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CHINA UNION LINES v. AMERICAN MARINE UNDERWRITERS

October 5, 1978

CHINA UNION LINES Limited et al., Plaintiffs,
v.
AMERICAN MARINE UNDERWRITERS, INC., and Calvert Fire Insurance Co., Defendants and Third-Party Plaintiffs. CANADIAN MARINE UNDERWRITERS Limited and CNA Assurance Co., Inc., Defendants, v. I. R. POSGATE et al., Third-Party Defendants



The opinion of the court was delivered by: BRODERICK

MEMORANDUM ORDER

I.

 Third-party defendants, I. R. Posgate and other underwriters at Lloyds subscribing to Reinsurance Contract "GLH No. 1039-61" (collectively, "Posgate"), have moved to stay the proceedings under the third-party complaint herein pending arbitration in Miami. The motion is made pursuant to 9 U.S.C. § 3. *fn1"

 The facts relevant to the instant motion can be stated briefly. The principal action is a suit on marine insurance policies by plaintiffs, China Union and International Union Maritime Insurance Company, against defendants, American Marine Underwriters, Inc., Calvert Fire Insurance Co., Canadian Marine Underwriters Limited, and CNA Assurance Co., Inc. Defendants have rejected plaintiffs' claim, chiefly on the alleged grounds that the insurance policy was void Ab initio due to misrepresentation of facts that were material to the underwriting of the risks involved.

 Defendants American Marine Underwriters, Inc. and Calvert Fire Insurance Company (collectively, "AMU") have impleaded Posgate, the third-party defendant, on the grounds that, if AMU is held liable to plaintiffs in the principal action, then AMU is entitled to partial indemnity from Posgate. *fn2" AMU base their third-party action on a Treaty of Reinsurance ("the Treaty"). The Treaty provides that Posgate will cover the total loss risks of AMU to a maximum of $ 500,000 per vessel.

 The Treaty contains two clauses that are pertinent to the disposition of the instant motion. Article XII is entitled "Arbitration" and reads in part as follows:

 
1. If any dispute shall arise between AMU and the reinsurer, either before or after the termination of this contract, with reference to the interpretation of this contract or the rights of either party with respect to any transaction under this contract, the dispute shall be referred to three arbitrators, . . . The arbitrators shall consider this contract an honorable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and binding on both AMU and the reinsurer. The expense of the arbitrators and of the arbitration shall be equally divided between AMU and the reinsurer. Any such arbitration shall take place in Miami, Florida unless some other location is mutually agreed upon by the parties.

 Article XV of the Treaty is entitled "Service of Suit Clause" and reads in part as follows:

 
1. It is agreed that in the event of the failure of the reinsurer to pay any amount claimed to be due hereunder, the reinsurer, at the request of the reinsured, will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such court jurisdiction and all matters hereunder shall be determined in accordance with the law and practice of such court.

 AMU based the impleader of Posgate on the provision of the Service of Suit Clause, Article XV. Posgate bases the motion for a stay of the third-party action on the Arbitration Clause, Article XII.

 II.

 I conclude that Posgate is entitled to a stay of the third-party action, such stay to be effective pending arbitration pursuant to Article XII of the Treaty between Posgate and AMU.

 III.

 Posgate's main contentions are (1) that the Treaty is a policy of marine insurance and, as such, is a maritime contract within the meaning of 9 U.S.C. § 2, *fn3" and (2) that, therefore, under 9 U.S.C. § 3, *fn4" ...


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