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ST. PAUL FIRE & MARINE INS. CO. v. EMPLOYERS REINS

January 4, 1996

ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff, against EMPLOYERS REINSURANCE CORPORATION, Defendant.


The opinion of the court was delivered by: SOTOMAYOR

 SONIA SOTOMAYOR, U.S.D.J.

 Defendant Employers Reinsurance Corporation moves, pursuant to Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, for a stay of this action pending arbitration. For the reasons discussed below, defendant's motion is GRANTED.

 BACKGROUND

 This motion arises from a dispute over two reinsurance contracts (the "Treaties") between plaintiff St. Paul Fire & Marine Insurance Company ("St. Paul") and defendant Employers Reinsurance Corporation ("ERC"). St. Paul, the reinsurer, maintains its principal place of business in New York City. ERC's principal place of business is in Overland Park, Kansas.

 The Treaties, in force from January 1, 1991 to December 31, 1993, indemnified ERC against the risks of certain losses. Each Treaty contained an arbitration agreement (the "Arbitration Clause"), which provided in relevant part:

 
As a condition precedent to any right of action hereunder, any dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire, meeting in Overland Park, Kansas unless otherwise mutually agreed by the Corporation [ERC] and the Retrocessionaire [St. Paul] (emphasis added).

 After the Treaties expired, ERC submitted loss claims of approximately $ 21 million. That estimate has since grown to $ 35 million. (Mem. of Law in Support of Def.'s Motion at 2.)

 In December, 1994, St. Paul filed a Complaint in this Court seeking to rescind the Treaties on the grounds that they had been induced by fraud. The Complaint alleged that ERC had misrepresented certain material facts relating to the risks being reinsured, and that St. Paul had relied on ERC's representations in agreeing to provide the reinsurance coverage.

 The Complaint outlined four claims for relief. The first three claims alleged respectively that ERC had intentionally, negligently or innocently misrepresented certain material facts relevant to the risks of loss covered by the Treaties. The fourth claim alleged that ERC had breached the contract by failing to give St. Paul timely notice of its claims.

 Defendant ERC now moves to stay this litigation on the ground that the Treaties' broad Arbitration Clause requires this dispute to be resolved in arbitration.

 DISCUSSION

 The questions presented are: (1) whether the issues raised in the Complaint are arbitrable, and if so, (2) whether the Arbitration Clause is enforceable as a matter of law. Plaintiff St. Paul contends that three of its four claims are not encompassed by the Arbitration Clause and ...


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