Try as it might, Mitsui Sumitomo Seguros S.A. (“Mitsui”) could not kick an arbitration award that potentially freed its insured’s suppliers from liability for a 2007 incident at a Brazilian aluminum plant insured by Mitsui. Mitsui’s argument that it was not a party to the arbitration agreement between its insured—Alumina de Norte do Brasil S.A. (Alunorte), and the insured’s suppliers, Alstom Power, Inc. and Alstom Brasil Energia e Transporte Ltda—failed because the Mitsui-Alunorte insurance contract gave Mitsui a clear subrogation right and “an insurer-subrogee stands in the shoes of its insured.”
On Monday, June 20, 2016, Judge Hellerstein of the Southern District of New York held that Mitsui Sumitomo Seguros S.A. is bound by an arbitration clause between Alunorte and the insured’s suppliers, Alstom Power, Inc. and Alstom Brasil Energia e Transporte Ltda. Alunorte, a Brazilian aluminum refiner entered into a supply contract with Alstom Power and Alstom Brasil, a Brazilian power-generation service and equipment provider. The contract contained a clause stipulating that upon failure of good faith negotiations between the parties the disagreement would be arbitrated in New York under International Chamber of Commerce rules.
This case arises from an ICC ruling regarding two separate incidents involving products supplied by Alstom at the Alunorte facility, which resulted in lost property and profits. Mitsui sued Alstom in Brazilian courts for the indemnity payment it made to Alunorte following the incidents, alleging that Alstom was the cause of the damage. Alstom sought to have the claim dismissed in Brazil, and moved to the ICC in New York, per the arbitration clause in the supply contract. Mitsui entered a special appearance before the ICC, asserting that the ICC lacked jurisdiction in the matter. The ICC court claimed jurisdiction over the dispute and ultimately dismissed Mitsui’s indemnity claim against Alstom, finding that Alstom was not at fault for the incidents occurring in Alunorte’s facility and holding that Mitsui was bound to the arbitration agreement between Alunorte and Alstom as a subrogee of Alunorte.
Alstom sought to confirm the arbitration award in New York state court and Mitsui removed the case to the Southern District of New York. Mitsui filed a motion to dismiss Alstom’s petition, arguing that it was not bound by the arbitration clause provided in the supply contract, that the district court of New York lacked personal jurisdiction, and that dismissal was appropriate on forum non conveniens grounds. Judge Hellerstein found for Alstom and confirmed the award.
The court held that federal law governs because Mitsui’s removal of the case from state court to federal court was proper on federal jurisdiction grounds and on consideration of what the contractual parties intended as part of their forum-selection clause. In his opinion, Judge Hellerstein stated that federal arbitration law “‘clearly established’…that ‘an insurer-subrogee stands in the shoes of its insured.’” “Mitsui knew when it extended insurance that it would be assuming subrogation rights, and taking over the rights of its insureds, should it have to indemnify its insured…. By pursuing Alunorte’s contract claim against Alstom, Mitsui was bound by the arbitration clause that would have bound Alunorte.”
Judge Hellerstein dismissed Mitsui’s lack of personal jurisdiction claim, stating that “just as it is bound by the arbitration provision in the supply contract, it is equally bound by the forum selection provision therein,” which designates New York as the forum for arbitration. The court also found that Mitsui had received proper notice of the proceedings and could not therefore claim failure of service of process. Finally, the court’s forum non conveniens analysis established New York as an appropriate forum for this action seeing as the contractual parties “agreed to, and did arbitrate this matter in New York.”
This decision is a good reminder that an insurer cannot step in and out of the shoes it assumes when it pays a claim and becomes subrogated to its insured’s rights. “These rights are defined by contracts made by the insureds, and Mitsui, as insurer, can have no better, or different, rights than those belonging to its insured.” The laces are tied and buckles are fastened.