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You are here: Home / Archives for Arbitration / Court Decisions / Contract Interpretation

Contract Interpretation

NDNY Unable to Resolve Ambiguity in Umbrella Policies and Sets Trial

August 25, 2019 by Nora Valenza-Frost

On remand from the Second Circuit, the Northern District of New York was asked to determine whether Utica Mutual Insurance Co. (the cedent) had a defense obligation under its umbrella policies. If it did, then Utica would be entitled to recover defense costs from Clearwater Insurance Co. (the reinsurer).

The umbrella policies required Utica to defend any occurrence “not covered by the policies listed in the schedule of underlying insurance … but covered by the terms and conditions of this policy.” Both parties argued different interpretations of the meaning of “not covered by.” Finding the language ambiguous, and having not been provided extrinsic evidence allowing the court to resolve the ambiguity as a matter of law, summary judgment was denied and the case set for trial.

Utica Mut. Ins. Co. v. Clearwater Ins. Co., No. 6:13-cv-01178 (N.D.N.Y. July 25, 2019).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

District Court Grants Motion to Compel Arbitration, Finding Arbitration Provision Not Severable From Allegedly Void Contract

July 8, 2019 by Alex Silverman

A Pennsylvania federal district court granted a motion to compel arbitration pursuant to 9 U.S.C. § 4 of the Federal Arbitration Act, over objection by the defendant on severability grounds. The defendant argued that its contract with the plaintiff was void ab initio and thus unenforceable. While the contract contained an arbitration clause, the defendant argued that under Pennsylvania law, an arbitration provision is not severable from the remainder of a void contract, and as such, the arbitration clause at issue was unenforceable. The court disagreed, however, finding the proposition to be “directly at odds” with U.S. Supreme Court precedent. The court noted that the Supreme Court explicitly held in Buckeye that “an arbitration provision is severable from the remainder of the contract” and that “unless the challenge is to the arbitration clause itself,” a challenge to the validity of the contract as a whole must go to the arbitrator in the first instance. Because the defendant here challenged the validity of the contract as a whole, the court granted the plaintiff’s motion to compel arbitration.

Thrivest Specialty Funding, LLC v. Wright, No. 2:18-cv-04764 (E.D. Pa. June 5, 2019)

Filed Under: Arbitration / Court Decisions, Contract Interpretation

An Agreement to Arbitrate Is Not a Contract Defense Under Montana Law

June 28, 2019 by Nora Valenza-Frost

The Ninth Circuit reversed the District of Montana’s denial of a motion to compel arbitration on the grounds that “the insurer was estopped from asserting contract defenses as a result of its breach of its duty to defend.” The Ninth Circuit held that neither the 2014 Montana Supreme Court decision Tidyman’s Management Services, Inc. v. Davis, 330 P.3d 1139, nor any other Montana case, treats an agreement to arbitrate as a contract defense that an insurer is estopped from asserting as a result of its breach of its duty to defend. Rather, such agreement “establishes how the parties choose to resolve disputes arising out of the contract.” A party successfully compelling arbitration “may nevertheless have any insurance contract defenses arising out of its policy resolved against it by the arbitrator.”

Am. Trucking & Transp. Ins. Co., v. Nelson, No. 18-35414 (9th Cir. June 4, 2019)

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Second Circuit Affirms Ruling Rejecting Lack of Notice Defense Under New York Convention Article

June 27, 2019 by Nora Valenza-Frost

Affirming the confirmation of a Chinese arbitral award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Second Circuit held that notice mailed directly to an entity is sufficient to afford it due process pursuant to American standards. The China International Economic and Trade Arbitration Commission sent notice and arbitration materials to the respondent at the address listed in the parties’ contract. When some of these materials were returned, the items were mailed to the respondent’s address on file with the New York Department of State as well as a third address. The documents sent to the latter two addresses were not returned, and service was assumed.

Although the respondent argued it never received notice of the arbitration, which is a defense under Article V(1)(b) of the New York Convention, and submitted a declaration to that effect, the declaration did “not satisfy the ‘heavy’ burden imposed on a party asserting a defense under” the Convention.

Tianjin Port Free Trade Zone Int’l Trade Serv. Co. v. Tiancheng Chempharm, Inc. USA, No. 18-1918 (2d Cir. June 4, 2019)

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Ninth Circuit Denies Mandamus After District Court Compels Arbitration Based on Allegedly Inconspicuous Arbitration Provision

June 26, 2019 by Brendan Gooley

The Ninth Circuit recently denied a petition for a writ of mandamus seeking to overturn a district court’s decision compelling arbitration. The petition principally argued the arbitration clause was inconspicuous because it was only found in a document that users had to: (1) click a link to access; and (2) then find another document incorporated in the first document on UPS’ website.

Randall Holl filed a putative class action alleging that UPS overcharged him for a package he shipped. UPS responded by moving to compel arbitration. It claimed Holl had enrolled in the UPS My Choice program. In so doing, he clicked a box stating he agreed to, inter alia, the UPS My Choice Service Terms, which could be accessed by clicking a hyperlink next to the checkbox. That hyperlink brought users to a short document that incorporated several other documents but did not mention arbitration. The other documents were not hyperlinked to that page, but could be accessed on UPS’ website. One of the documents incorporated was the UPS Tariff/Terms and Conditions of Service, which was 32 pages in length and contained a mandatory arbitration clause. Holl claimed, inter alia, that these multiple levels of incorporation made the arbitration clause inconspicuous.

The district court disagreed, and Holl petitioned the Ninth Circuit for a writ of mandamus. The court noted that this case “test[ed] the outer limits of what constitutes a ‘reasonably conspicuous'” arbitration provision. The Ninth Circuit nevertheless denied Holl’s petition because the district court’s decision was not clearly erroneous as a matter of law, which was required for Holl to prevail under the strict requirements of a mandamus. Applying California contract law, the court noted that “California courts have deemed analogous incorporations by reference valid.”

The court also noted that UPS had since changed its arbitration disclosure to make it more conspicuous. That was probably wise. While UPS prevailed in this case, the Ninth Circuit noted that the facts stretched the limits of what is conspicuous, and the court’s holding was based on the extraordinary requirements of a writ of mandamus. It is not clear that UPS would have prevailed but for the strict standard of review, and other courts might well disagree with the district court. UPS seems to have recognized as much when it changed its disclosure.

In re Holl, No. 18-70568 (9th Cir. May 30, 2019).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

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