United States District Court, D. Minnesota
For Plaintiff: Thomas C. Mielenhausen, Christopher L. Lynch, Barnes & Thornburg LLP, Minneapolis, Minnesota, Andrew J. Detherage, John P. Fischer, Barnes & Thornburg, LLP, Indianapolis, Indiana.
For Defendant: Robert E. Salmon, Dorothy Jaworski Paxton, Laura J. Hanson, Meagher & Geer, PLLP, Minneapolis, Minnesota, Joseph A. Hinkhouse, Smita Mokshagundam, Hinkhouse Williams Walsh LLP, Chicago, Illinois.
MEMORANDUM OPINION AND ORDER
RICHARD H. KYLE, United States District Judge.
In this declaratory-judgment action, Plaintiff The Valspar Corporation (" Valspar" ) seeks to recover from its insurer, Defendant National Union Fire Insurance Company of Pittsburgh, PA (" National Union" ), nearly $3 million it expended defending a lawsuit in this Court. Presently before the Court is National Union's Motion to Dismiss or Stay in favor of arbitration. For the reasons that follow, its Motion will be granted.
The Marvin Action. In October 2010, Valspar, a large paint and coating manufacturer, was named a third-party defendant in a lawsuit in this Court captioned Marvin Lumber & Cedar Co. v. Sapa Extrusions, Inc., Civ. No. 10-3881 (the " Marvin Action" ). In that action, Marvin, a manufacturer of windows and doors, alleged that certain products it made with aluminum obtained from Sapa were prematurely failing, causing property damage to its customers. Sapa, in turn, brought third-party claims against Valspar, which had coated the aluminum, claiming the coatings were defective. The undersigned presided over the Marvin Action, which was highly contentious and lasted for several years before Valspar obtained summary judgment in its favor. Ultimately, it expended nearly $4 million defending the case.
The Policies and their Endorsements. National Union issued two insurance policies to Valspar potentially applicable to the claims asserted against it in the Marvin Action, referred to as the " 2000 Policy" and the " 2001 Policy" (collectively, the " Policies" ). Each Policy was modified by a Deductible Endorsement establishing a $1 million deductible and further providing that " you," meaning Valspar, " must reimburse us," meaning National Union, " for all 'Allocated Loss Adjustment Expense' we pay . . . up to the deductible limit." (Fischer Decl. Ex. 1, § I.) The term " Allocated Loss Adjustment Expense" was defined to include attorneys' fees and other costs incurred in the " defense of a . . . claim or suit against" Valspar. (Id., § III.) Neither the Policies nor their Endorsements contained any provision for arbitration of disputes between the parties.
The Payment Agreement and Direct Payment Addendum. In addition to the Policies and their various endorsements, however, Valspar and National Union also entered into an agreement styled as the " Payment Agreement," which was modified by a " Direct Payment Addendum." It is the Payment Agreement upon which National Union relies in seeking arbitration of the present dispute.
National Union describes the Payment Agreement as a " credit agreement that sets forth the manner in which Valspar must satisfy its payment obligations" to the insurer. (Def. Mem. at 3.) The Agreement provided that National Union would " extend credit to you [Valspar] by deferring our demand for full payment of the entire amount of 'Your Payment Obligation' if you make partial payments according to th[e] Agreement." (Doc. No. 19, Ex. E at 3.) The Agreement defined the term " Your Payment Obligation" as " the amounts that you must pay us for the insurance and services in accordance with the terms of the Policies," including " Deductible Loss Reimbursements," that is, amounts " we pay that you must reimburse us for under any 'Deductible' . . . provisions of a Policy." (Id. at 3-4.) The upshot, then, is that the Payment Agreement dictated the terms under which Valspar was obligated to reimburse National Union, up to the deductible, for amounts it expended on Valspar's behalf.
The Payment Agreement contained a dispute-resolution provision providing that " [i]f you disagree with us about any amount of Your Payment Obligation that we have asked you to pay," the disagreement " must immediately be submitted to arbitration." (Id. at 8.) It further provided that " [a]ny other unresolved dispute arising out of this Agreement must be submitted to arbitration" and that the arbitrators " will have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability." (Id.)
As noted above, the Payment Agreement was further modified by the Direct Payment Addendum. Under the Addendum, Valspar agreed to " assume" from National Union " the direct responsibility for the payment of Obligations," including any Allocated Loss Adjustment Expense. (Id. Ex. F.) It is undisputed that the net effect of the Addendum was to allow Valspar to pay its defense costs directly, rather than having them paid by National Union and then having to reimburse the insurer up to the $1 million deductible.
The present dispute. As noted above, Valspar expended close to $4 million defending itself in the Marvin Action; it paid these amounts directly to its counsel per the terms of the Direct Payment Addendum. Accordingly, it demanded reimbursement from National Union of approximately $3 million, representing the amount it had paid beyond its $1 million deductible. National Union acknowledged coverage under the Policies but a dispute arose whether Valspar's request was subject to only one $1 million deductible or multiple deductibles (for multiple Policy years).
On May 2, 2014, Valspar commenced this action against National Union in the Hennepin County, Minnesota District Court. It alleged that the parties had entered into " multiple insurance-related agreements that together formed what the parties have referred to as . . . the 'Program.'" (Compl. ¶ 6.) Program documents for the relevant years included " a comprehensive general liability policy, a . . . deductible endorsement, a payment agreement, and other documents that function as a single integrated agreement." (Id. ¶ 7.) The Complaint alleged that the Marvin Action triggered coverage " under the 2000-01 Policy/Program" but that National Union had failed to pay all of Valspar's defense costs in ...