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May 24, 1996

In the Matter of the Arbitration Between NUCLEAR ELECTRIC INSURANCE LIMITED, Petitioner, -and- CENTRAL POWER AND LIGHT COMPANY, Respondent.

The opinion of the court was delivered by: STEIN


 This matter is before this Court on the petition of Nuclear Electric Insurance Limited ("NEIL") (1) to compel respondent Central Power and Light ("CPL") to arbitrate, pursuant to the Federal Arbitration Act, 9 U.S.C. § 4, all of CPL's claims that CPL has asserted against NEIL in an action filed in the state courts of Texas, and (2) to stay the pending Texas state court proceedings pending final disposition of the arbitration. Pursuant to an order to show cause signed on April 18, 1996, this matter was heard on May 17, 1996. For the following reasons, the petition is granted.


 The pertinent facts in this case are essentially undisputed. NEIL is a mutual insurance company owned and managed by member insureds, all of which are United States utilities companies that own or operate nuclear power plants. (Petition to Compel Arbitration and to Stay Texas State Court Proceedings P1.) NEIL provides insurance coverage to its members for the expense of purchasing replacement power resulting from outages that exceed 21 weeks in duration due to property damage. (Petition P1). NEIL is a Bermuda corporation with its principal place of business in Delaware. (Petition P1.) CPL is a Texas corporation with its principal place of business in Texas, a member insured of NEIL, and part-owner of the South Texas Project ("STP") nuclear facility in Bay City, Texas. (Petition P2.)

 On September 15, 1992, CPL purchased and entered into a NEIL Extra Expense Policy, providing for weekly indemnity of $ 576,827 for STP unit 1 and $ 593,338 for STP unit 2, for outages exceeding 21 weeks. (Petition P4.) The limit of liability is $ 70,188,309 for unit 1 and $ 72,197,368 for unit 2. (Petition P4.) The policy provides:

Any claim or controversy between [CPL] and [NEIL] as to any matters arising out of or relating to this Policy (other than failure to agree as to the amount of the Loss), which is not settled between themselves, shall be submitted to arbitration in New York City by three arbitrators at the request of either [CPL] or [NEIL].

 (Policy, attached to Petition as ex. 1, at § XI.14(b)). The policy also provides: "To the extent that any claim or controversy between [CPL] and [NEIL] hereunder is not subject to appraisal or arbitration for any reason whatsoever, the United States District Court for the Southern District of New York shall have exclusive jurisdiction thereof." (Petition, ex. 1, at § XI.14(c)). It further provides that New York law governs the agreement. (Petition, ex. 1, at § XI.13.)

 Section 8 of Article 1.14-1 of the Texas Insurance Code ("section 8") provides that, except for insurance policies that are "independently procured" pursuant to § 2(b)4 of that Article, "any contract of insurance effective in this state and entered into by an unauthorized insurer is unenforceable by such insurer." While both parties agree that NEIL is an "unauthorized insurer" within the meaning of the Texas Insurance Code, NEIL contends that the policy falls into the "independently procured" exception and CPL disputes this.

 On August 19, 1994, CPL submitted a claim in the amount of $ 24,141,662.74 for losses occurring due to shutdowns at STP. (Petition P8.) NEIL denied the claim on November 21, 1995, on the ground that the claim was not covered under the policy. (Petition P9.) On April 9, 1996, CPL filed suit in the 148th Judicial District Court of Nueces County, Texas, claiming breach of contract and of NEIL's obligation of good faith and fair dealing in violation of Texas law. (Petition PP10-12.) CPL has also threatened to seek treble damages if NEIL does not pay the claim by June 9, 1996. (Petition P13.) CPL also demands that NEIL, as an unauthorized insurance company doing business in Texas, post a $ 25 million bond, pursuant to Texas state law, to cover any potential judgment before filing any pleadings in that action. (Affidavit of Lawrence W. Newman, sworn to on April 15, 1996, at P16; id. ex. 4, P31.)

 On April 15, 1996, NEIL served on CPL a Request for Arbitration (Petition P16.), and filed this petition in this Court. By Order to Show Cause, NEIL sought a temporary restraining order staying the Texas action, which was denied. As noted above, argument on the petition was heard on May 17, 1996.


 A. Abstention

 CPL first contends that this Court should abstain from hearing this petition pursuant to the abstention doctrine first enunciated in Burford v. Sun Oil Co., 319 U.S. 315, 333-34, 63 S. Ct. 1098, 1107, 87 L. Ed. 1424 (1943). In its most recent explication of that doctrine, the U.S. Supreme Court has written:

Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar"; or (2) where the "exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern."

 New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans, 491 U.S. 350, 361, 109 S. Ct. 2506, 2514, 105 L. Ed. 2d 298 (1989) ("NOPSI") (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814, 96 S. Ct. 1236, 1244-45, 47 L. Ed. 2d 483 (1976)); see also In re Joint E. & S. Dist. Asbestos Litigation, 78 F.3d 764, 775 (2d Cir. 1996); German v. Federal Home Loan Mortgage Corp., 885 F. Supp. 537, 561 (S.D.N.Y. 1995).

 CPL argues that abstention is appropriate here because the case involves a difficult question of the interpretation of the Texas Insurance Code, and insurance is an area of regulation uniquely within the cognizance of the states by virtue of the McCarran-Ferguson Act, 15 U.S.C. § 1011 et ...

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