FFIC’s cross-demand implicate the section of the Agency Agreement providing for mutual and reciprocal indemnification rights between CUA and FFIC. In relevant part, the Agency Agreement reads:

[FFIC] will indemnify and hold [CUA] harmless, including paying [CUA’s] reasonable defense costs, against liability for damages, fines and penalties, arising out of acts [FFIC] took or failed to take, and for [FFIC’s] errors and omissions and for [CUA] acts taken at [FFIC’s] specific direction.
[CUA] will indemnify and hold [FFIC] harmless, including paying [FFIC’s] reasonable defense costs, against liability for damages, punitive damages (to the extent allowed by law), fines and penalties arising out of acts [CUA] or [its] employees, or independent contractors working within [CUA’s] agency or any person or entity the law deems to be [CUA’s] subagent took or failed to take, and for errors and omissions, except if [CUA] took or forebore from taking the acts at [FFIC’s] specific direction. Acts, errors and omissions include [CUA] and [its subagents’] compliance with laws and regulations.
The party seeking indemnity will promptly notify the other of the claim for which indemnity is being sought. If prompt notice is not given, the indemnity recoverable will be reduced by the amount that the late notice prejudices the defense or increases the loss.
This Section F will survive termination of this agreement.

Agency Agreement, § F.

The Agency Agreement also contains the disputed arbitration clause:

“If a dispute arises concerning this agreement or any other aspect pertaining to the purpose and implementation of this agreement, or rights, duties, or authority, which [CUA] and [FFIC] cannot resolve, the dispute will be submitted to binding arbitration. Either party may demand arbitration by sending written notice to the other describing the issue(s) to be arbitrated.”

Agency Agreement, § 1(1).

DISCUSSION

FFIC moves to compel arbitration of CUA’s cross-claim and its own claim for indemnification. CUA does not challenge the validity or the existence of the arbitration clause in the Agency Agreement. Instead, CUA presents the threshold question of whether the FAA applies in this instance, claiming that the “transaction” at [761]*761issue in this case did not involve interstate commerce.4

CUA argues that attention is properly focused on the underlying procurement of insurance between Fresh Meadow and CUA, not the Agency Agreement as the contract evidencing a transaction involving commerce. Specifically, CUA claims that because the procurement of insurance occurred entirely within New York State among New York parties (Fresh Meadow and CUA), there is no interstate commerce. Thus the FAA is inapplicable and the claim must be arbitrated under New York law. CUA also alleges prejudice would occur if the indemnification dispute were severed from the breach of contract dispute brought by HLI/Fresh against CUA and FFIC because the issues in dispute are intertwined.

I. Standard of Review

The summary judgment standard is appropriate in cases where the district court is required to determine arbitrability. Syncora Guarantee Inc. v. HSBC Mexico, S.A., 861 F.Supp.2d 252, 258 (S.D.N.Y.2012) (quoting General Motors Corp. v. Fiat S.p.A,

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967 F. Supp. 2d 756, 2013 WL 4453061, Counsel Stack Legal Research, https://law.counselstack.com/opinion/chartis-seguros-mexico-sa-de-cv-v-hli-rail-rigging-llc-nysd-2013.