National Union Fire v. BMC

Opinion

18‐3851‐cv National Union Fire v. BMC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 20th day of December, two thousand nineteen.

PRESENT: ROBERT D. SACK, BARRINGTON D. PARKER,

DENNY CHIN,

Circuit Judges.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, AMERICAN HOME ASSURANCE COMPANY, THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Petitioners‐Appellees,

v. 18‐3851‐cv

BMC STOCK HOLDINGS, INC., Respondent‐Appellant,

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

FOR PETITIONERS‐APPELLEES: EAMON P. JOYCE (Nicholas P. Crowell and David S. Kanter, on the brief), Sidley Austin LLP, New York, New York; Michael Steven Davis, Yoav Michael Griver, Zeichner, Ellman & Krause LLP, New York, New York.

FOR RESPONDENT‐APPELLANT: ALLEN R. WOLFF (Ethan W. Middlebrooks, on the brief), Anderson Kill P.C., New York, New York.

Appeal from the United States District Court for the Southern District of New York (Oetken, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

Respondent‐appellant BMC Stock Holdings Inc. (ʺBMCʺ) appeals from a judgment, entered December 3, 2018, granting the petition of petitioners‐appellees National Union Fire Insurance Company of Pittsburgh, PA, American Home Assurance Company, and the Insurance Company of the State of Pennsylvania (collectively, ʺNational Unionʺ) to compel arbitration of claims BMC filed against National Union in the United States District Court for the Central District of California (the ʺCalifornia Actionʺ). We assume the partiesʹ familiarity with the underlying facts, procedural history, and issues on appeal.

BMC is the successor by merger to Building Materials Holding Corporation (ʺBMHCʺ), which purchased four ʺfrontingʺ general liability insurance

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policies from National Union (the ʺPoliciesʺ).1 The Policies obligate National Union to extend ‐‐ or front ‐‐ coverage, including defense costs, to a policyholder or an ʺAdditional Insured,ʺ Appʹx at 197, and they further obligate the policyholder, in turn, to reimburse National Union for coverage properly extended. The parties also entered into a payment agreement (the ʺPayment Agreementʺ), under which National Union agreed ʺto provide [the insured] Insurance and services according to the Policiesʺ and BMC agreed ʺto pay [National Union] all [the insuredʹs] Payment Obligation.ʺ Appʹx at 18.

The Payment Agreement contains an arbitration provision that provides that when the insured ʺdisagree[s] with [National Union] about any amount of [its] Payment Obligation that [National Union] ha[s] asked [it] to pay,ʺ it must provide National Union with ʺwritten particularsʺ concerning the dispute and timely pay all undisputed charges. Appʹx at 23. If, following further correspondence between the parties, a dispute remains, ʺ[a]ny disputed items . . . must immediately be submitted to arbitration.ʺ Id. The Payment Agreement also provides that ʺ[a]ny other unresolved dispute arising out of this Agreement must be submitted to arbitration.ʺ Id.

In 2017, National Union sent invoices to BMC seeking reimbursement for amounts National Union paid for litigation defense costs to various Additional

1 Because there is no dispute that BMC stands in the shoes of BMHC and is bound by the Policies and Payment Agreement, the two entities are hereinafter referred to interchangeably as BMC.

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Insureds. BMC reimbursed National Union for some of the claims, but it disputed eleven others, contending that it had no obligation to pay because National Union had failed to properly investigate these claims. After National Union ʺremain[ed] steadfast in its position that its duty to defend was triggered for these eleven claims,ʺ Appʹx at 136, BMC commenced the California Action, seeking a declaratory judgment that it was not obligated to reimburse National Union for the disputed claims. National Union responded by serving BMC with a demand for arbitration and filing this petition in the court below to compel arbitration.

By an Opinion and Order issued December 3, 2018, the district court below interpreted the Payment Agreementʹs arbitration provision as extending to the California Action and granted National Unionʹs motion to compel arbitration. On appeal, BMC contends that the district court erred because the claims asserted in the California Action fall outside the arbitration provisionʹs scope. In the alternative, BMC argues that even if the Payment Agreementʹs arbitration provision does extend to the claims raised in the California Action, the district court erred in failing to recognize an exemption in the Payment Agreement for bad faith claims.

STANDARD OF REVIEW

We review de novo both a district courtʹs grant of a motion to compel arbitration, Lawrence v. Sol G. Atlas Realty Co., 841 F.3d 81, 83 (2d Cir. 2016), and its

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interpretation of a contract, Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 41 (2d Cir. 2006).

DISCUSSION

The district court correctly granted the petition to compel arbitration.2 BMCʹs complaint in the California Action alleges that National Union ʺfailed to conduct a proper investigationʺ into various underlying coverage claims, Appʹx at 111, and seeks a declaratory judgment that ʺ[BMC] owes no payments to [National Union] for reimbursement of [National Unionʹs] voluntary payments,ʺ Appʹx at 112. The district court rightly concluded that because the California Action involved a dispute about ʺ[BMCʹs] Payment Obligation,ʺ Appʹx at 23, that dispute ʺmust be submitted to arbitration.ʺ Id.

BMC argues that the Payment Agreement does not govern the coverage dispute here because it is the Policies ‐‐ not the Payment Agreement ‐‐ that require National Union to properly investigate claims before extending coverage. This

2 National Union contends that we can affirm on the alternative ground that the Payment Agreementʹs arbitration provision requires even the threshold question of arbitrability to go to an arbitrator. We agree with the district court, however, that the addendum to the Payment Agreement, which provided that ʺany action or proceeding concerning arbitrability, including motions to compel or to stay arbitration, any action or proceeding concerning arbitrability, including motions . . . to stay arbitration, may be brought only in a [New York] court,ʺ introduced sufficient ambiguity into the contract to authorize judicial resolution of the threshold arbitrability inquiry. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (ʺCourts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.ʺ (internal quotation marks and alterations omitted)).

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argument, however, ignores the Payment Agreementʹs language, which clearly incorporates the terms of the Policies by reference. The Payment Agreement requires disputes about BMCʹs ʺPayment Obligationʺ to be submitted to an arbitrator. Appʹx at 23. ʺPayment Obligation,ʺ in turn, is defined as the ʺthe amounts that [BMC] must pay [National Union]ʺ for insurance coverage and services ʺin accordance with the terms of the Policies.ʺ Appʹx at 44 (emphasis in original). By referencing the Policies in its terms, the Payment Agreement provides that even payment disputes premised on an underlying coverage dispute fall within the arbitration provisionʹs reach.

The district court also did not err in declining to follow Sixth and Ninth Circuit cases affirming the denials of motions to compel arbitration, see Alticor, Inc. v. Natʹl Union Fire Ins. Co. of Pittsburgh, PA, 411 F.3d 669 (6th Cir. 2005); UMG Recordings, Inc. v. Am. Home Assurance Co., 378 F. Appʹx 766 (9th Cir. 2010), or the reasoning of a decision from the District of Hawaii, see Aloha Petroleum, Ltd. v. Natʹl Union Fire Insurance Co. of Pittsburgh, PA, 25 F. Supp. 3d 1305 (D. Haw. 2014). The district court properly noted that Alticor is distinguishable because, unlike the Payment Agreement here, the payment agreement at issue in that case did not incorporate the underlying insurance policies by reference.3

3 See Alticor, 411 F.3d at 672 (observing that that payment agreement ʺfail[s] even to refer to the insurance policyʺ).

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As for Aloha and UMG Recordings, the Supreme Court has instructed that ʺany doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration,ʺ including when the issue ʺis the construction of the contract language itself.ʺ Moses H. Cone Memʹl Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24‐25 (1983). Given that these cases are contradicted by case law in this Circuit, see Ins. Co. of Pennsylvania v. Miami‐Dade Cty., No. 17 CIV. 9327 (LGS), 2018 WL 2077901, at *3 (S.D.N.Y. May 2, 2018); see also Natʹl Union Fire Ins. Co. of Pittsburgh, PA v. Las Vegas Profʹl Football Ltd. Pʹship, 409 F. Appʹx 401, 402 (2d Cir. 2010), the district court did not err in following clear contract language over the reasoning of a non‐precedential summary affirmance and a non‐controlling lower court case. See Mountain Air Enters., LLC v. Sundowner Towers, LLC, 3 Cal. 5th 744, 752 (2017) (noting that Californiaʹs ʺtraditional rules of contract interpretationʺ obligate courts to determine the ʺmutual intention of the parties . . . [by looking] to the writing aloneʺ and giving contractual provisions their ʺclear and explicit meaningʺ (internal quotations marks omitted)).4 Finally, BMCʹs argument regarding the bad faith exception is similarly without merit because any allegation that National Union extended coverage in ʺbad faithʺ is still a ʺPayment Disputeʺ that must be arbitrated. The Payment Agreement

4 The parties agree for purposes of this appeal that California law guides the interpretation of these contracts. See All. Bernstein Inv. Research & Mgmt., Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir. 2006) (holding that when interpreting arbitration provisions under the Federal Arbitration Act, ʺ[b]oth federal and state law applyʺ).

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obligates BMC to reimburse National Union for ʺany payment . . . that the claims service provider or [National Union] . . . [makes] in the absence of negligence and in good faith under any of the Policies.ʺ Appʹx at 19. While BMC contends that this language takes ʺbad faithʺ allegations outside of the Payment Agreement, the bad faith provision is simply another agreed‐upon term to guide an arbitrator in resolving a Payment Dispute. As the district court rightly put it, BMCʹs bad faith claim ʺboil[s] down to [a] merits argument[] related to the underlying payment dispute,ʺ S. Appʹx at 11, and ʺdoes nothing to change the baseline fact that BMC ʹdisagree[s] with [National Union] about [the] amount of [the] Payment Obligation that [National Union] ha[s] asked [it] to pay.ʹʺ Id. (emphasis omitted) (quoting Appʹx at 23).

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We have considered BMCʹs remaining arguments and conclude they are without merit. For the foregoing reasons, we AFFIRM the judgment of the district court.

FOR THE COURT:

Catherine OʹHagan Wolfe, Clerk