A federal district court has required Scottsdale Insurance Company to arbitrate a claim against Kinsale Insurance Company based on an arbitration clause in a contract between Kinsale and its insured – a contract to which Scottsdale was not a party – based on the doctrine of equitable estoppel, because “Scottsdale’s claims are entirely dependent on Kinsale’s obligations to provide insurance coverage” under the contract containing the arbitration clause.
The case arose because Scottsdale paid to defend and then settle a personal injury claim against its insured, P. Tamburri Steel, LLC, which resulted from a construction project. AJA Services, Inc. had agreed to indemnify Tamburri for any personal injury claims that resulted from that project. Another entity, AJA Skies the Limit, Inc., was insured by Kinsale under a policy containing a broad arbitration provision. In another matter, Tamburri had sought and received an order reforming its subcontract with AJA Services to name AJA Skies the Limit as the actual party, making the Kinsale policy available to pay Tamburri’s claim against AJA Services. Scottsdale then sued Kinsale in federal court to recover the sums it paid to settle and defend the personal injury case.
Kinsale moved to compel arbitration pursuant to the arbitration clause in its contract with AJA Skies the Limit. While it was undisputed that Scottsdale was not a party to that contract, Kinsale argued that Scottsdale was bound to arbitrate under the theory of equitable estoppel, because Scottsdale’s claims relied upon certain terms of the insurance policy. Scottsdale argued that it was not seeking to enforce any right under the insurance contract, but was instead seeking to enforce “the equitable right to recover amounts that should have been paid by Kinsale.” However, the court found that “Scottsdale’s claims depend almost entirely on the scope of Kinsale’s policy and the coverage Kinsale owes Tamburri under that policy,” as that the policy “is what provides Tamburri with (and Scottsdale, as subrogee) the defense and indemnity that Scottsdale ultimately seeks”. Thus, the court granted Kinsale’s motion to compel arbitration.