National American Insurance v. SCOR Reinsurance Co.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
APR 5 2004
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

NATIONAL AMERICAN
INSURANCE COMPANY,
Plaintiff - Appellee, No. 03-6079
v.
SCOR REINSURANCE COMPANY,
Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. CIV-02-1312-R)

Susan A. Stone, Sidley Austin, Brown & Wood, Chicago, Illinois (Joshua G.
Urquhart of Sidley, Austin, Brown & Wood, Chicago, Illinois; Larry Derryberry,
Stephen G. Solomon, and George W. Velotta II of Derryberry, Quigley, Solomon
& Naifeh, Oklahoma City, Oklahoma, with her on the briefs).

R. Patrick Gilmore, Chandler, Oklahoma (Clinton D. Russell, Stratton Taylor, and
Mark H. Ramsey, Claremore, Oklahoma, with him on the brief).

Before TACHA, Chief Circuit Judge, McKAY and TYMKOVICH, Circuit
Judges.

McKAY, Circuit Judge.
 This appeal involves a dispute between two insurance companies regarding

the scope of an arbitration clause. Appellee National American Insurance

Company (“NAICO”) filed a complaint alleging that Appellant SCOR

Reinsurance Company (“SCOR”) is liable for losses on two surety bonds, which

the parties refer to as the “Geismar” and “Chalmette” bonds (collectively the

“Bonds”). Aplt. App., Tab No. 1, at 2. SCOR filed a motion to dismiss and to

compel arbitration on the ground that NAICO’s allegations fall within the scope

of an arbitration clause contained in a reinsurance agreement in which SCOR

agreed to reinsure NAICO’s surety bond program (the “Treaty”). Id., Tab No. 13,

at 1-9. The district court denied SCOR’s motion “because Plaintiff’s claims are

predicated on SCOR’s independent commitment to serve as co-surety on the

Geismar and Chalmette Bonds, independent of the treaty or treaties (which

contains an arbitration clause) and thus are not within the scope of the agreement

to arbitrate.” Id., Tab No. 25, at 1. SCOR appeals this order.

Background

NAICO is an insurance company licensed to write surety bonds, and SCOR

is an insurance company which primarily writes reinsurance. SCOR incurred two

legal obligations relevant to this appeal. SCOR’s first obligation is memorialized

in the Treaty, a reinsurance agreement which covered the Bonds. The Treaty is

effective April 1, 1999, and was signed by SCOR on November 2, 1999. Aplt.

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App., Tab No. 21, Ex. B, at 11. The Treaty contains the following arbitration

clause: “Any irreconcilable dispute between the parties to this Agreement will be

arbitrated in Chandler, Oklahoma in accordance with the attached Arbitration

Clause No. 22-01.1.” Id. at Article 20.

SCOR’s second obligation is to act as co-surety for the Bonds. This

obligation is memorialized in a Hold Harmless and Indemnity Agreement, which

was entered into on August 24, 1999. Aplt. App., Tab No. 21, Ex. A at 2. In this

Agreement, SCOR “agree[d] to act as a co-surety with NAICO on [the Bonds].”

Id. at 1. This obligation was undertaken “as an accommodation to NAICO in

specific instances in which the bond obligees’ requirements necessitate a Best’s

Rating higher than NAICO’s and/or a treasury underwriting limitation greater

than NAICO’s . . . .” Id. In consideration for SCOR’s obligation to act as co-

surety, NAICO agreed to hold SCOR harmless and to indemnify SCOR from any

losses relating to the Bonds. Id. On December 4, 2000, a Termination

Endorsement was executed in which the parties agreed that SCOR had no liability

for losses discovered after April 1, 2000. Id. Ex. E, at 1. In the Termination

Endorsement, the parties agreed that “ALL OTHER TERMS AND CONDITIONS

REMAIN UNCHANGED.” Id.

On September 20, 2002, NAICO filed its complaint, alleging that SCOR is

liable for losses relating to the Bonds. Aplt. App., Tab No. 1. NAICO argues

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that because its allegations relate to SCOR’s co-surety obligation under the Hold

Harmless Agreement, not its reinsurance obligation under the Treaty, it is not

required to arbitrate. SCOR argues that the two obligations are part of a single

transaction and that the Treaty’s arbitration provision encompasses the co-surety

obligation under the Hold Harmless Agreement.

Discussion

We review a district court’s denial of a motion to compel arbitration de

novo. Spahr v. Secco, 330 F.3d 1266, 1269 (10th Cir. 2003); Avedon Eng’g Inc.

v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997). The Supreme Court has “long

recognized and enforced a ‘liberal federal policy favoring arbitration

agreements.’” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)

(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-

25 (1983)). Under this policy, the “‘doubts concerning the scope of arbitrable

issues should be resolved in favor of arbitration.’” Spahr, 330 F.3d at 1269-70

(quoting Moses, 460 U.S. at 24-25). However, “a court may compel arbitration of

a particular dispute . . . only when satisfied that the ‘making’ of the agreement to

arbitrate is not at issue.” Id. at 1270.

In this case, NAICO does not dispute that it made a valid and enforceable

agreement to arbitrate any disputes arising out of the Treaty. NAICO also does

not dispute that the Treaty containing the arbitration clause was effective about

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five months before the Hold Harmless Agreement. Instead, NAICO argues that

the Treaty’s arbitration clause is not invoked because its “claims are independent

of the Treaty” and arise solely out of SCOR’s co-surety obligation found in the

Hold Harmless Agreement. Aple. Br. at 6.

Since the parties agree that an agreement to arbitrate disputes exists

between them, we first look to the scope of that agreement and then determine

whether NAICO’s claims fall within its scope. The Treaty’s arbitration clause is

broad. It requires that “[a]ny irreconcilable dispute between the parties to this

Agreement,” including SCOR and NAICO, be arbitrated. Aplt. App. Tab No. 21,

Ex. B at Article 20. It then provides that the arbitration will be done “in

accordance with the attached Arbitration Clause No. 22-01.1,” (the “Attached

Clause”).

NAICO argues that the first sentence of the Attached Clause limits the

scope of arbitrable issues by stating that “[a]s a condition precedent to any right

of action hereunder, any irreconcilable dispute between the parties to this

Agreement” will be arbitrated. Id. at Arbitration Clause 22-01.1. NAICO argues

that the word “hereunder” means that only issues arising out of the Treaty are

subject to arbitration. We disagree. The Treaty requires that “any irreconcilable

dispute” be arbitrated, without any limiting language. The Attached Clause is a

procedural clause that addresses how the arbitration takes place, not the scope of

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arbitrable issues. This is evident from the nature of the Attached Clause, which

provides details such as how to initiate arbitration, who may be a member of the

board of arbitration, how arbitrators are appointed, when briefs are due, and other

purely procedural issues. We agree with the Second Circuit, who reviewed a

similar clause and held that “by its terms, the prefatory clause does not limit the

scope of the arbitration clause but rather establishes a limitation on when a

judicial action may be brought under the Agreement.” ACE Capital Re Overseas

Ltd. v. Central United Life Ins. Co., 307 F.3d 24, 31 (2d Cir. 2002). The

Attached Clause here is a procedural clause that addresses how issues are

arbitrated and when judicial action may be brought under the Treaty, but it does

not manifest an intent to limit the scope of the parties’ broad agreement to

arbitrate “any irreconcilable dispute.”

Even if the Attached Clause was an attempt to limit the scope of issues

subject to arbitration, NAICO could at best argue that there is a conflict between

the broad, unlimited provision in the Treaty and the first sentence of the Attached

Clause. Since “‘doubts concerning the scope of arbitrable issues should be

resolved in favor of arbitration’” we must resolve such a conflict in favor or

arbitration. Spahr, 330 F.3d at 1269-70 (quoting Moses, 460 U.S. at 24-25). For

these reasons, we conclude that the Treaty contains a broad arbitration clause

requiring, at a minimum, that any irreconcilable dispute relating to the Treaty be

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arbitrated.

The record provides ample evidence that NAICO’s allegations are related to

the Treaty. For one thing, the Hold Harmless Agreement and the Treaty relate to

the same subject matter: the Bonds. Also, the Hold Harmless Agreement, the

source of NAICO’s allegations, specifically states that it was entered into in

connection with the Treaty and “solely to facilitate the issuance of [the Bonds.]”

Aplt. App., at Tab No. 21, Ex. A, at 1. This language clearly indicates that SCOR

only agreed to act as co-surety on the Bonds as part of the underlying reinsurance

transaction memorialized in the Treaty. This makes sense, since SCOR is

primarily in the business of providing reinsurance, not signing co-surety

obligations.

The Hold Harmless Agreement’s reference to the Treaty is also evidence

that the agreements are closely related. Courts have noted that when two

agreements are at issue, one with an arbitration clause and one without, the fact

that one agreement references the other supports arbitrating claims arising from

either agreement. See, e.g., Pennzoil Exploration and Prod. Co. v. Ramco Energy

Ltd., 139 F.3d 1061, 1068-69 (5th Cir. 1998) (holding that a series of letter

agreements with cross-references show their interrelation for purposes of

compelling arbitration); Neal v. Hardee’s Food Systems, Inc., 918 F.2d 34, 37

(5th Cir. 1990) (holding that two “individual agreements were integral and

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interrelated parts of one deal” where they referenced each other, were signed by

the same parties, and were executed contemporaneously as part of one general

transaction) . In the instant case, the Hold Harmless Agreement references

SCOR’s reinsurance obligation under the Treaty. Aplt. App., at No. 21, Ex. A

(stating “WHEREAS, [SCOR] has agreed to reinsure [NAICO] pursuant to certain

reinsurance treaties,” it agrees to act as co-surety for the Bonds.) It also

explicitly states that SCOR signed the Hold Harmless Agreement “to facilitate”

the Bonds that the Treaty reinsured. Id. Thus, the two agreements are more than

related; they are dependent on each other.

In addition, SCOR sent a letter to NAICO dated November 2, 1999, stating

that SCOR’s participation as co-surety should be “construed to be reinsurance

under the reinsurance agreements . . . and subject to the terms contained therein.”

Aplt. App., Tab No. 21, Ex. C. These “terms” would include the Treaty’s

arbitration provision. NAICO does not contend that it manifested any timely

objection to SCOR’s characterization of its co-surety obligation. For all these

reasons, we conclude that the agreements are best interpreted as two

interdependent agreements part of a single transaction. However, at a minimum,

they are sufficiently related to invoke the Treaty’s arbitration clause.

Notwithstanding the link between the two obligations, NAICO argues that

its claims are not subject to arbitration because the Hold Harmless Agreement

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does not contain a separate arbitration clause. We have rejected the notion that

disputes arising out of an agreement that lacks an arbitration clause are ipso facto

not subject to the arbitration clause of a related contract. See ARW Exploration

Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995) (holding that a dispute

arising out of an agreement that lacked an arbitration clause was still subject to

arbitration based on the broad arbitration provision contained in other agreements

relating to the same joint venture). Of course, sophisticated reinsurers

represented by counsel can explicitly opt out of broad arbitration clauses, thus

negating the legal preference for arbitration in closely annexed transactions. But

here, NAICO agreed to be bound by the Treaty’s broad arbitration clause which

encompasses the allegations that NAICO now seeks recovery for. For these

reasons, we hold that NAICO’s complaint must be dismissed and its claims must

be arbitrated.

REVERSED.

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