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Aloha Petroleum, Ltd. v. National Union Fire Ins. Co. of Pittsburgh

United States District Court, D. Hawaii

June 6, 2014

ALOHA PETROLEUM, LTD., Plaintiff,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant

For Aloha Petroleum, Ltd., Plaintiff: Allison Mizuo Lee, C. Michael Heihre, Calvert G. Chipchase, IV, Peter W. Olson, LEAD ATTORNEYS, Cades Schutte, Honolulu, HI.

For National Union Fire Insurance Company of Pittsburgh, PA., Defendant: Andrew D. Herold, Emily Grant Cottrell, Joshua A. Zlotlow, LEAD ATTORNEYS, PRO HAC VICE, Herold & Sager, Encinitas, CA; Brian Yukio Hiyane, Randall Y. Yamamoto, LEAD ATTORNEYS, Kawashima Lorusso, LLP, Honolulu, HI; Michael S. Davis, LEAD ATTORNEY, PRO HAC VICE, Zeichner Ellman & Krause LLP, New York, NY; Nicholas P. Crowell, LEAD ATTORNEY, PRO HAC VICE, Sidney Austin LLP, New York, NY.

OPINION

ORDER GRANTING ALOHA PETROLEUM, LTD.'S MOTION FOR SUMMARY JUDGMENT ON COUNT II, AND DENYING DEFENDANT NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA'S CROSS-MOTION TO DISMISS, STAY, OR TRANSFER THIS ACTION TO THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

Derrick K. Watson, United States District Judge.

INTRODUCTION

Aloha Petroleum and National Union, Aloha's former insurer, dispute their obligation to arbitrate a disagreement over reimbursement of defense costs allegedly due to National Union. Because the parties' dispute arises out of National Union's policy, which does not contain an arbitration provision, rather than out of a separate payment agreement, which does, the Court grants Aloha's motion for summary judgment and denies National Union's cross-motion to dismiss, stay, or transfer this action to New York.

BACKGROUND

I. Agreements Between Aloha and National Union

Plaintiff Aloha Petroleum, Ltd. (" Aloha" ) and Defendant National Union Fire Insurance Company of Pittsburgh, PA (" National Union" ) entered into two agreements whose terms are currently in dispute: (1) a commercial general liability policy issued by National Union to Aloha, Policy No. GL 280-30-51 (" GL Policy" ), Aloha Ex. 1; and (2) a separately executed Payment Agreement For Insurance and Risk Management Services (" Payment Agreement" ), Aloha Ex. 5.

A. GL Policy

Under the Coverage Form of the GL Policy, National Union agreed to

pay those sums that the insured becomes legally obligated to pay as damages because of " personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any " suit" seeking those damages.

Aloha Ex. 1 (GL Policy) at 5. There are several relevant endorsements to the GL Policy, including the Large Risk Rating Plan Endorsement (" LRRP Endorsement" ) and the Deductible Coverage Endorsement (" Deductible Endorsement" ). The LRRP and Deductible Endorsements expressly modify the GL Policy. The LRRP Endorsement provides for " reimbursements of certain losses and Allocated Loss Adjustment Expenses we pay." The Allocated Loss Adjustment Expenses (" ALAE" ) include:

[a]ll fees for service of process and court costs and court expenses; pre- and post-judgment interest; attorneys' fees; cost of undercover operative and detective services; costs of employing experts; costs for legal transcripts, copies of any public records, and costs of depositions and court-reported or recorded statements; cost and expenses of subrogation; and any similar fee, cost or expense reasonably chargeable to the investigation, negotiation, settlement or defense of a loss or a claim or suit against you, or to the protection and perfection of your or our subrogation rights.

Aloha Ex. 2 (LRRP Endorsement) at A0039. The LRRP Endorsement indicates that " ALAE Option C" in excess of the applicable Retained Amount is applicable to the GL Policy. ALAE Option C, in turn, is described in the LRRP Endorsement as follows:

c. Option C: Subject Loss includes all or part of ALAE calculated according to the following formula:

i. if we incur NO obligation under the policies to pay damages, benefits or indemnity resulting from a claim, Subject Loss under that claim will include all ALAE up to the applicable Retained Amount and a percentage of all ALAE in excess thereof. That percentage is shown in Section 3 of Part II under " Option C Excess %" ; or

ii. if we DO incur an obligation to pay damages, benefits or indemnity under the policies because of a claim, Subject Loss under that claim will include all ALAE incurred under that claim, multiplied by the amount of our obligation to pay damages or benefits up to the applicable Retained Amount, divided by the total amount of our obligation to pay damages or benefits.

Id. at A0039-40. Part II, Section 3 states that the ALAE Option C " Excess %" is " 100%." Id. at A00042.

The Deductible Endorsement requires Aloha to reimburse National Union for part of the ALAE, as follows:

That part will be calculated by dividing the smaller of the deductible or the damages, benefits or Medical Payments we pay by the damages, benefits or Medical payments we pay. If we pay no damages, benefits or Medical Payments, you must reimburse us for all " Allocated Loss Adjustment Expense: up to the applicable Deductible amount and 100% of all remaining " Allocated Loss Adjustment Expense" .

Aloha Ex. 3 (Deductible Endorsement) at 1. It also provides that, " [i]f an Annual Aggregate Deductible Amount (the " Aggregate" ) is shown in the Schedule, that amount is the most you must reimburse us for all damages, benefits, and Medical Payments and 'Allocated Loss Adjustment Expenses' that we pay under this policy and all other policies listed in Part I of the Schedule." Id. at 2. The GL Policy is listed in the Schedule of polices to which the deductible applies as being subject to the Aggregate. Id. at 3. The GL Policy is identified as having a total Aggregate of $100,000. Id. at 4-5. Neither the GL Policy nor the Endorsements contain an arbitration provision.

B. Payment Agreement

Aloha and National Union entered into a Payment Plan, executed on May 9, 2006, which sets forth terms for payment due dates, deposits, installments and additional payments, billing methods and collateral for Aloha's workers compensation and employers liability insurance (WC 1591309), the GL Policy and automobile coverage (CA 4806971). Aloha Ex. 5 (Payment Agreement). The Payment Agreement includes the following dispute resolution provisions:

What if we disagree about payment due?

If You disagree with us about any amount of Your Payment Obligation that we have asked you to pay, within the ...


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