{"id":301,"date":"2020-02-13T14:46:24","date_gmt":"2020-02-13T18:46:24","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/insurancelaw\/?p=301"},"modified":"2020-02-13T14:46:24","modified_gmt":"2020-02-13T18:46:24","slug":"california-court-of-appeal-third-party-additional-insured-bound-by-policys-arbitration-clause","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2020\/02\/13\/california-court-of-appeal-third-party-additional-insured-bound-by-policys-arbitration-clause\/","title":{"rendered":"California Court of Appeal: Third Party, Additional Insured Bound by Policy\u2019s Arbitration Clause"},"content":{"rendered":"

By\u00a0Daniel B. Heidtke<\/a><\/strong><\/p>\n

In an opinion filed on the last day of 2019, the California Court of Appeal, Third District, reversed a trial court\u2019s holding that an additional insured was not bound by an arbitration agreement in an insurance policy.\u00a0 In Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc., <\/em>Case No. C082841 (certified for publication on January 28, 2020), the court held that an arbitration agreement in a commercial general liability policy (\u201cCGL\u201d) issued by Philadelphia Indemnity Insurance Company (\u201cPhiladelphia\u201d) bound SMG Holdings, Inc. (\u201cSMG\u201d), a \u201cthird party beneficiary\u201d under the policy that was also \u201cequitably estopped\u201d from avoiding the arbitration clause.\u00a0 The court reversed the trial court, vacated its order denying Philadelphia\u2019s petition to compel arbitration, and directed the trial court to order arbitration of the coverage dispute. <\/p>\n

The coverage dispute arose out of personal injuries suffered in the parking lot of the Fresno Convention Center during the 2013 Future Farmers of America annual convention.\u00a0 During the event, an attendee tripped over a large pothole in the parking lot of the convention center, hit his head on a car, and suffered serious injuries.\u00a0 The injured attendee sued the City of Fresno as well as SMG.<\/p>\n

As part of its licensing agreement to use the Fresno Convention Center for its annual convention, Future Farmers of America (\u201cFFA\u201d) was required to (and did) obtain a CGL policy \u201cin a form acceptable to SMG\u201d that named SMG and the City of Fresno as additional insureds under the policy.\u00a0 While the policy ultimately issued by Philadelphia to FFA did not specifically name SMG or Fresno, it contained a \u201cdeluxe endorsement\u201d that extended coverage to \u201cmanagers, landlords, or lessors of premises\u201d for \u201cliability arising out of the ownership, maintenance or use of that part of the premises leased or rented\u201d to the named insured.<\/p>\n

SMG tendered the personal injury lawsuit to Philadelphia, seeking coverage under the policy issued by Philadelphia to FFA. Because the accident occurred in the parking lot over which SMG had exclusive control and the policy required that the \u201cbodily injury\u201d at issue in the personal injury lawsuit \u201carise out of\u201d FFA\u2019s (the named insured) negligence, Philadelphia denied SMG\u2019s request for coverage.\u00a0 After Philadelphia and SMG were unable to resolve their coverage dispute, Philadelphia demanded arbitration and, when SMG resisted, Philadelphia filed an action and petitioned the superior court to compel arbitration against SMG.\u00a0 The trial court denied Philadelphia\u2019s petition; Philadelphia appealed.<\/p>\n

At issue in the appeal was the policy\u2019s binding arbitration clause.\u00a0 Philadelphia asserted (without opposition from SMG) that the Federal Arbitration Act applied and, under the FAA, the court\u2019s inquiry was limited to \u201cdetermining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.\u201d\u00a0 (United States ex rel. Welch v. My Left Foot Children\u2019s Therapy, LLC <\/em>(9th Cir. 2017) 871 F.3d 791, 796.). True, explained the court, \u201c[b]ut whether a contract may be enforced by or against a nonsignatory to the contract is determined by principles of state law.\u201d\u00a0 (Citing Rajagopalan v. NoteWorld, LLC <\/em>(9th Cir. 2013) 718 F.3d 844, 847, citing Arthur Andersen LLP v. Carlisle <\/em>(2009) 566 U.S. 624, 631.)<\/p>\n

Under California law, \u201cthere are six theories by which a nonsignatory may be bound to arbitrate[.]\u201d The court was concerned with two: (1) the intended third party beneficiary theory, and (2) the equitable estoppel theory.\u00a0 Based upon the facts and circumstances of the case, the court held that SMG was bound to arbitrate its coverage dispute under both theories.\u00a0 Based upon the license agreement (entered into between SMG and FFA) and the policy, the court held that SMG is an intended beneficiary of the policy.\u00a0 And, \u201cSMG\u2019s tender [to Philadelphia] also constitutes a knowing claim of contract benefits, namely defense and indemnity. Accordingly, SMG is estopped from disclaiming applicable contract burdens such as the arbitration clause.\u201d<\/p>\n

SMG nonetheless asserted that Philadelphia\u2019s coverage denial represented an \u201cinconsistent position that SMG is not an insured\u201d and, thus, the arbitration clause (which only binds \u201cinsureds\u201d) did not bind SMG. The court rejected this contention, explaining, \u201cThe argument proceeds from the premise that if SMG is an \u2018insured\u2019 for purposes of the arbitration clause, it is also entitled to coverage for the injury. But, \u2026 \u2018insured\u2019 [for purposes of the arbitration agreement] is defined by the terms of the policy and is separate from the question of whether a particular injury is covered.\u201d<\/p>\n

Ultimately, the court held that the policy\u2019s arbitration clause was valid, binding and applied to the coverage dispute between Philadelphia and \u201cnonsignatory\u201d seeking additional insured coverage under the policy, SMG.\u00a0 Whether the court\u2019s third party beneficiary analysis is broadened, limited or relied upon in future opinions, remains to be seen.\u00a0 Nevertheless, this case may serve as guidance for entities requesting to be added as additional insureds to an insurance policy (including, in particular, the effect of arbitration clauses contained in the policy), and may also provide guidance for insurers in future claims involving alleged and actual intended third party beneficiaries of insurance policies.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By\u00a0Daniel B. Heidtke In an opinion filed on the last day of 2019, the California Court of Appeal, Third District, reversed a trial court\u2019s holding that an additional insured was not bound by an arbitration agreement in an insurance policy.\u00a0 In Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc., Case No. C082841 (certified for publication … <\/p>\n

Continue reading “California Court of Appeal: Third Party, Additional Insured Bound by Policy\u2019s Arbitration Clause”<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[255,378,40,379,308],"ppma_author":[417],"class_list":["post-301","post","type-post","status-publish","format-standard","hentry","category-general","tag-appeal","tag-arbitration-clause","tag-cgl","tag-commercial-general-liability","tag-daniel-heidtke"],"authors":[{"term_id":417,"user_id":6,"is_guest":0,"slug":"duanemorris3","display_name":"Duane Morris","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/843ff6e7a8fe5fc92109b47a45f34b6cf0ea499e6e788db23456c838b0ae6747?s=96&d=blank&r=g","author_category":"1","last_name":"Sullivan","first_name":"Margaret","job_title":"","user_url":"http:\/\/www.duanemorris.com","description":"Visit the Duane Morris website.<\/a>"}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=301"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/301\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=301"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=301"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=301"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}