HDI Global SE v. Lexington Insurance Co.

232 F. Supp. 3d 595, 2017 U.S. Dist. LEXIS 18677, 2017 WL 699818
CourtDistrict Court, S.D. New York
DecidedFebruary 7, 2017
DocketNo. 16 Civ. 7241 (CM)
StatusPublished
Cited by3 cases

This text of 232 F. Supp. 3d 595 (HDI Global SE v. Lexington Insurance Co.) 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
HDI Global SE v. Lexington Insurance Co., 232 F. Supp. 3d 595, 2017 U.S. Dist. LEXIS 18677, 2017 WL 699818 (S.D.N.Y. 2017).

Opinion

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT’S MOTION TO STAY AND COMPEL ARBITRATION

McMahon, Chief Judge.:

On September 16, 2016, Plaintiff HDI Global SE (“Plaintiff’ or “HDI”) brought this action, seeking, inter alia, a declaration that a reinsurance contract entered into between it and Defendant Lexington Insurance Company (“Defendant” or “Lexington”) is void for lack of mutual assent. Plaintiff also seeks an order staying arbitration until the Court rules on the validity of the reinsurance contract. (Dkt. No. 1.) Plaintiff later filed an amended complaint on November 22, 2016, seeking the same relief. (Dkt. No. 19.)

Before the Court is Defendant’s motion to stay the lawsuit and compel arbitration, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3. (Dkt. No. 22.)

For the reasons set forth below, Defendant’s motion is GRANTED.

Background

I. The Parties

HDI is a European insurance company organized in accordance with European Union law. (Am. Compl. ¶ 3, Dkt. No. 19.) HDI’s principal place of business is Germany. (Id.) The reinsurance contract at issue was underwritten by Gerling Kon-zern Allgemeine Versicherung AG (“Ger-ling”). HDI-Gerling Industrie Versicher-ung AG became the legal successor to Gerling in September 2006, and was renamed HDI Global SE. (Id.)

Lexington is a Delaware insurance company and maintains its principal place of business in Massachusetts. (Id. ¶ 4.)

II. Nature of the Dispute

1. The HDI/Lexington Reinsurance Policy

In or about September 2000, Lexington began discussions with the Central Puget Sound Regional Transit Authority (“Sound Transit”) to underwrite a professional liability policy for Sound Transit’s design and construction of a light rail system in Washington State (the “Light Rail Project”). (Id. ¶ 7.) In connection with the Light Rail Project, Lexington sought reinsurance coverage from various reinsurers, including HDI, for the proposed Sound Transit professional liability policy. (Id. ¶¶ 9-12.)

In or about November 2000, Lexington sent HDI a reinsurance certifícate for the Sound Transit risk (the “Reinsurance Policy”). (Id. ¶ 34; see Reinsurance Policy, Am. Compl. Ex. C, Dkt. No. 19-3.)

Under the Reinsurance Policy, HDI agreed to reinsure 50% of a loss to Lexington on the layer $20 million excess of $30 million. (Reinsurance Policy at 2-3.) HDI signed and stamped the Reinsurance Policy on November 3, 2000. (Id. at 8.)

The Reinsurance Policy refers to the underlying policy form as the “Original Policy Form LEX CM PL 7,” which HDI claims includes a “negligence trigger.” (Id. at 2; see Am. Compl. ¶ 35.) Form LEX CM PL 7 specifies that the policy applies [599]*599to “actual or alleged negligent acts, errors or omissions arising out of professional services rendered for others by the insured or any entity for whom the Insured is legally liable.” (Form LEX CM PL 7, Am. Compl. Ex. F at 5, Dkt. No. 19-6 (emphasis added).) HDI allegedly learned through its own investigation that Lexington did not issue that policy—Form LEX CM PL 7—to Sound Transit, but instead issued the “2002 Sound Transit Policy” described below, which lacked a negligence trigger.

The Reinsurance Policy contains an arbitration clause, which provides that, “All disputes or differences arising out of the interpretation of this Certificate shall be submitted to the decision of two arbitrators, one to be chosen by each party, and in the event of the arbitrators failing to agree, to the decision of an umpire to be chosen by the arbitrators.” (Reinsurance Policy at 5 (emphasis added).)

2. The 2002 Sound Transit Policy

On or about December 28, 2001, Lexington’s agent, Western Risk Specialist, sent Sound Transit’s agent Marsh USA Inc. (“Marsh”) what purported to be the final Sound Transit policy (“2001 Policy Version”). (Am. Compl. ¶ 37; see 2001 Policy Version, Am. Compl. Ex. D, Dkt. No. 19-4.) Marsh forwarded the 2001 Policy Version to Sound Transit on January 4, 2002. (Am. Compl. ¶ 38.) The 2001 Policy Version covered “actual or alleged acts, errors or omissions caused by Professional Negligence in the performance of Professional Services rendered for others as designated in Item 7 of the Declarations.” (2001 Policy Version at 1 (emphasis added); Am. Compl. ¶ 39.) HDI claims that “to the extent that Sound Transit sought indemnity for a loss under the 2001 Policy Version, it would have to establish that the loss arose from its subcontractors’ professional negligence in order to trigger Lexington’s indemnity obligation.” (Am. Compl. ¶ 40.)

On or about March 4, 2002, Lexington sent Marsh the operative version of the Sound Transit policy, the “2002 Sound Transit Policy;” this version allegedly removed the word “negligent” from the policy’s granting clause and extended the coverage period from 2006 to 2009. (Id. ¶ 41; see 2002 Sound Transit Policy, Am. Compl. Ex. E, Dkt. No. 19-5.) The 2002 Sound Transit Policy is entitled, “Designers & Constructors Project Specific—Protech Professional Liability and Pollution Liability Policy for a Specified Project,” Policy No. 6477217, with limits of $50 million per claim or occurrence and $50 million in the aggregate. (Id.) It covered the period from January 1, 2001 to January 1, 2009. (2002 Sound Transit Policy at 1.) The 2002 Sound Transit Policy provides: “This policy applies to actual or alleged acts, errors or omissions arising out of Professional Services rendered for others as designated in Item 8.A of the Declarations.” (Id.; Am. Compl. ¶42.) Lexington “never sent HDI the [2002] Sound Transit Policy.” (Am. Compl. ¶ 58.)

3. Lexington Reports a Loss to HDI

On September 25, 2006, Sound Transit notified Lexington of a claim by one of its subcontractors on the Light Rail Project, RCI Herzog, for cost overruns, delays, and extra work associated with the project. (Id. ¶ 60.) On or about June 20, 2011, RCI Herzog' obtained a $66 million arbitral judgment against Sound Transit. (Id. ¶ 61.)

On or about April 5, 2013, Sound Transit asserted an indemnity claim against Lexington for the 2002 Sound Transit Policy’s remaining limits. (Id. ¶ 62.) On or about February 26, 2014, Lexington wrote to Sound Transit that the 2002 Sound Transit Policy contained a negligence standard and, therefore, Sound Transit had to dem[600]*600onstrate that the loss arose out of a Named Insured’s professional negligence. (Id. ¶ 63.)

On May 23, 2014, Sound Transit filed a coverage action in Seattle federal court against Lexington, seeking indemnification under the 2002 Sound Transit Policy. (Id. ¶ 64.) For the first year of the coverage litigation, Lexington allegedly maintained that the 2002 Sound Transit Policy required proof of the Named Insured’s professional negligence to trigger Lexington’s indemnity obligation. (Id. ¶ 65.) In June 2015, Lexington conceded that the 2002 Sound Transit Policy did not contain any negligence limiting language. (Id. ¶ 66.) On or about August 19, 2015, Lexington and Sound Transit settled the coverage litigation. (Id. ¶ 67.)

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232 F. Supp. 3d 595, 2017 U.S. Dist. LEXIS 18677, 2017 WL 699818, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hdi-global-se-v-lexington-insurance-co-nysd-2017.