A second insurance company, Beacon Insurance Company, Ltd., also contracted to cover Crowley's liabilities.

While in transit from Gulfport to Indiana, Adidas' clothing aboard CW's truck was damaged by fire. As Adidas's insurer, Zurich paid for the loss.

Gramercy – the insurer for CW and Crowley – was deemed insolvent and ordered into liquidation. As a consequence, as provided by Mississippi law, the Mississippi Insurance Guaranty Association assumed Gramercy's liabilities.

Zurich, as equitable subrogee of Adidas, sought to recover the amount it had paid to Adidas from Crowley because of Crowley's alleged negligence in causing the damage.

Toward that end, Zurich petitioned the U.S. District Court for the Southern District of New York to compel arbitration with Crowley on the basis of the clause in the International and U.S. Domestic Ocean Liner and Logistics Volume Transportation Agreement (the “Service Agreement”) between Adidas and Crowley requiring the parties to submit any dispute arising from the contract to arbitration in New York City.

For its part, Crowley moved for judgment on the pleadings, seeking dismissal of the petition. It argued that enforcement of the arbitration clause under the FAA was barred by the provision in the Mississippi Insurance Guaranty Association Law (the “MIGA Act”) prohibiting subrogated claims against the insured of an insolvent insurer.

The Service Agreement

The Service Agreement permitted Crowley to subcontract its duties, but said that Crowley remained:

fully liable for the due performance of its obligations under this contract.

The Service Agreement also provided that the Carriage of Goods by Sea Act of the United States of America (“U.S. COGSA”) applied to claims of cargo loss. It further specified that it was governed and had to be construed in accordance with general maritime law of the United States, the Federal Arbitration Act, the Shipping Act of 1984 as amended, and, to the extent those laws were inapplicable, the laws of the State of New York.

Finally, the Service Agreement limited claims by third-party beneficiaries:

Except as specifically provided for elsewhere in this Contract, this Contract shall not be construed to confer any benefit on any third party not a party to it nor shall the Contract provide any rights to such third party to enforce its provisions.

Mississippi Law

The MIGA Act creates a guaranty association that steps in to perform obligations of insolvent insurers to protect against:

financial loss to claimants or policyholders because of the insolvency of an insurer.

The statute also allocates losses from insolvency to various parties and specifically:

preclude[s] recovery … from the insured of any insolvent carrier to the extent of the policy limits.

Miss. Code Ann. § 83-23-109(f).

The District Court's Decision

The district court granted Zurich's petition to compel arbitration and denied Crowley's motion for judgment on the pleadings to dismiss the petition.

In its decision, the district court ruled that the MIGA Act did not bar the FAA's application to Zurich's action.

According to the district court, the MIGA Act's terms prevented recovery only where there was a single, insolvent insurer and did not purport to bar recovery where there were other, solvent insurers. Here, the district court pointed out, Crowley had insurance policies from more than one insurer. Although one of its insurers, Gramercy, was insolvent, Beacon was still solvent.

As a result, the district court noted, a claim against Crowley did not necessarily implicate the state insurance guaranty association, and the MIGA Act did not bar recovery.

The district court concluded that because the operative state law of Mississippi did not preclude recovery, the application of the FAA did not contravene state law, and it could enforce the arbitration clause under the FAA.

The case is Zurich Ins. Co. v. Crowley Latin America Services, LLC, No. 16-CV-1861 (JPO) (S.D.N.Y. Dec. 20, 2016).