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BRISTOL-MYERS SQUIBB v. SR INT'L BUSINESS INS. CO. LTD.

February 7, 2005.

BRISTOL-MYERS SQUIBB COMPANY, Plaintiff,
v.
SR INTERNATIONAL BUSINESS INSURANCE COMPANY LTD., Defendant.



The opinion of the court was delivered by: LEWIS KAPLAN, District Judge

MEMORANDUM OPINION

Thirty-seven years ago, the late Judge Kaufman wrote:

  "Arbitration is often thought of as a quick and efficient method for determining controversies. Unfortunately, cases involving arbitration clauses sometimes are best remembered as monuments to delay because of the litigation and appeals antecedent to the actual arbitration."*fn1 Page 2

  This may be remembered as such a case. The defendant wants a dispute over its right to rescind or avoid insurance policies that it issued to the plaintiff to be resolved by arbitration in England. The plaintiff prefers litigation in the United States. The major question before the Court is one that has troubled the Second Circuit for decades: whether an arbitration clause that applies to any dispute arising under" a contract extends to a claim of fraudulent inducement.

  Facts

  A. The Insurance Policies

  This case concerns two insurance policies issued by SRI International Business Insurance Company Ltd. ("SRI"), a United Kingdom company, to Bristol-Myers Squibb Company ("BMS"), a Delaware corporation with its principal place of business in New York.*fn2 The policies are referred to collectively as the Casualty XL Policies.*fn3 Each was extended to July 1, 2004,*fn4 allegedly because BMS insisted on their extension as a condition for its purchase of a separate group of policies referred to collectively as the Millennium Policy.*fn5 The extended terms are referred to as the 2001-2004 XL Policies.

  The Casualty XL Policies contained an arbitration clause that provided in pertinent Page 3 part:
"Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950, as amended and supplemented, by a Board composed of three arbitrators to be selected for each controversy as follows:
"Any party to the dispute may, once a claim or demand on his part has been denied or remains unsatisfied for a period of twenty (20) calendar days by any other, notify the others of its desire to arbitrate the matter in dispute. . . ."*fn6
The policies contained also a choice-of-law clause that provided in pertinent part: "This Policy shall be governed by and construed in accordance with the internal laws of the State of New York. . . ."*fn7

  B. SRI's Challenge to the Casualty XL Policies

  On June 11, 2004, SRI's counsel sent BMS a letter stating:
"SRI is entitled to avoid and/or to rescind the 2001-2004 XL Policies and hereby gives notification that it does so and further of its intent to demand arbitration with respect to these issues if BMS disputes the position of SRI as to the invalidity and unenforceability of the 2001-2004 XL Policies. SRI hereby tenders to BMS a return of all premiums paid for the 2001-2004 XL Policies. . . ."*fn8
The letter stated that SRI's basis for avoiding the policies was "the same material misrepresentations and/or material non-disclosures" set forth in an earlier letter seeking avoidance of the Millennium Policy and in documents that SRI filed in an arbitration in England relating to the Millennium Policy.*fn9 Those documents asserted that BMS, among other things, manipulated publicly reported Page 4 financial results from 1997 to 2001 and that those misrepresentations induced SRI to enter into the insurance contracts.*fn10
  The June 11 letter stated as additional grounds for rescission and avoidance (1) that "BMS and SRI agreed to the 2001-2004 XL Policies based on a fundamental mutual or unilateral mistake concerning the validity and enforceability of the Millennium Insurance Policy," (2) that there was a failure of consideration in that the Millennium Insurance Policy was not valid and enforceable, and (3) that:
"BMS misled SRI into believing through its misrepresentations and non-disclosures that the Millennium Insurance Policy would be valid, enforceable, and binding . . . This in fact was false, and BMS either knew or reasonably should have known of its falsity. BMS intended SRI to rely upon said misrepresentations and non-disclosures, and SRI did so rely."*fn11
  On July 23, 2004 SRI's counsel sent BMS a further letter stating in pertinent part:
 
"We do not have any response from you . . . regarding the substance of our June 11, 2004 letter in which we set forth a summary of the reasons and bases for the decision made by SRI to avoid and rescind the 2001-2004 XL Policies. Under the circumstances, we conclude from your silence that you do not accept SRI's position in that regard. There are, therefore, disputes arising under the 2001-2004 XL Policies . . . which are subject to the provisions of the English Arbitration Act of 1950 . . . pursuant to . . . the 2001-2004 XL Policies.
  "In excess of twenty (20) days have now passed since our demand that you accept SRI's avoidance and/or rescission of the 2001-2004 Policies. Accordingly, pursuant Page 5 to the Arbitration Clause, we hereby notify you of SRI's desire to arbitrate the Disputes."*fn12

 C. The Present Action

  BMS here asserts two claims for declaratory relief. The first seeks "a declaration that no grounds exist to rescind or avoid the [Casualty XL] Policies and that the [Casualty XL] Policies are and shall remain in full force and effect."*fn13 The second seeks "a declaration that any claim of rescission or avoidance in respect of the [Casualty XL] Policies is not subject to arbitration."*fn14 The complaint requests also an ...


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