Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-00717/USCOURTS-cand-3_06-cv-00717-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

JOCELYN JONES and JOHN JONES,

Plaintiffs,

 v.

ST. PAUL TRAVELERS, et al.,

Defendants. /

No. C 06-00717 SI

ORDER DENYING PETITION TO

COMPEL ARBITRATION AND

STAYING CROSS-CLAIMS

The St. Paul Travelers Companies, Inc. and St. Paul Fire and Marine Insurance Company

(collectively “St. Paul”) have filed a petition to compel arbitration and a motion to dismiss or stay,

currently scheduled for hearing on September 29, 2006. Pursuant to Civil Local Rule 7-1(b), the Court

finds the motion suitable for resolution without oral argument and therefore VACATES the September

29, 2006 hearing. Having carefully considered the parties’ papers, and for the reasons set forth below,

the Court DENIES the petition to compel arbitration without prejudice, DENIES the motion to dismiss

the cross-claims, and GRANTS the motion to stay the cross-claims.

BACKGROUND

On March 6, 2001, plaintiff Jocelyn Jones suffered the loss of a portion of her arm in the course

of her employment at Watkins Engineers and Constructors in Georgia. At the time of the injury,

Watkins, through its parent company Dillingham Construction Holdings, Inc. (“Dillingham”), had a

primary insurance policy with defendant St. Paul, and excess insurance through cross-complainants

Great American Assurance Company, National Union Fire Insurance Company of Pittsburgh, PA, and

Zurich American Insurance Company (collectively “Excess Insurers”). Joint Submission to Arbitrator

Case 3:06-cv-00717-SI Document 75 Filed 09/27/06 Page 1 of 5
United States District Court

For the Northern District of California

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The Court GRANTS St. Paul’s request for judicial notice. (Docket No. 54).

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(attached at McCurdy Decl., Ex. 1) 

The Excess Insurers participated in an Integrated Risk Program with St. Paul to provide excess

insurance to Dillingham. See St. Paul’s Request for Judicial Notice in Support of its Petition to Compel

Arbitration, Ex. A at Ex. 1 (“Claim Service Agreement”)1

. As part of the Integrated Risk Program, St.

Paul and Excess Insurers entered into a Claims Service Agreement. Id. Article VII of the Claims

Service Agreement contains an arbitration provision which requires that all matters in dispute between

St. Paul and the Excess Insurers be referred to arbitration. Id.

Jocelyn and John Jones obtained a judgment against Watkins Engineers in Georgia state court

on November 22, 2004, and obtained a sister-state judgment in California state court on October 14,

2005. Thereafter plaintiffs filed suit against defendant insurance companies in California State

Superior Court, alleging violations of the California Insurance Code. Defendants removed the action

to federal court on February 1, 2006. All defendants had answered the complaint by February 17, 2006.

On July 21, 2006, the Excess Insurers filed cross-claims against St. Paul for declaratory relief,

breach of contract, breach of covenant of good faith and fair dealing, equitable subrogation, equitable

indemnity/contribution, and breach of duty to settle. The Excess Insurers and St. Paul have agreed to

submit to arbitration before the Honorable Edward A. Panelli, and have submitted a joint statement to

him in advance of the arbitration. See Declaration of Mary P. McCurdy, Ex. 1; Declaration of Wynn

C. Kaneshiro. There is currently no date set for the arbitration. See McCurdy Decl. St. Paul now

moves to compel arbitration and dismiss the cross-claims, or, alternatively, to stay the cross-claims in

this case.

 

LEGAL STANDARD

Section 4 of the Federal Arbitration Act permits “a party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any

United States District Court . . . for an order directing that . . . arbitration proceed in the manner

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provided for in [the arbitration] agreement.” 9 U.S.C. § 4. Upon a showing that a party has failed to

comply with a valid arbitration agreement, the court must issue an order compelling arbitration. See

Cohen v. Wedbush, Noble Cooke, Inc., 841 F.2d 282, 285 (9th Cir. 1988). 

In determining whether to issue an order compelling arbitration, the court may not review the

merits of the dispute, but must limit its inquiry to (1) whether the contract containing the arbitration

agreement evidences a transaction involving interstate commerce, (2) whether there exists a valid

agreement to arbitrate, and (3) whether the dispute(s) fall within the scope of the agreement to arbitrate.

See Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477-478 (9th Cir. 1991), cert denied,

503 U.S. 919 (1992). If the answer to each of these queries is affirmative, then the court must order the

parties to arbitration in accordance with the terms of their agreement. 9 U.S.C. § 4. 

State law principles of contract formation and interpretation apply to the interpretation of

arbitration clauses. See Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998); Hyundai

America, Inc. v. Meissner & Wurst GMBH & Co., 26 F. Supp. 2d 1217, 1218-19 (N.D. Cal. 1998). An

unambiguous term should be enforced according to its terms. Hyundai America, 26 F. Supp. 2d at 1219

(citing Botefur v. City of Eagle Point, Oregon, 7 F.3d 152 (9th Cir. 1993)). See also Statewide Realty

Co. v. Fidelity Mgt. & Research Co., 611 A.2d 158, 162 (N.J. 1992) (when “[p]resented with a contract

whose terms are clear and unambiguous, the court must enforce the terms as written”).

DISCUSSION

St. Paul contends that the Court should compel arbitration and dismiss the Excess Insurers’

cross-claims because the Excess Insurers cannot simultaneously agree to arbitration and pursue their

cross-claims in federal court. In lieu of dismissal, St. Paul alternatively seeks to stay the cross-claims

pending the arbitration. The Excess Insurers contend that St. Paul’s motion to compel arbitration is

unnecessary because they have already agreed to arbitrate before Justice Panelli. They further argue

that dismissal of the cross-claims is inappropriate as it is not clear at this point if all the claims before

the Court are arbitrable. Finally, the Excess Insurers argue that if the Court is inclined to stay any

claims, the Court should stay the entire action pending arbitration.

Based upon the record before the Court, the Court finds it unnecessary to compel arbitration.

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St. Paul and the Excess Insurers have agreed to arbitrate, and indeed those proceedings have been

initiated. The Court disagrees that the filing of cross-claims constitutes a refusal to arbitrate. Absent

a refusal to arbitrate, St. Paul’s motion to compel arbitration is premature. See 4 U.S.C. § 4 (“[T]he

party aggrieved by the alleged . . . refusal to arbitrate . . . may petition any United States district court

. . . for an order directing that such arbitration proceed”) (emphasis added); see also Painewebber, Inc.

v. Faragalli, 61 F.3d 1063, 1066 (3rd Cir. 1995) (holding the right to compel arbitration only accrues

when the opposing party “unequivocally refuses to arbitrate, either by failing to comply with an

arbitration demand or by otherwise unambiguously manifesting an intention not to arbitrate”).

Accordingly, St. Paul’s petition to compel arbitration is denied without prejudice to renewal in the event

that any of the Excess Insurers refuse to proceed with arbitration.

The Court has discretion whether to stay litigation for the non-arbitrating parties when the case

includes both arbitrable and non-arbitrable claims. See Moses H. Cone Mem’l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 21 n.23. The Court concludes that even though the cross-claims may be wholly

subsumed within the arbitration provision of the Claims Service Agreement, at this stage in the case,

it is appropriate to stay the cross-claims and allow the remainder of the case to proceed. In the interest

of judicial efficiency, plaintiffs’ claims against defendants should proceed while the issues surrounding

Excess Insurers cross-claims against St. Paul are resolved in arbitration.

CONCLUSION

For the foregoing reasons, the Court DENIES St. Paul’s petition to compel arbitration, DENIES

the motion to dismiss the cross-claims, and STAYS the cross-claims pending arbitration. (Docket No.

53).

IT IS SO ORDERED.

Dated: September 27, 2006 _______________________ 

SUSAN ILLSTON

United States District Judge

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