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READING & BATES CORP. v. ALL AMERICAN MARINE SLIP

June 27, 1996

In the Matter of the Arbitration - between- READING & BATES CORPORATION and READING & BATES DRILLING CO., Petitioners, -against- ALL AMERICAN MARINE SLIP, a division of Marine Office of America Corporation, Respondent.


The opinion of the court was delivered by: BAER

 HON. HAROLD BAER, JR., U.S.D.J. *fn1"

 Petitioner, Reading & Bates Corp. and Reading & Bates Drilling Co. ("R&B"), moves to compel arbitration of a damage claim on a vessel insured under a "Package Policy" *fn2" underwritten by Respondent, All American Marine Slip ("AAMS"). A previous claim under the same Package Policy has been arbitrated, confirmed and paid. Petitioner asserts that the new claim either falls under the "Loss of Hire" section which contains an arbitration agreement or under the "Hull Damage" section which does not contain an arbitration provision, but which petitioner, nevertheless, argues should require arbitration. Respondent contends that this claim falls within the Hull Damage section of the policy which does not contain an arbitration provision and therefore the claim is not arbitrable.

 Upon review of the briefs and having heard oral argument, I find that the claim asserted is a claim for damage to the ship and therefore falls under the Hull Damage section of the Package Policy. Since that section contains neither an arbitration clause nor does it incorporate such a clause from any other section, the petition to compel must be denied.

 Background

 Petitioner, Reading & Bates Corp. and Reading & Bates Drilling Co. ("R&B"), brings this motion pursuant to 9 U.S.C. ยงยง 4 and 5 to compel Respondent, All American Marine Slip ("AAMS"), to proceed to arbitration. The claim centers around which section of a "Package" insurance policy covers damage caused by Hurricane Andrew to the fairleader stops *fn3" on the "Jack Bates", a mobile offshore drilling unit. Petitioners assert that the claim should be made under the "Loss of Hire" section. That section covers "loss due to the Drilling Unit(s) . . . being wholly or partly deprived of her/their earning capacity . . . resulting from the termination, cancellation and/or delay of the Assured's Drilling Contract(s) . . . ." It contains a broad arbitration clause which states in relevant part that:

 See Kennedy Aff. Ex. J at 104. Respondents argue that the damage claim more appropriately should be placed under the "Hull and Machinery" section of the Package Policy, which does not contain an arbitration clause. The Hull Damage section covers "All Risks of Physical Loss or Damage to vessels, drilling units, rigs, platform rigs and tenders, etc." and states in relevant part that:

 
THIS SECTION REPRESENTS AN INDEPENDENT COVERAGE PART OF THE POLICY AND SHALL ONLY BE SUBJECT TO THE TERMS AND CONDITIONS OF OTHER SECTIONS WHERE SPECIFICALLY SO STATED.

 See Nicoletti Aff. Ex. 1 at 43. The Package Policy also contains a section of "General Conditions" which applies to the entire policy. The "General Conditions" state that the different sections "are deemed to be independent coverage interests . . . ." See Nicoletti Aff. Ex. 2 at 33, and furthermore, that "wherever the word 'policy' appears herein it shall be deemed to read 'section' and/or 'sub-section' as applicable." See Nicoletti Aff. Ex. 2 at 33

 When the Jack Bates was damaged by Hurricane Andrew on August 26, 1992, claims were made under both the Loss of Hire and the Hull Damage sections. The physical damage claim made under the Hull Damage section, was accepted and paid. The loss of hire claim was disputed due to ambiguous language in the policy's coverage. Pursuant to the Loss of Hire section agreement, the dispute was sent to an arbitration panel. That panel awarded R&B $ 3,100,000, plus interest. The award was confirmed by a judgement for $ 3,223,116.97 which AAMS paid. The interest awarded by the arbitration panel added $ 135,907.40 to the previous total, which changed the sum from $ 107,950 below the policy limit to a sum in excess of policy limits. *fn4"

 Petitioner later asserted an additional claim for damage to the fairleader stops on the vessel, arising out of the same storm. Petitioner claimed $ 107,950 of damage, the difference between the Package Policy's aggregate limit, and the arbitration award given (not including the interest). Respondent denied the claim asserting that full policy limits were reached by the prior arbitration award, and that even if they were not, this is a new claim where arbitration is not appropriate. Petitioner asserted that when pre-award and post-award interest is deducted from the award, the policy limits were not reached. Petitioner sought arbitration of the dispute, but Respondent refused. Judge Keenan, who had confirmed the award of the original panel, denied Petitioner's request to revive the previous arbitration panel to hear this dispute. Judge Keenan instructed the petitioner that the original litigation had been fully resolved and the proper course was to file a new action. See Nicoletti Aff. Ex. 6 at 2. Petitioner subsequently filed this action requesting that the court order AAMS to arbitrate this matter.

 Discussion

 In determining whether a claim is arbitrable the court must make a two step inquiry; whether the agreement in question contains an arbitration clause, and if so, whether the scope of the agreement encompasses the asserted claims. David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245 (2nd Cir. 1991) (citations omitted). To answer the first inquiry in this case the petitioner charts two possible courses. The first is that this claim falls within the Loss of Hire section which has an explicit arbitration agreement. The ...


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