The U.S. District Court for the Southern District of New York recently held that an arbitration provision in an insurance policy is enforceable against not only Named Insureds but also affiliated companies covered by the policy. National Union Fire Ins. Co. of Pa. v. Beelman Truck Co., et al., No. 15-cv-8799 (AJN) (S.D.N.Y. Aug. 24, 2016). In Beelman, National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) filed a Petition to Compel Arbitration against Beelman Truck Company (“Beelman Truck”), and eight other related entities (the “Related Entities”) (collectively “the Insureds”) to recover unpaid allocated loss adjustment expenses (“ALAE”) related to insurance programs spanning from 2007 through 2011. The insurance programs included payment agreements which contained broad and exclusive arbitration clauses requiring all disputes under the programs to be subject to arbitration, including any questions as to payment obligations, jurisdiction, and arbitrability. The Related Entities appeared as named insureds in a program endorsement for the 2010 program term.

Although the insurance program agreements unquestionably required the Insureds to reimburse National Union for ALAE, Beelman Truck, relying on two Letters of Understanding (“LOUs”) it entered into with its insurance brokers, argued that the LOUs eliminated the Insureds’ responsibility for ALAE reimbursement. National Union was not a party to the LOUs. The Related Entities opposed National Union’s Petition to Compel Arbitration on the basis that they were not signatories to the payment agreements and, therefore, were not subject to the arbitration provisions. Beelman Truck also filed a 3rd Party Petition to Compel Arbitration against its insurance brokers.

With respect to the Related Entities, the Court found that the entities “are listed as Named Insureds on an endorsement to the 2010 Policy, which satisfies the relevant contractual provision.” While the term “affiliate” was not defined in the insurance program documents, the Court concluded that “the plain meaning of the word ‘affiliate’ unambiguously includes corporations controlled by the same person or entity.” Slip Op. at 9 (citation omitted). As there was no dispute that Beelman Truck controlled the Related Entities, the latter were considered affiliates of the former, and thus signatories to the payment agreements.

The Court further held that even without named insured status, the Related Entities would be required to arbitrate this dispute based on their inclusion in the definition of “affiliate” in the LOUs. The Court found this “indicate[d] that Beelman Truck understood that the [Related Entities] would be covered by the insurance program as ‘affiliated’ or ‘related’ entities . . . and thus as signatories to the contract.” Beelman, Slip Op. at 10. (citing Lutipold Pharm., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie, 784 F.3d 78, 87 (2d Cir. 2015).

Turning to Beelman Truck’s 3rd Party Petition seeking to compel the insurance brokers to participate in the arbitration, the Court reiterated that there are only five (5) theories upon which a non-signatory may be compelled to arbitration: “(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel.” Beelman, Slip Op. at 11. (quoting Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003)). The Court found no merit in Beelman Truck’s arguments utilizing these theories. Specifically, with respect to agency, the Court found that since the brokers were Beelman Truck’s agent, and without “‘clear and explicit evidence of the agent’s intention to substitute or superadd his personal liability for, or to, that of his principal’” the broker could not be compelled to arbitration. Beelman, Slip op, at 11 (quoting Veera v. Janssen, 2005 WL 1606054, at *3 (S.D.N.Y. July 5, 2005)).

The Beelman decision reaffirms the understanding that named insureds, whether named in the first instance, or through an endorsement, are subject to all of the terms and conditions of the insurance program. Furthermore, the decision reaffirms the well-settled understanding that insurance brokers are the agents of the insured, and not the insurance carrier. Regardless of this agency relationship, a broker cannot be held to the terms and conditions of an insurance program to which it is simply not a party. Despite the Insureds’ best efforts to avoid their obligations under the insurance programs, the Court’s decision removed all doubt as to their requirement to participate in arbitration.

Note: Bressler Amery & Ross, P.C. represented National Union in this matter.