On May 10, 2019, in McCullough v. Royal Caribbean Cruises, Ltd., 2019 U.S. Dist. LEXIS 79338, 2019 WL 2076192, the U.S. District Court for the Southern District of Florida denied defendant AIG Insurance Hong Kong Limited’s motion to compel arbitration and dismiss plaintiff’s third amended complaint. The district court denied the motion on the simple grounds that the plaintiff was not a signatory to the relevant arbitration provision, but its reasoning in reaching that conclusion is of some interest.
The facts underlying this dispute are tragic. Lynn McCullough was a passenger traveling aboard a Royal Caribbean cruise. During a port visit at St. Lucia, McCullough signed up for a zip line excursion which involved some rappelling. Regretfully, during this portion of the court, McCullough’s harness was not properly secured and she fell nearly 50 feet. She suffered severe injuries, rendering her a quadriplegic.
In addition to suing Royal Caribbean and other parties, McCullough also sued the operators of the zip line excursion, collectively referred to herein as “the Rain Forest Defendants.” After their motions for summary judgment were denied, the Rain Forest Defendants entered mediation with McCullough and then binding arbitration. The arbitrator entered an award in favor of McCullough. The district court entered a Final Judgment in favor of McCullough and against the Rain Forest Defendants jointly and severally.
One of the Rain Forest Defendants, Harald Joachim von der Goltz, was covered by an insurance policy issued by AIG. This policy contained a forum clause that required binding arbitration in Hong Kong. The policy carried a liability limit of $5.15 million. AIG consistently disputed coverage and only offered $350,000. McCullough never moved for summary judgment on coverage.
After the final judgment was entered, McCullough filed an amended complaint adding a bad faith cause of action against AIG by allegedly failing to settle McCullough’s claim within the policy limits. In response, AIG moved to compel arbitration.
In considering AIG’s motion, the district court noted that McCullough acted as a third-party beneficiary of the AIG policy and that AIG argued McCullough is attempting to stand in the shoes of its insured, von der Goltz, by seeking coverage under same. In opposition to AIG’s motion, McCullough raised two (2) primary arguments. The first was that McCullough asserted a Florida common law cause of action which was separate and apart from the policy language itself. The second was that McCullough was not a signatory to the AIG policy, and by extension the arbitration provision.
With respect to McCullough’s first defense, the district court holds that finding of bad faith under Florida common law requires a determination of whether there is coverage under the relevant policy. Until there is a finding of coverage under the AIG, the district court concludes that McCullough’s bad faith claim is premature.
With respect to McCullough’s second defense, the district court finds that McCullough was never a signatory to the policy and therefore cannot be bound by its arbitration provision. In particular, the district court cites to Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F.3d 1316, 1325 (11th Cir. 2018) for the principal that non-signatories cannot be bound to arbitration agreements under theories of estoppel or third-party beneficiary. In Outokumpu, a signatory to an arbitration agreement sought to bind a non-signatory to that same agreement. Although the arbitration agreement specifically defined the non-signatory’s role as a third-party subcontractor, the non-signatory did not sign or otherwise bind itself to the any of the terms of the contract. As such, the Eleventh Circuit concluded that only signatories to the contract were bound by the arbitration provision.
The arbitration provision in the AIG policy was subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. Sec. 201, et seq. If this matter had been decided under the Federal Arbitration Act, 9 U.S.C. Sec. 1, et seq. (FAA), it is likely that this case would have been decided differently because under the FAA, a non-signatory can be compelled to participate in binding arbitration under equitable grounds, such as estoppel or third-party beneficiary status.
While the coverage matter remains pending, the district court further decided to stay the entire action. Because McCullough’s bad-faith claim cannot be decided until the coverage question has been decided, the district court felt that further litigation was pointless.
David Y. Loh is a member with Cozen O'Connor in New York City, New York.
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