Insurer's motion for a stay of proceedings based on an arbitration clause in the insurance policy was dismissed because the declarations endorsement provided for proceeding by way of an action.
 O.J. No. 6712
2016 ONSC 7988
Ontario Superior Court of Justice
December 30, 2016
G.R. Dow J.
The insured was in the business of providing short-term financing and trade credit to small and medium size businesses in return for the businesses assigning their receivables to the insured. The insured obtained trade credit insurance in order to cover instances when invoices were not paid. There was a dispute regarding amounts payable under the policy and the insured commenced an action in the Ontario Superior Court of Justice against the insurer. The insurer brought a motion seeking an order staying the action on the basis of the following arbitration provision: “Any dispute arising in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration.”
The arbitration clause was included in the insurer’s base policy. The documents forwarded to the insured referenced, but did not include, the base policy.
A declarations endorsement received by the insured included a section labeled “Identification of Insurer/Action Against Insurer” that stated in any action to enforce the obligations of the underwriters, the right to commence an action in Canada for the recovery of amounts disputed and paid between the parties.
The insured’s brokers were not aware of the arbitration clause and, as a result, no effort was made by the insured or its brokers to address the contradiction between the arbitration clause and the declarations endorsement.
The insurer took the position the “Identification of Insurer/Action Against Insurer” portion of the declarations endorsement was intended to provide an address for service for the insurer (given the insurer was a combination of syndicates primarily based in London, England) and to allow the insured to bring a court proceeding in Canada to compel arbitration proceedings or proceed with an action in the event the parties agreed to dispense with arbitration.
The Court found the contract read as a whole provided for alternative methods of proceeding, that is by arbitration pursuant to the arbitration clause in the base policy and by an action under the declarations endorsement.
The insurer also took the position the Model Law rules governing the dispute are subject to the International Commercial Arbitration Act, R.S.O. 1990 c. I.9. The Court rejected this submission and found the Model Law rules were applicable when the parties agreed to arbitration as the sole method of proceeding and not when the parties agreed or contemplated an alternative, being “an action to enforce the obligations of the Underwriters”. As a result, the insurer’s motion for a stay of the action was dismissed.