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Galilea, LLC v. AGCS Marine Insurance Co.

United States Court of Appeals, Ninth Circuit

January 16, 2018

Galilea, LLC, Plaintiff-Appellant/ Cross-Appellee,
v.
AGCS Marine Insurance Company; Liberty Mutual Insurance Company; Torus National Insurance Company, Defendants-Appellees/ Cross-Appellants.

          Argued and Submitted July 13, 2017 Portland, Oregon

         Appeal from the United States District Court for the District of Montana Susan P. Watters, District Judge, Presiding D.C. No. 1:15-cv-00084-SPW

          Joseph Gleason (argued), Gleason Law LLC, Atlanta, Georgia; Ross D. Tillman, Boone Karlberg P.C., Missoula, Montana; for Plaintiff-Appellant/Cross-Appellee.

          Brian P. R. Eisenhower (argued) and Gerard W. White, Hill Rivkins LLP, New York, New York, for Defendants-Appellees/Cross-Appellants.

          Before: Marsha S. Berzon, Paul J. Watford, and John B. Owens, Circuit Judges.

         SUMMARY[*]

         Arbitration / Maritime Law

         The panel affirmed in part and reversed in part the district court's orders finding enforceable an arbitration clause in a marine insurance policy and compelling arbitration of two claims but not others brought against insurance underwriters that denied coverage for the loss of a sailing yacht.

         The panel held that the plaintiff's insurance application was not a contract, but the insurance policy was a contract subject to the Federal Arbitration Act. The policy's arbitration clause concerned a maritime transaction falling under the FAA, and Montana law was inapplicable under both federal maritime law choice-of-law principles and the policy itself and therefore did not render the arbitration clause unenforceable. The panel held that the arbitration agreement showed a clear and unmistakable intent to resolve arbitrability questions in arbitration. The panel thus affirmed the district court's order finding the policy's arbitration clause enforceable, affirmed the district court's order granting the defendants' motion to compel arbitration as to certain causes of action, reversed the district court's order denying the defendants' motion to compel arbitration as to the plaintiff's remaining causes of action, and remanded to the district court with instructions to grant the defendants' motion to compel arbitration in its entirety.

          OPINION

          BERZON, CIRCUIT JUDGE

         "The sea, although an agreeable, is a dangerous companion, " wrote Plato more than two millennia ago. Our case is about that danger; it concerns "a brave vessel . . . [d]ash'd all to pieces, " like the ship Prospero hexed in The Tempest. William Shakespeare, The Tempest act 1, sc. 2.

         Although the background has its drama, the primary legal issues are more mundane: Is an arbitration provision in a maritime insurance policy enforceable despite law in the forum state assertedly precluding its application? In addressing this question, we consider several questions concerning the intersection of the McCarran-Ferguson Act, 15 U.S.C. § 1012, which shields state insurance laws from federal preemption, and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16, which provides for enforcement of arbitration provisions in maritime contracts. After doing so, we conclude that the arbitration clause should be given effect.

         I. BACKGROUND

         A. Contracting for Yacht Insurance

         Montana residents Taunia and Chris Kittler are the sole members of Galilea, LLC ("Galilea"), a Nevada limited liability company. In 2014, Galilea purchased a sixty-foot yacht ("the Yacht"). This case concerns the scope of the insurance coverage Galilea bought for the Yacht.

         About a year after purchasing the Yacht, the Kittlers submitted to Pantaenius America Ltd. ("Pantaenius") an online request for an insurance quote. Pantaenius specializes in obtaining and administering yacht insurance policies, acting as an agent for insurance underwriters. Following the quote request, the Kittlers electronically exchanged several documents with Pantaenius. According to Galilea, the Kittlers also spoke with a Pantaenius representative over the phone to discuss the materials needed to complete an insurance application. The Kittlers say they informed the Pantaenius representative on one call that it would be difficult to submit a hand-signed application because the Kittlers were, at the time, sailing the yacht in the Caribbean, en route from Florida to San Diego via the Panama Canal. Pantaenius nonetheless required a hand-signed application, so the Kittlers docked in Puerto Rico to locate the necessary equipment to print and scan a signed application.

         The application for insurance listed three different underwriters: AGCS Marine Insurance Company, Liberty Mutual Insurance Company, and Torus National Insurance Company (collectively, "Underwriters"). The application noted that one or more of these Underwriters would "be assigned at the time of binding [insurance] coverage."[1]

         The application also included arbitration and choice-of-law terms. The arbitration term provided, in relevant part:

Any dispute arising out of or relating to the relationship between Pantaenius America Ltd and/or our participating underwriters and the insured shall be settled by arbitration administered by the American Arbitration Association ["AAA"] in accordance with its Commercial Arbitration Rules. . . . The dispute shall be submitted to one arbitrator. . . . The place of arbitration shall be New York, New York.

         The application also provided that the "relationship" and the Agreement "shall be governed by the laws of New York."

         A day after Galilea submitted the signed application, Pantaenius issued an insurance binder providing preliminary coverage for up to two weeks from the date of application.[2]The binder set a coverage limit of $1, 566, 500, based on the "total agreed fixed value" of the Yacht; established a covered "Cruising Area" that extended south to 30.5 degrees north latitude; named the three Underwriters as the issuing insurance companies; incorporated the forthcoming policy's terms and conditions; and attached a document with those anticipated terms.

         The formal insurance policy issued a day later. Pantaenius formally signed the insurance policy on behalf of the three Underwriters. The policy provided that it would be "effective only when the insured vessel(s) are within the 'cruising area' specified."

         The choice-of-law and forum selection provisions in the policy's terms and conditions were different from those in the application. Both the policy and the application called for arbitration in New York pursuant to AAA rules. But the scope of the choice-of-law provision and arbitration clause differed. The policy provided:

This insurance policy shall be governed by and construed in accordance with well established and entrenched principles and precedents of substantive United States Federal Maritime Law, but where no such established and entrenched principles and precedents exist, the policy shall be governed and construed in accordance with the substantive laws of the State of New York, without giving effect to its conflict of laws principles, and the parties hereto agree that any and all disputes arising under this policy shall be resolved exclusively by binding arbitration to take ...

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