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Illinois Union Insurance Co. v. Teva Pharmaceuticals USA, Inc.

United States District Court, Third Circuit

October 11, 2013



GENE E.K. PRATTER, District Judge.

The issue in this case is whether an excess insurance contract ("the Excess Policy") between Plaintiff Illinois Union Insurance Company ("Illinois Union") and Defendants Teva Pharmaceuticals USA, Inc. ("Teva USA"), and Teva Pharmaceutical Industries Ltd. ("Teva Israel") binds the parties to arbitrate their dispute.[1] After Illinois Union sued in diversity in this Court, Teva USA moved to compel arbitration and for attorneys' fees and costs (Docket No. 6). Teva USA argues that the Excess Policy follows form to its underlying primary layer agreement with another insurer ("SRI Policies II and III" or "the SRI Policies") and therefore that the Excess Policy incorporates the SRI Policies' arbitration clause, Condition o. Illinois Union opposed the Motion to Compel Arbitration on the grounds that Condition o is not in fact incorporated into the Excess Policy and therefore that Illinois Union never agreed to arbitrate with Teva. Illinois Union also contends that this Court should allow the English Commercial Court, in which Illinois Union brought proceedings after Teva filed its Motion to Compel, to decide the arbitrability question.

For the reasons discussed below, the Court holds that the language of the Excess Policy incorporated Condition o of the underlying insurance agreement and therefore bound Illinois Union to arbitrate with Teva. The Court will therefore grant Teva's Motion to Compel Arbitration and for Attorneys' Fees and Costs (Docket No. 6) in part, to compel arbitration, but deny it in part, as to Teva's request for attorneys' fees and costs.


This case arises out of an insurance dispute between Illinois Union and Teva Israel, an Israel corporation, and its American subsidiary, Teva USA, a Delaware corporation with its headquarters and primary place of business in Pennsylvania (collectively, "Teva").

In 2002, Teva Israel contracted with SR International Business Insurance Co. Ltd. ("SRI") for primary insurance against certain patent infringement claims. Pursuant to Generic Products Patent Infringement Liability Insurance Policy No. 27372.1.1 ("SRI Policy I"), SRI provided insurance from June 1, 2002, to June 1, 2003, for up to a total limit of $100 million, with coverage restricted to liability "pursuant to the laws of the United States and Canada for patent infringement occurring within the respective territories of the United States or Canada." Policy No. 27372.1.1, Declarations, Condition a (Compl. Ex. B.); see Compl. ¶ 7. Among other conditions, SRI Policy I contained Condition o, an arbitration clause providing, in full:

Any controversy arising out of or relating to this Policy or its breach shall be settled by final and binding arbitration, from which there shall be no appeal, in accordance with the following. Unless otherwise agreed, the United Kingdom Arbitration Act 1996, as amended, shall apply and the arbitration shall be held in London, England unless otherwise agreed to by the parties. Three arbitrators shall comprise the arbitration panel. The majority of the three arbitrators shall issue a written award resolving the controversy before them within thirty (30) days after the time both parties are required to submit their case and related documentation, unless such time is extended by the consent of the parties. The panel shall make an award of compensatory monetary damages but not of punitive or exemplary or enhanced damages. Said award shall be final and binding upon both parties in a court of competent jurisdiction. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the chairperson/umpire. The remaining costs of arbitration proceedings shall be allocated by the panel.

Policy No. 27372.1.1, Condition o. SRI Policy I contained no choice of law provision.

Teva USA then turned to Illinois Union for excess insurance up to a total limit of $5 million (above the $100 million primary layer in SRI Policy I). This Excess Policy identified SRI Policy I as the "Followed Policy, " Excess Policy, Item 3 (Compl. Ex. A), and provided, in its "Insuring Clause, " that

subject to all terms, definitions, conditions, exclusions and limitations of this policy, the Insurer agrees to provide insurance coverage to the Insureds in accordance with the terms, definitions, conditions, exclusions and limitations of the Followed Policy [i.e., SRI Policy I], except as otherwise provided herein.

Id. § I. The Excess Policy further provided, in its "Underlying Insurance" provisions, that

[t]his policy is subject to... the same terms, definitions, conditions, exclusions and limitations (except as regards the premium, the limits of liability, the policy period and except as otherwise provided herein) as are contained in or as may be added to the Followed Policy and, to the extent coverage is further limited or restricted thereby, to any other Underlying Policies. In no event shall this policy grant broader coverage than would be provided by any of the Underlying Policies.

Id. § IV(A). No other provision of the Excess Policy addressed arbitration or choice of law.[2] In a "Service of Suit Endorsement" that soon followed, Illinois Union amended the Excess Policy to provide for service of process on an agent in Philadelphia, Pennsylvania, and stated, "If you request, we will submit to the jurisdiction of any court of competent jurisdiction." Serv. Suit Endorsement, Endorsement No. 2 (Compl. Ex. A).

Through yearly endorsements, Illinois Union and Teva USA continued to amend and extend the policy period through June 1, 2011. See Compl. ¶¶ 8-9. And in an endorsement effective June 1, 2003, the parties added Teva USA to the Excess Policy. Policy Am. Endorsement No. 4 (Compl. Ex. A). In 2006, Teva and SRI replaced SRI Policy I with Generic Products Patent Infringement Excess Casualty Insurance Binder, Policy No. 25631.3.14 ("SRI Policy II"). SRI Policy II contained substantially the same terms as SRI Policy I, as well as the same arbitration provision, verbatim and again as Condition o, as SRI Policy I. Compare Policy No. 27372.1.1 (SRI Policy I), Condition o (Compl. Ex. B), with Policy No. 25631.3.14 (SRI Policy II), Condition o (Compl. Ex. D). Like SRI Policy I, SRI Policy II contained no choice of law provision. Teva and Illinois then updated the Excess Policy to follow SRI Policy II. See Amendatory Endorsement No. 8, Item 3 (Compl. Ex. A).

On May 23, 2007, Teva and SRI amended their agreement once more ("SRI Policy III"). See Generic Products Patent Infringement Excess Casualty Insurance Binder, Policy No. 25631.3.18 (Compl. Ex. C). SRI Policy III incorporates SRI Policy II:

It is further understood and agreed that the wording of this Policy shall be as per the expiring Policy No. MH25631.3.14 [SRI Policy II] (with the Policy period wording extended for one (1) year so as to confirm with the below Policy period)....

Id. at 2. In turn, on June 1, 2007, Teva and Illinois Union amended the Excess Policy to apply in excess of SRI Policy III; the Excess Policy's Followed Policy remained SRI Policy II. See Amend Policy Period Endorsement, Endorsement No. 10 (Compl. Ex. A).[3] Subsequent endorsements continued the Excess Policy through June 1, 2011. See Endorsement Nos. 11-14 (Compl. Ex. A).

The instant case arose on July 2, 2013, when Illinois Union sued Teva USA and Teva Israel and invoked the Court's diversity jurisdiction. See Compl. ¶ 5. Teva had sought coverage under the Excess Policy for patent infringement lawsuits it litigated and ultimately settled. See Compl. ¶¶ 19-28; Teva Mem. at 5 (Docket No. 6). By initiating this lawsuit, Illinois Union hopes to obtain a declaratory judgment that Teva's claims are precluded based on a variety of grounds, bincluding untimely notice, estoppel, and waiver. See Compl.; Illinois Union Resp. at 4 (Docket No. 17).

Teva moved next, on or around July 5, 2013, by initiating arbitration in London and seeking a declaration that, among other things, Illinois Union violated the Excess Policy by both failing to pay Teva's claims as well as filing the instant suit and thereby failing to arbitrate pursuant to the SRI Policies' Condition o. See Teva Mem. at 5-6; Illinois Union Resp. at 4. On July 12, 2013, Illinois Union's counsel sent Teva's counsel a letter claiming that the Excess Policy contains no arbitration clause and warning Teva that if it did not withdraw its notice of arbitration, Illinois Union would seek relief in the English Commercial Court. Teva instead filed the instant Motion to Compel Arbitration and for Fees and Costs, along with a supporting memorandum, on July 16, 2013 (Docket No. 6). Illinois Union responded six days later by initiating proceedings before the Commercial Court under the United Kingdom Arbitration Act 1996. Illinois Union Resp. at 5. On August 2, 2013, Illinois Union replied (Docket No. 17), followed again by Teva on August 9, 2013 (Docket No. 19), before Illinois Union returned fire once more on August 15, 2013 (Docket No. 23). The Court held oral argument on October 1, 2013, and the parties submitted their final supplemental briefs on October 8, 2013 (Docket Nos. 31 & 32).


The Federal Arbitration Act ("FAA"), part of which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("CREFAA"), provides the governing framework for determining whether Illinois Union and Teva have agreed to arbitrate the claims raised in Illinois Union's Complaint. The two determinative questions under the FAA and CREFAA are (1) whether Illinois Union and Teva agreed to arbitrate and (2) if so, whether the claims in Illinois Union's Complaint fall within the scope of that agreement. For the reasons detailed below, and based on the Complaint and its exhibits, the Court holds that as a matter of law Sections I and IV(A) of the Excess Policy incorporated the SRI Policies' arbitration clause, Condition o, and, therefore, that the parties agreed to arbitrate. The Court further holds that Condition o 's broad language encompasses the claims Illinois Union raises in its Complaint. Finally, the Court declines to postpone this ruling to allow the English Commercial Court to reach the arbitrability issue first, and also declines to award attorneys' fees or costs.

A. The Controlling Framework: The Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards

The Federal Arbitration Act, 9 U.S.C. §§ 1-307, "provide[s] a framework for the development of a body of uniform federal law governing contracts within its scope." Medtronic AVE, Inc. v. Advanced Cardio. Sys., Inc., 247 F.3d 44, 54 (3d Cir. 2001). Where the FAA covers the transaction in question, "federal law applies in questions regarding the construction and enforcement of an arbitration clause, even in those cases in which the district court's jurisdiction is based on diversity of citizenship." Id. (citing cases).

The FAA contains three chapters. Chapter 2, 9 U.S.C. §§ 201-208, implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted June 10, 1958, acceded to by the United States, Sept. 30, 1970, 21 U.S.T. 2517, 330 U.N.T.S. 3. See 9 U.S.C. § 201 ("The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be enforced in United States courts in accordance with this chapter."); Invista S.A.R.L. v. Rhodia, S.A., 625 F.3d 75, 84 (3d Cir. 2010); Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Account, 618 F.3d 277, 288 (3d Cir. 2010). CREFAA governs arbitration provisions in international commercial agreements, Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 448-49 (3d Cir. 2003), as provided by § 202:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.

9 U.S.C. § 202. The Third Circuit Court of Appeals has distilled § 202's language to explain that "arbitration agreements fall within [CREFAA] if they arise from commercial, legal relationships, such as commercial contracts, except when those relationships are entirely between United States citizens and otherwise are domestic in nature." Century Indemnity Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir. 2009) (citing 9 U.S.C. § 202); accord Invista, 625 F.3d at 84.

Further, the "domestic" FAA-i.e., Chapter 1-"applies to actions brought under [CREFAA] to the extent that the two are not in conflict." Century Indemnity, 584 F.3d at 523 (citing 9 U.S.C. § 208; China Minmetals Materials Imp. & Exp. Co., Ltd. v. Chi Mei Corp., 334 F.3d 274, 280 (3d Cir. 2003)). Thus, although the Supreme Court's case law has often "addressed only the domestic FAA, the principles undergirding those decisions apply to the Convention's implementing legislation.... It is federal law that allows the parties to make and enforce agreements that fall under the FAA or the Convention." Ario, 618 F.3d at 289.

The first question a court must ask to determine whether CREFAA and the FAA apply is (1) "whether there is an agreement in writing to arbitrate the subject of the dispute." Standard Bent Glass Corp., 333 F.3d at 449 (internal quotation marks omitted). In addition ...

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