Allianz Global Corporate & Specialty SE v. HBC US Holdings Inc.

Background

Allianz sought the court’s intervention in its pending insurance arbitration with HBC. Allianz had issued an all-risks insurance policy to Lord & Taylor Acquisition Inc., and HBC replaced Lord & Taylor as the insured effective November 1, 2019. HBC later submitted a claim for losses arising from the COVID-19 pandemic. Allianz disputed the claim and demanded arbitration.

The policy required each party to select a competent and disinterested arbitrator. The two party-appointed arbitrators were Edward Zerbesky, selected by HBC, and Diane Nergaard, selected by Allianz. The policy provided that if those arbitrators failed for 15 days to agree on a competent and disinterested umpire, a judge would select one.

HBC’s Motion to Dismiss

HBC moved to dismiss the petition on two grounds. First, it argued that the court lacked subject-matter jurisdiction, meaning legal authority to hear the dispute. HBC contended that Endurance, another insurer involved in a separate arbitration with HBC, should be treated as a party or necessary participant, which HBC said would defeat jurisdiction.

Second, HBC argued that Allianz’s petition was premature because the party-appointed arbitrators were still negotiating and had not yet reached the point requiring court intervention.

Jurisdiction

The court rejected HBC’s jurisdictional argument. It concluded that Endurance was not a party to this case or to the Allianz-HBC arbitration, and neither party had shown that Endurance was necessary to resolve the appointment issue.

The court found two independent jurisdictional grounds. First, the arbitration agreement involved a commercial legal relationship between a foreign entity and a U.S. entity and was sufficiently connected to an international arbitration to fall under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also called the New York Convention. The court therefore concluded that federal-question jurisdiction existed under Sections 202 and 203 of the Federal Arbitration Act.

Second, the court held that diversity jurisdiction existed because Allianz was a citizen of Germany and HBC was a citizen of Delaware and New York, and more than $75,000 was in dispute. The court therefore had authority to decide the petition.

Whether the Petition Was Premature

The court also rejected HBC’s argument that the petition was premature. Under Section 5 of the Federal Arbitration Act, a court may appoint an arbitrator or umpire when the agreed selection process has stalled. The court explained that a “lapse” occurs when the parties have used the agreed process but cannot agree on a candidate, including when there is a deadlock.

The two party-appointed arbitrators had been selected more than two months before Allianz filed its petition. The court held that their continued negotiations did not eliminate the fact that the appointment process had stalled for more than the policy’s required 15 days.

Appointment of the Umpire

After finding jurisdiction and determining that the petition was not premature, the court considered the candidates proposed by both parties. The court stated that all of the candidates were qualified and that the policy required only competence and disinterest.

HBC favored a former New York state judge, particularly one with experience in related insurance arbitrations. Allianz objected to candidates who had participated in other arbitrations involving HBC’s related coverage disputes. Without deciding whether that prior involvement would itself make a candidate interested, the court chose a candidate who had not participated in earlier arbitrations concerning this claim.

The court appointed Judge Faith Hochberg, a former United States District Judge for the District of New Jersey. It found that her experience with complex contract litigation and insurance matters made her qualified under the arbitration agreement.

Disposition

The court denied HBC’s motion to dismiss the petition and appointed Judge Faith Hochberg as umpire under the Federal Arbitration Act and the parties’ agreement. The Clerk was directed to terminate the motion and close the case without prejudice to either party reopening it within 30 days if Hochberg did not or could not accept the appointment. The opinion does not decide the parties’ underlying insurance-coverage dispute.