October 20, 2019

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Insurers Cannot Force Arbitration When Policy Is Governed by International Convention on Foreign Arbitration

McCullough v. Royal Caribbean Cruises

The US District Court for the Southern District of Florida held that an insurer could not force arbitration of a coverage dispute raised in the context of a direct claim for bad faith by an injured third-party claimant, where the arbitration provision in the insurance policy is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). The case involved a tragic zip-line accident during a day-trip on a Royal Caribbean cruise, leaving the claimant quadriplegic. The claimant brought a bad faith claim against Royal Caribbean’s insurer, AIG, for failure to settle in good faith on behalf of its insured, despite the fact that AIG had consistently contested coverage. As an initial matter, the court held that the bad faith claim was premature absent a finding of coverage.

But AIG also argued that the third-party claimant had to arbitrate the question of coverage based on the dispute resolution provision in Royal Caribbean’s policy. The claimant argued that they were non-signatories to the insurance policy and, therefore, could not be forced into arbitration. AIG’s argument was premised on the idea that in a third-party bad faith action, the claimant steps into the shoes of the insured who is necessarily a signatory to the agreement to arbitrate. The claimant responded that they are neither signatories to the insurance policy nor assignees of the insured’s rights and therefore they have not assumed the obligation to arbitrate. The court agreed with that argument. “A party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” The court also distinguished compelling arbitration under the US Federal Arbitration Act, which recognizes that an estoppel theory can be used to bind non-signatories to arbitration, with compelling arbitration under the Convention, which does not. “[B]ecause there is no agreement signed by both parties, the [claimant] cannot be compelled to arbitrate.” The court therefore stayed the action until “coverage under the Policy has been established.”

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Timothy Diemand Litigation Attorney Wiggin and Dana
Partner

Tim is a Partner in the Litigation Department, a member of the firm’s Executive Committee, and Co-Chair of the Insurance Practice Group. He has made his mark defending and representing clients around the country in high stakes matters such as complex insurance class actions, copyright claims against major record labels and recording artists, professional malpractice defense, catastrophic injury claims, and contractor disputes stemming from Iraq and Afghanistan war reconstruction projects.

Tim has been recognized by Chambers USA in the Commercial Litigation category,...

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Joseph Grasso Litigation Attorney Wiggin and Dana Philadelphia
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Joe has spent over three decades advising and defending clients in a wide range of litigation and insurance matters, helping underwriters and other clients avoid litigation when possible and prevail when it is unavoidable. He possesses deep knowledge in particular of the marine insurance industry, as well as the London insurance market. Joe's clients describe him as pragmatic, responsive and efficient. He understands the nature of his clients' businesses and tries to add value to that business whenever possible.

Joe co-chairs Wiggin and Dana’s Insurance Practice Group. He is also a Partner in the Litigation Department and in the Art and Museum Law Practice Group.

For the last 20 years, Joe has been the principal outside counsel for the American Institute of Marine Underwriters and the Inland Marine Underwriters Association. In that role, he has been involved in legislative and regulatory monitoring, governance issues, drafting policy forms, and filing Supreme Court amicus briefs. He is adept at handling issues involving marine casualties, and is a thought leader on the future of marine insurance, including issues arising from autonomous ships and cyber risks. Joe’s extensive experience in representing insurers includes a stint in the office of the general counsel of one of the premier syndicates at Lloyd’s of London.

Joe has worked on matters involving various types of insurance and reinsurance coverages, including aviation, marine (hull, liability, cargo, and yacht), fine art and specie, energy, general liability, professional liability, and political risks.

In addition to representing underwriters, Joe represents brokers, multinational manufacturers and others involved in the supply chain. He has represented clients in cases throughout the U.S. and has personally served as an arbitrator and a mediator. 

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Michael Menapace Insurance lawyer Wiggin Dana
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Michael is an insurance lawyer, primarily a litigator defending insurance companies, reinsurers, and insured parties from a wide range of claims that threaten clients’ businesses. He is also a counselor, law school professor, and litigator in areas beyond insurance.

Michael represents insurers in state and federal courts as well as in arbitrations across the country, litigating insurance disputes concerning business practices, bad faith, insurance coverage, reinsurance, premium calculations, and allocation among policies. As a general litigator, he has tried cases concerning utility...

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Robyn Gallagher Litigation lawyer Wiggin Dana
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Robyn is Counsel in Wiggin and Dana's Litigation Department.  Her litigation experience has involved a wide range of practice areas and clients, including, insurance, franchise, aviation, product liability, and education.  She has experience litigating in state and federal courts and before various government agencies and arbitral bodies.

Robyn has litigated claims under the Connecticut Product Liability Act ("CPLA"), the Connecticut Unfair Trade Practices Act ("CUTPA"), trademark infringement actions, breach of contract claims, and actions to enforce arbitration clauses. She has...

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