Lloyd’s v. Kinsale Insurance Company

Background

Certain Underwriters at Lloyd’s, London Subscribing to Policy Number LCC000277 (“Underwriters”) brought a diversity insurance action against Kinsale Insurance Company (“Kinsale”). Underwriters sought a declaration that Kinsale had a primary and non-contributory duty to defend and indemnify LMV and LRC Construction as additional insureds in an underlying personal-injury action. Underwriters also sought reimbursement of attorneys’ fees and costs it had incurred defending those entities.

The underlying injury occurred when Jairo Morocho was injured by a forklift while working on a construction project. Phoenix obtained the Kinsale policy after a purchase order required Phoenix to obtain insurance and name LMV and LRC Construction as additional insureds. After Morocho filed suit, Underwriters twice asked Kinsale to accept the defense and indemnification of LMV and LRC Construction. Kinsale refused, and Underwriters participated in the underlying case and incurred attorneys’ fees and costs.

The Kinsale policy contained an arbitration clause covering disputes about coverage, rights under the policy, insured status, and the effect of statutes or common law on contractual obligations. Underwriters did not sign the policy and was not itself covered as an insured under it.

Motion to Compel Arbitration

Kinsale moved under the Federal Arbitration Act to compel arbitration. A court deciding such a motion generally considers whether the parties agreed to arbitrate and whether the agreement covers the claims. Kinsale relied on a legal theory called estoppel, under which a nonsignatory may sometimes be required to arbitrate when it knowingly seeks direct benefits from an agreement containing an arbitration clause.

Kinsale argued that Underwriters was directly benefiting from the Kinsale policy because Underwriters sought a declaration that Kinsale had to cover LMV and LRC Construction and sought reimbursement of defense costs. Underwriters argued that its claims were based on equitable contribution arising from Kinsale’s independent obligations as an insurer of the same risk, rather than on direct rights under the Kinsale policy.

Court’s Analysis

The court explained that direct-benefit estoppel requires the benefit claimed by the nonsignatory to flow directly from the agreement. An indirect benefit exists when the nonsignatory relies on the contractual relationship between the signatories without seeking to enforce the agreement itself.

The court reviewed conflicting decisions from courts within the Second Circuit. Some decisions treated similar insurer-versus-insurer claims as subrogation claims, meaning that the insurer stood in the shoes of the insured and sought direct policy benefits. Other decisions characterized such claims as contribution or implied indemnification. Contribution generally allows a party that paid more than its share of a common obligation to seek the other party’s share. Implied indemnification is an equitable theory allowing reimbursement when one party paid an obligation that, as between the parties, should have been paid by another.

The court determined that Underwriters’ claims sounded in equitable contribution or implied indemnification, not subrogation. It reasoned that claims between insurers with overlapping coverage are generally rooted in equity and do not arise from a contract between the insurers. Underwriters expressly disclaimed an equitable-subrogation claim, and the court concluded that insurers ordinarily cannot pursue subrogation against one another when neither is the third-party wrongdoer.

The court also found a genuine dispute about whether Underwriters’ claims arose from the Kinsale policy or from the purchase order and related contractual arrangements requiring insurance coverage. On a motion to compel arbitration, the court had to view the evidence and reasonable inferences in Underwriters’ favor. That dispute further supported denying arbitration at this stage.

Disposition

Because Underwriters had not signed an agreement to arbitrate and estoppel did not apply, the court held that the first requirement for compelling arbitration was not met. It therefore did not decide whether the scope of the arbitration clause covered Underwriters’ claims.

The court denied Kinsale’s motion to compel arbitration. It ordered the parties to submit a joint letter proposing next steps by December 19, 2025, and directed the Clerk of Court to terminate the motion at docket entry 13.