(Article from Insurance Law Alert, July/August 2020)
For more information, please visit the Insurance Law Alert Resource Center.
A California federal district court denied a policyholder’s motion to compel arbitration, ruling that an arbitration agreement in a primary policy was not incorporated in a “follow form” excess policy in light of a conflicting “service of suit” clause in the excess policy. Arch Specialty Ins. Co. v. University of Southern California, No. 19-cv-6964 (C.D. Cal. July 20, 2020).
Arch Specialty issued excess policies to USC that followed form to lower level excess policies issued by Ironshore. Ironshore’s policies, in turn, followed form to primary policies issued by BETA. When a dispute regarding Arch’s duty to cover underlying claims against USC arose, USC moved to compel arbitration. USC argued that the Arch policies incorporated the arbitration agreement included in the BETA policies by virtue of the “follow form” clauses in the Arch Specialty and Ironshore excess policies. The court disagreed.
Arch Specialty’s follow form clause incorporated the provisions of underlying insurance “except for . . . [a]ny other provision inconsistent with this coverage.” The court concluded that a service of suit endorsement in Arch Specialty’s policy was inconsistent with the arbitration provision in BETA’s policy. The service of suit endorsement requires the insurer to “submit to the jurisdiction of any court of competent jurisdiction within the United States” and provides that “[a]ll matters arising under this Policy shall be determined in accordance with the law and practice of such Court.” Noting the breadth of both the BETA arbitration clause (which applies to “[a]ll disputes in any way concerning, arising out of or relating to this Contract”) and the service of suit endorsement, the court deemed them inconsistent and in conflict.
The court distinguished case law holding that a service of suit clause and arbitration provision can be read together in a manner that allows a party to enforce arbitration in a court of law. As the court noted, those decisions involved differently-worded service of suit and arbitration clauses, or a single policy that included both clauses, whereas here, the excess policy prioritized its terms over inconsistent terms in an underlying policy.