The Ohio Security Insurance Company v. Kinsale Insurance Company

Background

The Ohio Security Insurance Company issued a commercial general liability policy to Atlantic Exterior Wall Systems LLC for construction work at 35 Hudson Yards. Kinsale Insurance Company issued a separate commercial general liability policy to Black Bull Builders LLC for work at the same site. Ohio Security alleged that Black Bull was required to name the Equinox Entities as additional insureds under the Kinsale policy on a primary, noncontributory basis.

After an employee of Atlantic Exterior allegedly tripped and fell on temporary flooring installed by Black Bull, the employee filed a personal-injury lawsuit in New York state court against Black Bull and the Equinox Entities. Kinsale denied coverage to Black Bull and denied that it had a duty to defend or indemnify the Equinox Entities. Ohio Security alleged that it therefore had defended the Equinox Entities under its own policy.

Ohio Security sued Kinsale seeking declarations that the Equinox Entities were additional insureds under the Kinsale policy and that Kinsale had to provide primary coverage, defend and indemnify them, and reimburse Ohio Security’s defense costs. Ohio Security also asserted claims for equitable subrogation, quantum meruit or unjust enrichment, declaratory relief based on breach of insurance obligations, and statutory interest. Black Bull asserted crossclaims seeking coverage and alleging breach of contract.

Motion to Compel Arbitration

Kinsale moved under the Federal Arbitration Act to compel arbitration of Ohio Security’s claims and Black Bull’s crossclaims and to stay or dismiss the action. The Kinsale policy provided that all disputes over coverage or rights under the policy—including whether a person or entity was an additional insured or entitled to coverage—would be resolved through binding arbitration as the sole and exclusive means of resolution.

Black Bull did not oppose the motion, and Ohio Security conceded that Kinsale and Black Bull had a binding arbitration agreement. Ohio Security argued that it could not be compelled to arbitrate because it was not a signatory to the Kinsale policy and that its claims were outside the arbitration clause’s scope.

Why Ohio Security Was Bound

The court explained that a nonsignatory may sometimes be bound by an arbitration agreement under contract and agency principles. The relevant theory here was estoppel, which can prevent a nonsignatory from avoiding arbitration when it knowingly seeks direct benefits from an agreement containing an arbitration clause.

The court concluded that Ohio Security sought direct benefits from the Kinsale policy. Its requested declarations depended on whether the Equinox Entities qualified as additional insureds and were entitled to coverage. Its equitable-subrogation claim likewise asserted that Ohio Security had assumed the Equinox Entities’ rights and could recover defense costs from Kinsale. The court declined to treat that claim as a contribution claim because Ohio Security sought reimbursement of all defense fees rather than proportional reimbursement and sought relief without contribution by Ohio Security.

The court expressly did not decide whether Ohio Security had validly stated an equitable-subrogation claim against Kinsale. It decided only that Ohio Security was estopped from objecting to arbitration.

Scope of the Arbitration Clause

The court found that the arbitration provision unambiguously covered Ohio Security’s claims. The clause applied broadly to all disputes over coverage or rights under the Kinsale policy, including disputes about additional-insured status. Ohio Security’s coverage, equitable-subrogation, quantum-meruit or unjust-enrichment, and statutory-interest claims all depended on whether the Equinox Entities were additional insureds or otherwise had rights under the policy. The court also found that the claim based on Kinsale’s alleged failure to timely disclaim coverage fell within the clause’s reference to disputes involving the effect of statutes or common law on contractual obligations.

The court separately found that Black Bull’s crossclaims were within the clause because they sought a declaration of coverage under the Kinsale policy and alleged breach of contract based on Kinsale’s denial of coverage.

Disposition

Judge Castel granted Kinsale’s motion to compel arbitration of Ohio Security’s claims and Black Bull’s crossclaims. The court stayed the action pending completion of the arbitration and directed the parties to notify the court within 30 days after a final arbitration award or another resolution of the claims. The opinion does not state that the court dismissed the action.