In Download Lexington Insurance Co. v. Centex Homes (D. Hawaii Case No. 10.00655, Order Transferring Venue Filed June 13, 2011) PUBLIC ACCESS, also published as 2011 WL 2416473 (D. Hawaii June 13, 2011)(authorized password required to access Westlaw) the Chief Judge of the United States District Court for the District of Hawaii transferred venue to a Federal Court in Texas for the Texas Court to consider whether to compel Arbitration of an Insurance Coverage dispute. The Chief Judge viewed her ruling as impelled by the Federal Arbitration Act ("FAA") and the parties' express Arbitration provision in their insurance contract.
"The Policy is a 'claims made' policy ...." Lexington Insurance Co. v. Centex Homes, 2011 WL 2414673 at * 1, *10. Lexington issued the Policy to Centex, a builder of houses. Centex began to receive claims from Homeowners that water was leaking in the houses that Centex built. Lexington sued for Declaratory Relief in Federal Court in Hawaii, claiming that it had no Coverage under various theories. Centex responded with a Motion to Dismiss and, alternatively, a Motion to Stay and to Compel Arbitration in Dallas, Texas "the forum specified by the parties' arbitration agreement." Id. at *2. Centex's address on the Policy is in Dallas, Texas. Id. at *1.
While granting Centex's Motion by transferring venue to a Federal Court in Texas where Arbitration was to take place, the Chief Judge in Hawaii did and said much more. The Federal Court in Hawaii noted that "[t]he Policy has a self-insured retention amount ('SIR' or 'Retained Amount') of $150,000." Id. Lexington's Duty to Defend would not incept or begin "'unless and until the Retained Amount is exhausted'". Id. One of Lexington's contentions against Arbitrating at all in this case was that satisfaction of the SIR or Retained Amount was a condition precedent to Arbitration as well as to Lexington's Duty to Defend and, since the SIR had not yet been met in this case, there could be no Arbitration, Lexington contended.
Centex did not disagree with this argument concerning Lexington's Duty to Defend under the Lexington Policy. "Centex does not contest that it is required to meet the SIR before Lexington is obligated to defend Centex against claims." Id. at *10. Although the issue was not free from doubt, the Chief Judge in the Federal Court in Hawaii clearly would have had a difficult time accepting Lexington's argument had the case remained in Hawaii:
This court, while not persuaded on the present record that the arbitration provision is subject to a condition precedent that Centex prove it has expended $150,000 on the underlying claims, leaves the ultimate decision to the court in Texas.
Id. at *10. [Emphasis added.]
The 'nonbinding' observations about SIR provisions in this decision are likely to long outlast the transfer of this case to Texas, including that it is highly unlikely that there is a condition precedent of exhausting the SIR amount in order to Arbitrate under a Policy, even where the Duty to Defend expressly and admittedly does not incept or begin until the SIR or Retained Limit is reached.
For a discussion of related issues, see generally Insurance Law Hawaii Blog and in particular the post there of July 11, 2011..
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