UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
February 26, 1976
WELLS FARGO BANK INTERNATIONAL CORPORATION, Plaintiff,
LONDON STEAM-SHIP OWNERS' MUTUAL INSURANCE ASSOCIATION, LTD., Defendant
Frankel, District Judge.
The opinion of the court was delivered by: FRANKEL
FRANKEL, District Judge.
In its capacity as a mortgagee-loss payee under a marine insurance policy, plaintiff Wells Fargo Bank International is suing defendant insurer London Steam-Ship Owners' Mutual Insurance Association, Ltd., for payments allegedly due under the policy.
Defendant is an English corporation composed of shipowners who mutually agree to insure themselves against so-called protection and indemnity risks pursuant to the Rules of the Association. In May 1969, the owners of the SS JOHN W. HILL (two now-defunct corporations) entered the ship on defendant's insurance rolls. Plaintiff, as mortgagee of the ship, was subsequently named the loss-payee under the policy. In October 1969, while the policy was in effect, the SS JOHN W. HILL went aground in a river in Venezuela. In the course of refloating the vessel, some cargo had to be discharged and the ship sustained physical damage. The owners declared a general average and cargo was eventually assessed $155,680.30 as its share of contribution.
Having made an unsuccessful demand upon the cargo owners for this amount, plaintiff claimed recompense from defendant,
which was refused on the ground that the policy did not cover the particular loss.
After commencing this action in June 1974, plaintiff, with defendant's approval,
settled its claim against cargo for $115,000, thereby reducing the amount in controversy to $40,680.30. Relying on Association Rule 25,
which requires that all disputes between a "Member" and defendant be submitted to arbitration, defendant moves for dismissal or, if that is denied, a stay under 9 U.S.C. § 3 pending arbitration.
A dispute arising under a contract of maritime insurance, such as the one involved here, is within the admiralty and maritime jurisdiction of this court pursuant to 28 U.S.C. § 1333. See, e.g., Jeffcott v. Aetna Ins. Co., 129 F.2d 582 (2d Cir.), cert. denied, 317 U.S. 663, 63 S. Ct. 64, 87 L. Ed. 533 (1942); Diesel Tanker, A. C. Dodge Inc. v. Stewart, 262 F. Supp. 6 (S.D.N.Y.1966), aff'd, 376 F.2d 850 (2d Cir.), cert. denied, 389 U.S. 913, 88 S. Ct. 239, 19 L. Ed. 2d 261 (1967). That this action may be an appropriate one for a stay pending arbitration under 9 U.S.C. § 3 does not vitiate that jurisdiction. See The Anaconda v. American Sugar Refining Co., 322 U.S. 42, 44, 64 S. Ct. 863, 864-865, 88 L. Ed. 1117, 1119 (1944); Legg, Mason & Company v. Mackall & Coe, Inc., 351 F. Supp. 1367, 1372 (D.C.D.C.1972). Accordingly, defendant's motion for dismissal for lack of subject matter jurisdiction is denied.
Defendant's alternative application, for a stay, must be granted if the issues tendered by plaintiff are "referable to arbitration under an agreement in writing for such arbitration * * *." 9 U.S.C. § 3. Federal law, comprising generally accepted principles of contract law, controls the question of arbitrability. See, e.g., Robert Lawrence Company v. Devonshire Fabrics, Inc., 271 F.2d 402, 404-09 (2d Cir. 1959), cert. dismissed, 364 U.S. 801, 81 S. Ct. 27, 5 L. Ed. 2d 37 (1960); Joseph Muller Corp. Zurich v. Commonwealth Petrochemicals, Inc. 334 F. Supp. 1013, 1018 (S.D.N.Y. 1971). Apparently conceding that the question of coverage sought to be litigated in this action would have been subject to arbitration if the original insureds were claimants, plaintiff denies that it must go to arbitration, contending that (1) it was not a party to the contract and (2) the terms of the arbitration clause do not extend to disputes between it and the defendant. The court disagrees.
Rule 25, invoked by defendant, says:
"Any difference or dispute whatsoever between any Member and the Association touching any claim made by the Member shall be referred to [arbitration] * * *. The meetings shall be held in London. * * * No Member shall be entitled to maintain any action or other proceeding against the Association in respect of any claim * * * unless and until the claim shall have been submitted to the [Association] and they shall have given their decision thereon * * * and if such decision be disputed * * *, unless and until the claim shall have been referred to arbitration in manner herein provided and the award shall have been published, and then only for the sum so ascertained to be payable by the Association."
As members of defendant, the owners of the SS JOHN W. HILL agreed for themselves and for their "heirs, executors, administrators and successors" to observe all of the defendant's Rules. Having rejected plaintiff's claim for indemnification, the defendant Association maintains that plaintiff must submit the dispute to arbitration as provided in Rule 25. Plaintiff counters that it is neither a "successor" nor a "Member" within the meaning of the Rules, and is thus not bound by the arbitration clause.
A non-signatory or non-party to a contract containing an arbitration clause may come to be governed by such a provision. See, e.g., Fisser v. International Bank, 282 F.2d 231 (2d Cir. 1960). "[The] variety of ways in which a party may become bound by a written arbitration provision is limited only by generally operative principles of contract law." Id. at 233. For example, assignees and subrogated insurers have been held to arbitration agreements they never signed. See Netherlands Curacao Co., N.V. v. Kenton Corp., 366 F. Supp. 744, 746 n.3 (S.D.N.Y.1973); Lumbermens Mutual Casualty Co. v. Borden Co., 268 F. Supp. 303 (S.D.N.Y.1967). It is not decisive that such persons are not literally covered by the terms of the arbitration clause. See Lumbermens Mutual Casualty Co. v. Borden Co., supra at 313-14.
Even assuming that plaintiff is neither a "Member"
nor a "successor,"
it is subject to the arbitration provision here in question. Plaintiff's claim to recovery is premised upon its status as a loss payee under the policy.
The relevant clause provides:
"Loss, if any, payable to Wells Fargo International Corporation, Mortgagee, or order."
Under the contract and insurance law of most jurisdictions, a mortgagee claiming under such an open loss payee clause
is accorded no greater rights than those of its insured, and is bound by the conditions in the contract. See Ionian Shipping Co. v. British Law Insurance Co., 426 F.2d 186, 189-90 (2d Cir. 1970); Hessian Hills Country Club v. Home Ins. Co., 262 N.Y. 189, 186 N.E. 439 (1933); 5A J. & J. Appleman, Insurance Law and Practice § 3401, at 279-96 (1970). Clauses containing conditions limited by their terms to the "insured or mortgagor" apply to the mortgagee as well unless varied by explicit language to the contrary. See Hessian Hills Country Club v. Home Ins. Co., supra, at 197-98, 186 N.E. 439; Mortgagee Affiliates Corp. v. Commercial Union Ins. Co., 27 A.D.2d 119, 276 N.Y.S.2d 404 (2d Dep't 1967).
The foregoing principles solidly support defendant's demand that the dispute be arbitrated.
If the answer seemed less clear, we should be disposed anyhow to resolve doubts in favor of arbitration. See Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1212 (2d Cir.), cert. denied, 406 U.S. 949, 92 S. Ct. 2045, 32 L. Ed. 2d 337 (1972).
Accordingly, while denying the application for dismissal, the court grants defendant's motion to stay this action pending the arbitration called for by Rule 25.
It is so ordered.