Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe


Vol. 9 - Issue 6
September 23, 2020


Insurer Says USC-ya In Court: Policyholder Can’t Compel Arbitration


At issue in Arch Specialty Insurance Company v. University of Southern California, No. 19-6964 (C.D. Calif. July 20, 2020) was USC’s effort to compel arbitration of a dispute, with Arch, over coverage for suits alleging that USC allowed a doctor to practice in the student health center despite being accused of sexual misconduct.  Arch alleged that USC, without telling Arch about the situation or that lawsuits by former patients had been filed, demanded that Arch reform certain policies to remove an Abuse or Molestation exclusion.

Arch filed a coverage action, seeking a declaration that the Abuse or Molestation exclusion was a term in the Arch policies or for rescission of the policies, on the basis of USC’s failure to disclose the allegations of abuse when the policies were applied for.     

USC, harkening back to the days of the Juice, moved from defense to offense and sought to compel arbitration.  Arch’s defensive line responded with big blocks.  Putting aside the specifics of various policy provisions, USC maintained that the Arch policies, excess of $100 million, followed form to an underlying primary policy that contained an arbitration clause.  So, therefore, the Arch policies were subject to the arbitration clause.  Arch challenged this on the basis that the arbitration clause, in the primary policy, was inconsistent with language in the Arch policy.  Hence, on account of such inconsistency, the arbitration clause was an exception to the Arch Policies’ follow-form clause.  Therefore, it was not part of the Arch policy.

The principal provision at issue in the Arch policies was the Service of Suit endorsement.  Pointing to certain language in the Service of Suit endorsement, which discussed a dispute between settled in court – including, notably “[a]ll matters arising under this Policy shall be determined in accordance with the law and practice of such Court” -- Arch maintained that it contemplated litigation.  Therefore, if arbitration were mandated, it would, in Arch’s counsel’s words “eviscerate important rights preserved by the service of suit provision, including the right to pursue claims in a court of law and select a forum.”

The court sided with Arch, concluding, among other reasons: “The BETA [primary policy] arbitration provision mandates arbitration of all disputes and waives the parties’ rights to court remedies.  In contrast, the Arch Service of Suit Endorsement’s ‘All matters arising under this Policy’ language appears to empower a court to deal with a whole world of disputes—not an arbitrator.  Because both clauses are written broadly and appear to each contemplate a different forum for ‘all disputes,’ the clauses are inconsistent and in conflict.” 

This is an important decision for follow-form excess insurers in certain situations.  The primary policy at issue -- the BETA Policy – was, in fact, a risk management pooling arrangement.  Its arbitration provision was unquestionably written to address disputes between BETA and its members. 

The court clearly saw that this provision was not intended to apply to Arch – nor could it feasibly do so.  As the court noted, the BETA arbitration provision, if Arch followed form to it, would require Arch to submit to an internal dispute resolution procedure exclusively for BETA members.  Under the procedures, Arch would not even have the right to select an arbitrator.  USC would have the right to select both.  

A contrary decision here would force excess insurers to attend a party where they were never on the guest list.   

Website by Balderrama Design Copyright Randy Maniloff All Rights Reserved