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RELIANCE NAT'L INS. CO. v. SEISMIC RISK INS. SERVS

April 16, 1997

RELIANCE NATIONAL INSURANCE COMPANY, Petitioner, against SEISMIC RISK INSURANCE SERVICES, INC., Respondent.


The opinion of the court was delivered by: SWEET

 Sweet, D.J.

 Petitioner Reliance National Insurance Company ("Reliance") has sought to enforce an arbitration agreement with Respondent Seismic Risk Insurance Services, Inc. ("Seismic") and to enjoin the prosecution of an action initiated by Seismic in the Superior Court for the State of California against Reliance. For the reasons set forth below and upon all the prior proceedings had herein, the motion is granted.

 PRIOR PROCEEDINGS

 As more fully set forth below, the parties entered into a Profit Managers Agreement and a Profit Commissions Agreement on May 11, 1992, the first containing an arbitration agreement and the second devoid of such an agreement. The parties disagreed with respect to the implementation of the agreements and the agreements were terminated by Reliance on October 22, 1992.

 On November 21, 1996 Seismic commenced an action entitled Seismic Risk Insurance Services Inc. v. Reliance National Insurance Company in the Superior Court of the State of California, County of Los Angeles, case no. BC 161255 (the "California action") and on the following day filed a demand for arbitration.

 On January 10, 1997 Reliance filed the instant petition and by order to show cause brought on its motion to enforce the arbitration agreement and to enjoin the California action. The motion was heard and considered fully submitted on January 22, 1997.

 THE FACTS

 The Parties

 Reliance is an insurance company organized and existing under the laws of the State of Delaware, with its principal place of business in New York. Seismic is a corporation organized and existing under the laws of the State of California with its principal place of business in the County of Los Angeles.

 The Agreements

 Reliance and Seismic began negotiation in February 1992 to reach an agreement under which Seismic would solicit, advertise, underwrite, and bind earthquake insurance in California on behalf of Reliance. On February 27, 1992, Reliance sent Seismic a letter enclosing a discussion draft of a proposed agreement which made reference to two different forms of compensation for Seismic: (1) a conventional production and administration commission, based on the generation of policies; and (2) an additional "profit" commission to be based on the profitability of the policies Seismic originated.

 The draft specified the production and administration commission as 25% of gross written premiums received by Reliance on policies bound or written by Seismic, but did not set forth any terms for the profit commission. The discussion draft also contained an arbitration clause to which Seismic objected.

 Thereafter, Reliance determined that the profit commission was not a proper subject for an agreement covering the relationship between the parties and that the profit commission should be provided for in a separate agreement. On March 30, 1992, Reliance sent Seismic a separate draft with respect to the contemplated profit commission which provided that Seismic would earn a profit commission of up to 5% on the business underwritten by Seismic during any calendar year.

 On May 11, 1992, Reliance and Seismic entered into the Program Manager Agreement which provided that Seismic, on behalf of Reliance, would solicit, underwrite and bind business in the territory of California relating to earthquake insurance.

 Under the terms of the Program Manager Agreement (at Article VI), the computation of Seismic's compensation for its services rendered under that agreement was comprised of three specified elements: (i) production and administration commissions (Art. VI.A); (ii) unearned commissions (Art. VI.B); and (iii) profit commissions (Art. VI.C).

 The Program Manager Agreement (at Art. VI.C) specifically provided as follows:

 
[Seismic] will earn a profit commission while this Agreement is in force in accordance with and subject to the terms and conditions of a Profit Commission Agreement to be entered into by and between [Seismic] and [Reliance].

 The Program Manager Agreement (at Art. XIX) contains an arbitration clause. Article XIX.A provides as follows:

 
Submission to Arbitration 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 New York unless otherwise mutually agreed.

 Also on May 11, 1992, and as expressly contemplated in the Program Manager Agreement, Reliance and Seismic also entered into ...


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