The California Court of Appeal recently answered the question of when a nonsignatory to a reinsurance treaty containing an arbitration clause can compel arbitration against a signatory to that agreement. In 1979 and 1980, respectively, Allianz Global Corporate and Specialty Company (AIC Global) issued excess umbrella insurance policies to its insured (MacArthur Company). Thereafter, Clearwater Insurance issued two facultative certificates to AIC Global reinsuring the MacArthur policies. The facultative certificates did not contain an arbitration clause. In 1982, Clearwater entered into two excess reinsurance treaties with AIC Global’s sister company, Allianz Underwriters Insurance Company (AUIC Underwriters). Both of these treaties contained arbitration clauses. AIC Global and AUIC Underwriters subsequently settled asbestos liability claims made against MacArthur, and made a cash call to Clearwater, which refused to pay. AUIC Underwriters then filed an arbitration demand against Clearwater, adding AIC Global as a co-petitioner. After Clearwater contested the arbitration vis-à-vis AIC Global and filed a counterdemand, AUIC Underwriters and AIC Global petitioned a California trial court to compel arbitration. The trial court granted the petition, and Clearwater appealed.
On appeal, the parties disputed the application of the doctrine of equitable estoppel, which sometimes allows nonsignatories to invoke arbitration clauses to compel signatories into arbitration when the signing party has signed an agreement to arbitrate but attempts to avoid arbitration by suing the nonsignatory defendant for claims that are based on the same facts and are inherently inseparable from claims against a signatory defendant. The Court of Appeal determined that the evidence submitted insufficiently substantiated an “integral relationship” between AIC Global and AUIC Underwriters, since there was no showing of how these two companies were jointly involved in the negotiation of either the MacArthur policies or the Clearwater reinsurance agreements. The court also determined that there had not been a showing that AIC Global’s claim was “intertwined” with the 1982 treaties containing the arbitration clause. On this record, the Court of Appeal reversed and directed the trial court to set aside its order compelling Clearwater to arbitrate with AIC Global. Clearwater Insurance Co. v. Superior Court, Case No. B200692 (Cal. Ct. App. Jan. 31, 2008).
This post written by Brian Perryman.