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Hudson Specialty Insurance Co. v. New Jersey Transit Corporation

United States District Court, S.D. New York

June 5, 2015



EDGARDO RAMOS, District Judge.

The instant dispute concerns the validity of an arbitration clause in a property insurance policy ("the Policy") issued by Hudson Specialty Insurance Company ("Hudson") to New Jersey Transit Corporation ("N.J. Transit"). As a result of Hurricane Sandy, N.J. Transit incurred damages to its facilities and equipment, prompting it to bring an action against Hudson in New Jersey state court to address the parties' dispute over the amount of coverage that it is entitled to. Hudson presently seeks an order to compel arbitration of the claims asserted in the state court action pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4. For the reasons discussed below, the petition is GRANTED.

I. Background

In May 2012, N.J. Transit commenced the process of purchasing property insurance coverage for the 2012-2013 policy year through its broker, Marsh & McLennan ("Marsh"). Resp't's Mem. L. Opp., Doc. 12 at 3. N.J. Transit claims that Marsh drafted and negotiated the "common form" of the Policy, which did not include an arbitration or service of suit provision. Id. at 3-4. N.J. Transit maintains that it did not see the arbitration clause until Hudson issued the full text of the Policy on June 29, 2012. Id. at 4. Hurricane Sandy struck the New Jersey coast on October 29, 2012, during which time the Policy was in place. Id. at 6. The storm damaged N.J. Transit's facilities and equipment and prompted it to seek coverage for its losses from Hudson, along with its other insurers. Id.

On October 1, 2014, N.J. Transit filed an action in New Jersey state court against Hudson and several other insurers, seeking declaratory relief and anticipatory breach of contract. Id., see also Lee Decl., Doc. 4, Ex. B. N.J. Transit's state court action centers on the parties' dispute over the interpretation of the Policy's "Flood Sublimit, " "Flood, " and "Named Windstorm" provisions. Pet. Compel Arb. ¶ 12. The "Flood Sublimit" provision states that Hudson shall not be liable for any flood damage above $100 million.[1] Lee Decl., Doc. 4, Ex. A at ¶ 2. The Policy defines a "Flood" as "a temporary condition of partial or complete inundation of normally dry land" resulting from one of three occurrences: (1) "[t]he overflow of inland or tidal waters outside the normal watercourse or natural boundaries[;]" (2) [t]he overflow, release, rising, back-up, runoff or surge of surface water;" or (3) "the unusual or rapid accumulation or runoff of surface water from any source." Id. at ¶ 12(A). N.J. Transit argues that the "Flood Sublimit" is inapplicable to the losses at issue due to a separate provision, which defines a "Named Windstorm."[2] Pet. Compel Arb. ¶ 14. Hudson holds the view that the "Flood Sublimit" clause applies regardless of the "Flood" and "Named Windstorm" provisions. Id. at ¶ 16.

On January 7, 2015, Hudson filed the instant petition to compel arbitration. Hudson bases its application on the Policy's arbitration endorsement, which states:

If there is any dispute or disagreement as to the interpretation of the terms and conditions of this policy or the development, adjustment, and/or payment of any claim, they shall be submitted to the decision of a Joint Arbitrator that the Insured and Company shall appoint jointly.
If there is no agreement on the selection of the Joint Arbitrator within a period of 30 days after the decision is made, the Insured and the Company shall each appoint their Representative Arbitrators in writing within 10 days, who shall rule in a joint decision 15 days after they are summoned.
In the event the Representative Arbitrators do not agree, they shall inform the contracting parties in writing of their appointment of a Tie-Breaking Arbitrator, who must be accepted before any judicial action is proposed.
The Tie-Breaking Arbitrator shall chair the meetings he or she considers necessary with the two disagreeing Representative Arbitrators.

Lee Decl., Doc. 4, Ex. A at 44.[3] N.J. Transit filed its opposing papers on February 4, 2015. See Doc. 12. It relies mainly on another endorsement contained in the Policy, entitled "Service of Suit":

In the event of a failure by the Company to pay any amount claimed to be due under this policy, the Company will, at the Named Insured's request, submit to the jurisdiction of any court of competent jurisdiction with the United States of America and will comply with all requirements necessary to give the court jurisdiction. [...] All Other Terms and Conditions of This Policy Remain Unchanged.

Lee Decl., Doc. 4, Ex. A at 45 (emphasis ...

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