(Article from Insurance Law Alert, February 2020)
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Reversing a trial court decision, a California appellate court ruled that a non-signatory to an insurance policy was bound by an arbitration clause contained therein. Philadelphia Indem. Ins. Co. v. SMG Holdings, Inc., 2019 WL 7790891 (Cal. Ct. App. Dec. 31, 2019).
Future Farmers of America licensed use of the Fresno Convention Center for an event. In connection with the license, Future Farmers obtained insurance from Philadelphia Indemnity that covered itself as well as “managers, landlords, or lessors of premises” and any organization “as required by contract.” During the event, an attendee was injured in the parking lot. When the attendee sued SMG Holdings, the property manager of the Convention Center and parking lot, Philadelphia Indemnity refused to defend, arguing that SMG was not covered for an injury that occurred in the parking lot. Thereafter, Philadelphia Indemnity moved to compel arbitration pursuant to an arbitration clause in the policy. A trial court denied the petition, ruling that SMG was not a third-party beneficiary of the policy and that Philadelphia Indemnity was equitably estopped from forcing SMG to arbitrate because it had denied SMG’s tender. The appellate court reversed.
The appellate court concluded that SMG could be compelled to arbitrate because it was an intended third-party beneficiary of the policy. The court explained that beneficiary status was demonstrated by policy language covering “managers,” and because the license agreement for use of the Convention Center required Farmers to name SMG as an additional insured. In addition, the court ruled that SMG was estopped from arguing that it was not bound by the arbitration clause because it had sought to benefit from the policy by tendering defense to Philadelphia Indemnity.
Conversely, the court ruled that Philadelphia Indemnity was not equitably estopped from enforcing the arbitration clause against SMG. The court explained that the insurer did not argue that SMG was not an insured under the policy, but instead denied coverage based on the location of the accident giving rise to injury. Finally, the court rejected SMG’s assertion that the arbitration clause was limited to disputes between Philadelphia Indemnity and Future Farmers because the arbitration clause referred to “the insured” (rather than “any insured” or “an insured”). The court stated: “by the policy’s terms, SMG is an ‘insured’ by virtue of it being a manager and a party required by contract to be covered. That SMG is not the named insured is of no consequence.”