United States District Court, D. Arizona
S Development Company dba Bell Tower Apartments; and Presidio North LP, Plaintiffs,
Commercial Industrial Building Owners Alliance, Incorporated, a California corporation dba CIBA Insurance Services; Lexington Insurance Company, a Delaware corporation; Ironshore Insurance Limited, a foreign entity; Westchester Fire Insurance Company, a Pennsylvania corporation; Steadfast Insurance Company, a Delaware corporation; Endurance American Specialty Insurance Company, a New York corporation; Lancashire Insurance Company (UK) Limited, a foreign entity; Homeland Insurance Company of New York, a New York corporation; Landmark American Insurance Company, a Georgia company; et al, Defendants.
G. MURRAY SNOW, District Judge.
Pending before the Court is Defendant Ironshore Insurance Ltd.'s Motion to Compel Arbitration and Stay Proceedings. (Doc. 59.) For the following reasons, the Motion is granted.
Plaintiffs S Development Company, d/b/a Bell Tower Apartments, and Presidio North L.P. (collectively "Plaintiffs") own apartment buildings in Phoenix, Arizona. (Doc. 1, ¶¶ 1-2.) These properties include the Presidio North Apartments and the Bell Tower Apartments. In 2006, Plaintiffs joined Defendant Commercial Industrial Building Owners Alliance, Incorporated, d/b/a CIBA Insurance Services ("CIBA"), a California-based insurance purchasing group that negotiates with insurance companies to issue property and liability insurance policies to similarly-situated entities. ( Id. at ¶¶ 18, 21; Doc. 70 at 2-3.) CIBA procures insurance for the members of the purchasing group from a number of insurance companies. The named insured under the policies is CIBA and any associate of CIBA to whom evidence or a certificate of insurance has been issued. While CIBA itself issues Evidences of Insurance for the insured, the actual insurance policies are provided by the various insurance companies, each covering a certain percentage of the insured's liability. (Doc. 66-1 at 1; Doc. 70 at 3.)
On March 4, 2008, CIBA issued Evidences of Property Insurance to Plaintiffs for coverage effective March 31, 2008 through March 31, 2009. (Doc. 66, Ex. 4.) The coverage for this time period was provided by a number of insurers that included Defendant Ironshore Insurance Ltd. ("Ironshore"), a Bermuda-based foreign insurer. On March 28, 2008, Ironshore issued a binding slip for its policy. (Doc. 70-2.) This slip included the terms of its policy, including both a New York choice of law provision and an arbitration clause. ( Id. at 5.) On August 14, 2008, Ironshore executed the final version of the policy at issue in this Motion, featuring the same terms as appeared in the slip policy. (Doc. 70 at 3.) The policy provided 12.5% of a $30, 000, 000 excess liability policy, effective between March 31, 2008 and March 31, 2009. ( Id. ) As with any of the policies purchased by CIBA, the named insured on the Ironshore policy is CIBA itself and any CIBA associates who were issued an evidence or certificate of insurance. ( Id. ) The policy provides retroactive coverage beginning on March 31, 2008, and features both a New York choice of law provision and an arbitration clause. ( Id. )
On or about May 2008 to November 2008, Plaintiffs discovered termite damage at the Presidio North Apartments. (Doc. 1, ¶ 34.) On or about November 2008, Plaintiffs tendered a claim for this damage to Defendants. ( Id., ¶ 36.) On or about November 2008, Plaintiffs discovered termite damage at the Bell Tower Apartments and timely tendered a claim for that damage to Defendants. ( Id., ¶¶ 53, 55.)
Plaintiffs filed the present action and their amended complaint in Maricopa County Superior Court against CIBA, Ironshore, and the other insurance companies, seeking declaratory relief and alleging breach of contract and breach of the implied covenant of good faith and fair dealing. (Doc. 1 at 15-28.) Two of the Defendants removed the action to this Court. ( Id. at 1-7.) Defendant Ironshore now moves to stay the proceedings against them and compel arbitration, pursuant to the arbitration clause in the Ironshore policy. (Doc. 59.)
Ironshore asserts that this case, or at least the case against it, is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") within the Federal Arbitration Act ("FAA"). 9 U.S.C. § 201 et seq. The Convention governs "[a]n arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial." 9 U.S.C. § 202. To determine whether to enforce an arbitration agreement under the Convention, a court must address four factors. These factors "require that (1) there is an agreement in writing within the meaning of the Convention; (2) the agreement provides for arbitration in the territory of a signatory of the Convention; (3) the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial; and (4) a party to the agreement is not an American citizen, or that the commercial relationship has some reasonable relation with one or more foreign states." Balen v. Holland Am. Line Inc., 583 F.3d 647, 654-55 (9th Cir. 2009) (quoting Bautista v. Star Cruises, 396 F.3d 1289, 1294-95 (11th Cir. 2005)). Here, each of these four factors is met. The arbitration agreement is in writing, it provides for arbitration in the United Kingdom, a signatory of the Convention, it arises from a commercial legal arrangement, and Ironshore is not an American citizen.
Plaintiffs do not address whether the agreement is governed by the Convention or whether these four factors are met. Instead, Plaintiffs argue that the agreement should not be enforced because (1) they did not receive notice of the arbitration clause and thus did not agree to be bound by it; (2) Arizona law prohibits Ironshore from enforcing the clause; and (3) enforcement of the clause is unconscionable. The Court will address each of these arguments in turn.
I. Whether the Clause is Unenforceable Due to Lack of Notice to Plaintiffs
First, Plaintiffs argue that the arbitration clause should not be enforced because they did not receive notice of the clause and thus did not agree to be bound by it. They note that the Evidences of Insurance they received for the March 31, 2008 to March 31, 2009 coverage period mentioned neither Ironshore nor the clause, that they attempted to obtain copies of the CIBA insurance plans and were unable to do so, and that the Ironshore policy was not formally executed until after the coverage period began. (Doc. 66 at 3-6.) None of these arguments are persuasive.
The Evidences of Insurance Plaintiffs received for the relevant coverage period do not mention Ironshore or any of the other insurance policies actually providing the CIBA coverage, but instead direct the insured to "[r]efer to CIBA master policies for complete terms, conditions, limitations and exclusions." (Doc. 66-5.) Plaintiffs claim they did not realize that CIBA insurance included a number of policies instead of a single plan until after they initiated this action. (Doc. 66 at 2.) However, Plaintiff offers no explanation why it should not be bound by CIBA's knowledge in the purchase of the policies that provided its total coverage package. To the extent that CIBA created Plaintiff's coverage by contracting with various insurers, Plaintiff is not now entitled to claim that because, as CIBA's associate, it was not familiar with the nuance of each policy that CIBA procured, it is entitled to claim the coverage of each policy without being subject to the provisions pursuant to which that coverage is offered. Similarly, Plaintiffs describe their difficulty obtaining copies of the master insurance policies through their insurance agent and CIBA, but they do not allege they actually requested any information from Ironshore or suggest how CIBA and the insurance agent's failure can or should be imputed to Ironshore.
Further, while Ironshore's policy was not formally executed until August 14, 2008, after the relevant coverage period had begun on March 31, 2008, the policy was executed before the Plaintiffs discovered the loss and filed the claims at issue in this case in November 2008. It is also uncontested that Ironshore executed its slip policy before the coverage period began and that the slip policy contained the arbitration clause and would have provided coverage had there been a covered event prior to the issuance ...