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Insurance – Arbitration Clause – Personal Injury Claims

A Lynchburg U.S. District Court grants defendant insurance companies’ motion to stay proceedings pending arbitration of this declaratory judgment action filed by plaintiff insured, the manufacturer of an oral sodium phosphate colon-cleansing product that has prompted over 1,000 personal injury claims; the carriers did not waive arbitration when their lawyer wrote opposing counsel that if the manufacturer was still unhappy, it could “serve the Complaint and litigation can commence.”

The FDA issued a safety alert due to reports of acute phosphate nephropathy, which is a form of acute kidney injury that is associated with deposits of calcium-phosphate crystals in the renal tubes that may result in permanent renal function impairment, in connection with the use of oral sodium phosphate products (OSPs). Defendant Fleet alleges it immediately recalled its oral Phospho-soda products; however, approximately 1,000 personal injury claims were subsequently filed against Fleet stemming from the use of its Phospho-soda products.

Fleet structured multiple layers of insurance to provide liability coverage for claims arising out of its Phospho-soda products. The principal disagreement between the parties concerns the interpretation of the Aspen Insurance Binder, which provides for excess layer insurance with liability limits of $15 million excess of $85 million. Fleet contends that not only is there no express reference to arbitration in the Aspen Insurance Binder, but that no agreement to arbitrate was incorporated by reference.

In 2009, Aspen, believing Fleet to have materially understated its loss history, hand-delivered purported notices of rescission of the Binders upon Fleet on Sept. 25, after Fleet had filed a complaint in state court seeking a declaratory judgment that Aspen owed Fleet a duty of coverage. Aspen removed the suit to federal court.

The court finds the Aspen Insurance Binder provides for the arbitration of disputes, by virtue of the fact that it “follows form” to the Swiss Re policy, which itself contains an arbitration agreement. The plain language in the Binder clearly provides that it was to “follow form” of the Swiss Re policy wording, which provided that the coverage by Aspen Insurance would be “in accordance with the same warranties, terms, conditions, exclusions and limitations” as those contained in the Swiss Re policy. The court notes the Aspen Insurance Binder included the same iiitermsiii as the Swiss Re policy, except where such terms would conflict. The arbitration agreement was a term of the underlying Swiss Re policy, and specifically a term about which Fleet and Aspen were on notice, and had access to, iiibeforeiii the issuance of the Aspen Insurance Binder. Therefore, by the express terms of the Aspen Insurance Binder and in the absence of any conflicting language contained therein (of which there is none), the Swiss Re arbitration agreement was also made a term of the Aspen Insurance Binder. It is not required that the court so conclude on this basis alone.

Those courts that have considered the specific question here, which is whether an arbitration agreement in an underlying insurance policy would be incorporated into an excess “follow form” policy, appear to have reached the conclusion that an arbitration agreement would be incorporated.

The court also finds it clearly established and undisputed that the disputes between the parties fall within the broad scope of said arbitration agreement.

Further, the court rejects Fleet’s contention that Aspen expressly waived its right to arbitration, in a letter from defense counsel to plaintiff’s counsel that stated “litigation can commence.” Any reasonable interpretation of Aspen’s statement that if “Fleet thereafter remains dissatisfied, it can then serve the Complaint and litigant can commence,” in full context, is merely a suggestion that the parties voluntarily cooperate, at least temporarily, to narrow or otherwise resolve their disputes, rather than a binding commitment by Aspen to resolve its disputes in litigation by the exclusion of arbitration.

C.B. Fleet Co. v. Aspen Insurance UK Ltd. (Moon, J.) (Published) No. 6:09cv00062, Oct. 15, 2010; USDC at Lynchburg, Va. VLW 010-3-542, 24 pp.

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