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Nationwide Mutual Fire Insurance Co. v. George v. Hamilton

July 6, 2009

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, APPELLANT
v.
GEORGE V. HAMILTON, INC., APPELLEE



On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. No. 08-cv-00646) District Judge: Honorable Gary L. Lancaster.

The opinion of the court was delivered by: Jordan, Circuit Judge.

PRECEDENTIAL

ARGUED May 21, 2009

Before: FUENTES, JORDAN and NYGAARD, Circuit Judges.

OPINION OF THE COURT

Nationwide Mutual Fire Insurance Company ("Nationwide")*fn1 appeals the order of the United States District Court for the Western District of Pennsylvania granting appellee George V. Hamilton, Inc. ("Hamilton") summary judgment and dismissing Nationwide's motion to compel arbitration. Nationwide challenges the District Court's determination that it was collaterally estopped from seeking enforcement of a contractual arbitration clause because of a previous state court lawsuit to which Nationwide was not a party, and it further challenges the District Court's conclusion that, irrespective of estoppel, the federal action was duplicative of a pending action in state court and warranted abstention pursuant to doctrine laid down by the Supreme Court in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). We conclude that the previous state court ruling does not preclude Nationwide, who was a nonparty and did not otherwise have its interests represented before the state court, from seeking to enforce the arbitration provision of its agreement with Hamilton. We further conclude that the kind of extraordinary circumstances warranting abstention under Colorado River are not present here. We will therefore reverse and remand to the District Court to consider the merits of Nationwide's petition to compel arbitration.

I. Background

Nationwide issued a single policy of liability insurance to Hamilton which provided Hamilton with coverage from January 30, 1985 to January 30, 1986. During the policy period, Hamilton, an installer of commercial and industrial insulation, received claims for asbestos-related injuries allegedly caused by products it had installed. In 1992, Hamilton and Nationwide, along with other carriers, including Pennsylvania Manufacturers' Association Insurance Company ("PMA"), entered into an Interim Claim Handling and Settlement Agreement (the "Settlement Agreement" or "Agreement"). The Settlement Agreement concerned the administration and allocation of defense and indemnity resources for claims under the various insurers' policies. Under the Agreement, an insurer's obligation to pay defense and indemnity costs continued until it could establish that it had exhausted its policy limits. Upon proof of exhaustion, that insurer was released by Hamilton and discharged from further obligation, and any remaining costs were allocated proportionally among the remaining insurers. It is undisputed that the Settlement Agreement included a three-year minimum term and that, following the expiration of the three-year term, the Agreement could be terminated as to all parties by the withdrawal of any one party, so long as written notice, delivered by certified mail, was provided to all parties 90 days in advance of the termination date.

Nationwide participated in the Settlement Agreement until early 1996, when it claimed to have exhausted its policy limits and provided proof of exhaustion to both Hamilton and its fellow carriers.*fn2 On May 5, 1997, Hamilton stated that it was "willing to accept the evidence of exhaustion" supplied by Nationwide. While the parties dispute whether Nationwide was then released from any obligation to defend or indemnify Hamilton, it is undisputed that Nationwide did not participate in Hamilton's defense or pay further indemnification after 1997.*fn3

In addition to setting the insurers' obligations with regard to indemnity and defense, the Settlement Agreement included an arbitration clause providing that "the PARTIES agree that any and all disputes arising out of, or relating to this Agreement, or breach thereof, shall be decided by non-judicial arbitration which shall be binding on the parties [sic] in accordance with 42 Pa. U.P.S.A., Section 7341. Notice of the demand for arbitration shall be served in writing upon all other PARTIES to this Agreement."*fn4

On January 5, 2005, PMA filed a complaint (the "PMA Action") in the Court of Common Pleas of Allegheny County, Pennsylvania, seeking a declaratory judgment against Hamilton and several insurers other than Nationwide. PMA contended that it had exhausted its policy limits under various umbrella policies it had written for Hamilton and that it therefore had no further obligation to Hamilton. Five days later, PMA served Hamilton with an arbitration demand under the Settlement Agreement. PMA did not serve Nationwide with a copy of the arbitration demand, as required under the terms of the Settlement Agreement. Hamilton rejected the demand on March 29, 2005. In addition to declining the arbitration demand, Hamilton responded to PMA's complaint in the Court of Common Pleas. It filed a New Matter and Counterclaim against PMA, asserting various claims for breach of contract and bad faith and arguing that PMA had a duty to defend and indemnify it for asbestos related claims under PMA's primary policy, which was subject to the Settlement Agreement, and other umbrella policies which were not subject to the Settlement Agreement. PMA filed preliminary objections*fn5 to the counterclaims before the Court of Common Pleas, contending that the counterclaims were controlled by the Settlement Agreement and should be dismissed in light of the arbitration clause.

Three years later, on May 20, 2007, the Court of Common Pleas issued an order sustaining PMA's objections, but the Court stated that it would "vacate [its]... order and overrule the preliminary objections if within ten (10) days... Hamilton sends a notice of withdrawal from the [Settlement A]greement." (App. 350A-C.) The Court further stated that:

I agree with Hamilton if Hamilton is saying that it is not required to arbitrate pursuant to paragraph 21 [of the Settlement Agreement] if it elects to terminate the Agreement at this time.

However, I disagree with Hamilton if Hamilton is taking the position that it is not bound by the arbitration clause even though it chooses not to terminate the Agreement. It cannot use some portions of the Agreement and disassociate itself from other portions of the Agreement.

(App. 350.) On May 30, 2007, Hamilton responded by sending to Nationwide and the other Settlement Agreement signatories notice of its intent to withdraw from the Agreement. The Court of Common Pleas then, on June 22, 2007, granted Hamilton's motion to vacate and overruled PMA's objections to the counterclaims. The Court's June 22 Order, vacating its May 20 Order, did not state a basis for the vacatur nor did it recognize that, at a minimum, the Settlement Agreement required 90 days written notice for a withdrawal to be effective.

In addition to the suit initiated by PMA, a second Hamilton insurer, ACE Property & Casualty Co. ("ACE"), though it was not a party to the Settlement Agreement, also filed an action (the "ACE Action") against Hamilton and other insurers seeking declaratory relief regarding its duty to defend and indemnify Hamilton. Again, Nationwide was not made a party. The ACE Action was filed in the Court of Common Pleas of Philadelphia County on December 7, 2005, a year after the PMA Action began. In response to a defense motion, the court in Philadelphia transferred the case to the Court of ...


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