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A federal court in New York compelled arbitration over a party's objection that the right to arbitrate had been waived, and found that the dispute was within the scope of the arbitration agreement even under the narrow construction advocated by the opposing party.
In Century Indem. Co. v. Clearwater Ins. Co., No. 06 CIV 0424 SAS, 2007 WL 1599157 (S.D. N.Y. Jun. 04, 2007), Clearwater had issued a reinsurance certificate (the Certificate) to Century in the early 1970's. The Certificate contained an arbitration agreement stating, "Should an irreconcilable difference of opinion arise as to the interpretation of this Contract … such difference shall be submitted to arbitration...."
Century filed suit regarding a dispute over payment of an asbestos contamination claim. Clearwater demanded arbitration. When Century refused to arbitrate, Clearwater moved to compel arbitration and stay litigation.
In response to Century's allegation that the dispute was not within the scope of the arbitration agreement, the Court compared the language of the arbitration agreement in the instant case to other cases involving similar language, and found that the authority split on whether it was a narrow or broad clause. However, in this case, it was unnecessary to determine whether the agreement was broad or narrow. Even if the agreement were narrowly construed, Clearwater's dispute with Century revolved around interpretation of the provisions within the Certificate, i.e., "interpretation of this Contract," and hence was "on its face within the purview of the clause."
The Court also disregarded Century's alternative argument that Clearwater had waived its right to arbitrate. The Court explained that to find waiver of a right to arbitrate, it must examine three factors: 1) the time elapsed from when the litigation was commenced until the request for arbitration; 2) the amount of litigation conducted to date, such as motion practice and discovery; and 3) proof of prejudice. In all cases, there must be evidence that the actions of the party now wishing to arbitrate prejudiced the opposing party.
The Court held that Century had not experienced the type of prejudice required for waiver. First, it had been less than five months since the beginning of litigation and only three months from Clearwater's demand for arbitration. Second, the litigation in this case was not complex. The parties had not begun trial preparation or extensive discovery. Finally, Clearwater sought only to enforce the parties' agreement to arbitrate; not to litigate claims it wished to have decided in arbitration. As a result, the Court granted Clearwater's motion to compel arbitration.
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