Southwest LTC-Management Services, LLC v. Lexington Insurance Company, QBE Specialty Insurance Company and others

At a glance

Parties

Southwest LTC-Management Services, LLC v. Lexington Insurance Company, QBE Specialty Insurance Company, Steadfast Insurance Company, Certain Underwriters at Lloyd's, London Subscribing to Certificate No. AMR-36293-03, United Specialty Insurance Company, General Security Indemnity Company of Arizona, Indian Harbor Insurance Company, Princeton Excess and Surplus Lines Insurance Company and International Insurance Company of Hannover SE

Case no.

No. 1:18-CV-00491-MAC

Court

U.S. District Court, Eastern District of Texas, Beaumont Division

Forum and rules

Federal Arbitration Act, Chapters One and Two (9 U.S.C. §§ 201–208); New York Convention, Article II(3)

Treaty

New York Convention 1958; arbitration clause in a commercial property insurance policy (seat: New York)

Court

Zack Hawthorn, United States Magistrate Judge (Report and Recommendation); case assigned to District Judge Marcia A. Crone

Sector

Insurance (commercial property, hurricane loss)

Outcome

The Magistrate Judge recommended granting the insurers' motion to compel arbitration and staying the action pending arbitration (29 March 2019).

Amount

Claimed: USD 8,400,000 (USD 6,400,000 in damage plus USD 2,000,000 in business income loss). Already paid by the insurers: USD 2,500,000 (the flood sublimit).

The dispute

Southwest LTC-Management Services, LLC held a commercial property insurance policy covering property at 6600 Ninth Avenue, Port Arthur, Texas. The policy was in force from 1 March 2017 to 1 March 2018 and was issued by a group of insurers that included Lloyd's underwriters and International Insurance Company of Hannover SE. Hurricane Harvey damaged the property around 25 August 2017. The insurers paid USD 2,500,000, which they said was the policy's per-occurrence flood sublimit. Southwest sued in Texas state court. It asked for a declaration that the sublimit did not reduce its USD 8,400,000 claim, which was below the USD 10,733,028 limit for the location. The insurers removed the case to federal court under the New York Convention and moved to compel arbitration. Southwest argued that service-of-suit endorsements, which submit the insurers to a "Court of competent jurisdiction", superseded the arbitration clause, and asked for remand to state court.

Key holdings

1. The arbitration agreement falls under the New York Convention and Chapter Two of the FAA. It is in writing, its seat is New York in a Contracting State, it arises from a commercial insurance relationship, and at least one party is not a U.S. citizen (Hannover is German; the Underwriters are from the United Kingdom). pp. 6–8
2. Under Article II(3), the court must order arbitration unless the agreement is null and void, inoperative or incapable of being performed. The plaintiff raised no defence to the validity of the arbitration clause itself. p. 8
3. The service-of-suit clause does not supersede the arbitration clause. It complements the clause by providing a judicial forum to compel arbitration or enforce an award. Reading it as superseding the arbitration clause would make that clause superfluous. The plaintiff's attempt to distinguish McDermott and Gemini failed. pp. 11–12
4. The coverage dispute, including whether the flood sublimit applies, falls within the clause's reference to "all matters in difference", read in its plain and ordinary meaning. p. 12
5. The court did not need to decide whether Texas or New York law applies. On the relevant points there was no significant difference between them. p. 5
6. Recommendation: grant the motion, order the parties to arbitrate under the terms of the policy, stay the action and administratively close the case. The parties had fourteen days to object. p. 12

Procedural history

1. 25 August 2017Hurricane Harvey damages the insured Port Arthur property (on or around this date).
2. 14 November 2017The insurers pay USD 2,500,000, which they treat as the flood sublimit.
3. 14 May 2018Southwest files a petition in the 136th Judicial District Court for Jefferson County, Texas.
4. 19 September 2018The insurers invoke arbitration. Southwest refuses to join the referral on 28 September 2018.
5. 5 October 2018The Underwriters and Hannover remove the case to the U.S. District Court for the Eastern District of Texas.
6. 24–28 December 2018Southwest files its response to the motion to compel arbitration (24 December). The insurers file their reply (28 December).
7. 29 March 2019Magistrate Judge Zack Hawthorn's Report and Recommendation: grant the motion to compel arbitration and stay the case.

Tribunal, counsel and experts

Decided by

• Zack Hawthorn Judge, U.S. District Court, Eastern District of Texas (United States Magistrate Judge; signed the Report and Recommendation)
• Marcia A. Crone Judge, U.S. District Court, Eastern District of Texas (District Judge to whom the case is assigned)

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Keywords

• New York Convention
• Article II(3)
• motion to compel arbitration
• stay of proceedings
• service-of-suit clause
• Federal Arbitration Act Chapter Two
• removal
• 9 U.S.C. § 205
• Hurricane Harvey
• flood sublimit
• property insurance
• Lloyd's underwriters
• Hannover
• waiver of arbitration
• remand
• McDermott
• Port Arthur

Summary generated with AI from the published documents — refer to the award for the authoritative text.