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INSURANCE CO. OF NORTH AMERICA v. ABB POWER GENERA

May 20, 1996

INSURANCE COMPANY OF NORTH AMERICA and FIDELITY CASUALTY INSURANCE COMPANY OF NEW YORK, as subrogees of AES PLACERITA, INC., Plaintiffs, against ABB POWER GENERATION, INC., Defendant.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN. District Judge.

 Plaintiffs commenced this action in New York Supreme Court, New York County, seeking (1) a declaratory judgment that their claims under a contract between their subrogor and defendant are not barred by applicable statutes of limitations, and (2) an order compelling arbitration of their claims. Defendant removed the case to this Court on the ground that the parties are of diverse citizenship and has counterclaimed for a declaration that (1) plaintiffs' contract claims are barred by the applicable statutes of limitations, (2) plaintiffs' tort claims are not arbitrable, and (3) defendant therefore may not be compelled to submit to arbitration.

 Facts

 On September 13, 1985, AES Placerita, Inc. ("AES") and defendant BBC Brown Boveri, Inc. ("BBC") *fn1" entered into a contract under which defendant agreed to construct a cogeneration facility. The facility, located in Newhall, California, was intended to produce steam to be sold to the operator of an adjacent oil field for use in recovering oil and to generate electricity for sale to Southern California Edison. Defendant in fact designed and constructed the facility and procured necessary equipment. By the end of August 1988, defendant had tested the facility's performance and concluded that it met the contractual performance specifications. On September 9, 1988, AES acknowledged final acceptance of the plant.

 On January 9, 1991, a steam turbine at the facility suffered what the parties describe as a "catastrophic breakdown" while in service. The turbine was badly damaged and the facility was put out of service until June 1991. The cause of the breakdown is disputed. It may have been the result of defects in the turbine, defects in the computerized system which controlled the turbine, errors by the personnel operating the facility, or negligence of personnel who serviced the turbine.

 AES filed a claim with its insurers, plaintiffs Insurance Company of North America and Fidelity Casualty Insurance Company of New York, for the cost of repairing the turbine and for the business lost as a result of the interruption in service. Plaintiffs paid AES in excess of $ 5.5 million and, on December 16, 1992, asserted claims against defendant both in contract and in tort as AES's subrogees. In the event that defendant refused to pay their claim, plaintiffs demanded arbitration under the contract between AES and defendant. Plaintiffs and defendant agreed to attempt to resolve the matter between themselves before resorting to arbitration. As part of that effort, they agreed to toll any and all statutes of limitations applicable to plaintiffs' claims as of December 16, 1992. In December 1994, having concluded that efforts to resolve the dispute had failed, plaintiffs filed this action in New York Supreme Court to compel arbitration.

 The arbitration clause that plaintiffs seek to enforce reads, in relevant part, as follows:

 
"34.0 DISPUTE RESOLUTION
 
"34.1 Agreement to Binding Arbitration. All disputes between the parties hereto shall be resolved in accordance with the provisions of this Article 34.0, by an arbitration panel . . . except that the Panel shall have no authority to act upon a claim if the party claimed against could successfully assert the statute of limitations as a bar to such claim if a law suit were brought on it. The panel shall weigh all evidence presented at the arbitration and shall issue its decision based upon that evidence."
 
***
 
"34.9 Applicable Law. The foregoing agreement to arbitrate and any other agreement to arbitrate with an additional person in connection with the Project shall be specifically enforceable under the prevailing arbitration laws of the State of New York." (Stipulated Trial Exhibit 1. Art. 34.0) *fn2"

 Elsewhere, the contract provides:

 
"29.0 GOVERNING LAW
 
As to any question involving the legal effect of this contract or its construction or interpretation, the law of the State of California shall apply." (Id., Art. 29)

 In light of these contractual provisions, the parties contest whether the Court or the arbitration panel is to decide statutes of limitations questions, *fn3" whether New York's or California's statutes of limitations are applicable, which statutes under California law, if any, are applicable, and the outcome of application of those statutes. Defendant contends also that it is not obliged to arbitrate tort claims advanced by plaintiffs.

 The parties agreed to a trial on a stipulated record consisting of certain stipulations of fact as well as other evidence. They have consented to the Court making findings of fact from this ...


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