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The California Court of Appeal, First District, affirmed the San Francisco Superior Court's decision denying third party insurers' petition to compel arbitration of another insurer's equitable contribution claim. The Court of Appeal found an equitable contribution claim arises in equity, not contract. There were no exceptions to the general rule that non-signatories to an arbitration agreement cannot be compelled to arbitrate.
Plaintiff Crowley Maritime Corporation ("Crowley") is a tugboat company. Crowley settled lawsuits claiming asbestos exposure and received indemnification from Boston Old Colony Insurance Company ("Boston") and Glen Falls Insurance Company ("Glen Falls") for the settlements. Boston and Glen Falls sued for equitable contribution from Crowley's other insurers, West of England Ship Owners Mutual Insurance Association ("West of England") and The United Kingdom Mutual Steam Ship Assurance Association Limited ("UK Mutual"), both based out of the country and managed in London.
West of England and UK Mutual petitioned to compel arbitration of the equitable contribution claim based on their arbitration agreement with their insured, Crowley, to resolve all disputes in arbitration under English law.
In affirming the trial court's decision denying arbitration, the Court of Appeal noted West of England and UK Mutual confused equitable contribution with equitable subrogation. These two insurers argued that Boston and Glen Falls were seeking to "stand in the shoes" of the insured and should be required to fulfill Crowley's contractual arbitration obligations. The Court of Appeal rejected West of England and UK Mutual's argument.
In the insurance context, equitable subrogation involves the substitution of the insurer in the position of its insured to seek reimbursement from responsible third parties. In equitable subrogation, the insurer "stands in the shoes" of the insured. Equitable contribution, on the other hand, is the right to seek contribution when, for instance, multiple insurers cover the same loss and one insurer pays more than its share to the insured. Boston and Glen Falls were not standing in the shoes of Crowley, but were seeking equitable contribution for paying more than their share of a collectively insured risk The right of equitable contribution did not arise from contract because Crowley's multiple insurers who may share responsibility for the same loss did not contract with each other.
West of England and UK Mutual also argued Boston and Glen Falls may be compelled to arbitrate despite being non-signatories to the arbitration agreements under California law and the Federal Arbitration Act ("FAA"). West of England and UK Mutual invoked the FAA because they are foreign insurers and their contracts with Crowley involved international commerce.
The Court of Appeal noted that under California law, a non-signatory can be compelled to arbitrate under two circumstances: (1) where the non-signatory is a third party beneficiary of the contract containing the arbitration agreement; or (2) where a preexisting relationship existed between the non-signatory and one of the parties to the arbitration agreement. Neither of these exceptions applied.
Under the FAA, a non-signatory may be bound to an arbitration agreement pursuant to ordinary principles of contract law, such as incorporation by reference, assumption and agency, among others. Non-signatories can also enforce arbitration agreements as third party beneficiaries. However, the Court of Appeal held to compel a party to arbitration under the FAA, the reluctant party must be claiming direct benefits under the contract containing the arbitration agreement. Here, Boston and Glen Falls were not suing for direct benefits under Crowley's insurance contracts with West of England and UK Mutual. Rather, Boston and Glen Falls sued for equitable contribution, a claim based on equity, not contract. Thus, West of England and UK Mutual could not use the FAA to compel arbitration of Boston and Glen Falls' claim for equitable contribution.
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This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the California Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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