Duke University v. National Union Fire Ins. Co.
M.D. N.C., February 4, 2010
This action involves a dispute by plaintiff policyholder against defendant insurer alleging breach of an insurance policy by the insurer’s failure to advance and/or pay all of the policyholder’s defense costs. Defendant insurer then instituted a third-party action against United Educators, claiming that it was entitled to contribution, subrogation and declaratory relief.
The policy between the policyholder and third party defendant included an arbitration agreement and third party defendant sought to stay the trial of the main action pending arbitration. Defendant insurer opposed, claiming that it was not bound by the arbitration agreement because it was not a party to the agreement and an arbitration agreement in an insurance contract is not enforceable under the Federal Arbitration Act (“FAA”).
The district court held that the phrase “involving commerce” in the FAA has been interpreted broadly by the Supreme Court. Therefore, insurance policies issued by a foreign corporation to citizens of particular states involve commerce and are subject to the FAA.
In addition, if defendant insurer seeks to hold third party defendant to the agreement, it is equitable to hold defendant insurer to the arbitration clause in the agreement because defendant insurer cannot claim the benefit of the contract and simultaneously avoid its burden. Therefore, the trial is stayed pending arbitration.
A copy of the decision is attached here
Sarah Delaney and Dan Gerber