No stranger to hurricanes, South Carolinians remember Hurricane Hugo which, in 1989, devastated the low country. An interesting side effect of that storm was the boom of rebuilding and the migration of contractors from various parts of the country who came to help in the rebuilding and remained thereafter. Given that hurricane season officially opened June 1, the recent opinion from the Southern District of New York is an interesting reminder that storms may come and storms may go, but the policies which cover storm damage can have unintended consequences requiring years of litigation.
At issue is an ongoing dispute between Infrassure Ltd. and First Mutual Transportation Association over $20 million in coverage for the 2012 Hurricane Sandy damage. First Mutual is appealing the lower court’s decision to deny their bid to compel arbitration in London. First Mutual argues that the contract includes a “London Arbitration Clause” provision which should govern resolution. Infrassure has argued that an endorsement to the agreement entitled, “London Arbitration and Governing Law (UK and Bermuda Insurers Only)” limits the “London Arbitration Clause”. First Mutual has rebutted this arguing that the endorsement falls under the definition of a “title” which, pursuant to the “Titles Clause”, is merely for convenience and not intended to limit or affect the provisions to which they relate. And so on and so forth.
How this issue would play out in South Carolina courts remains to be seen. However, South Carolina does have a few unique statutory features which could lead to some interesting arguments. First, the South Carolina Uniform Arbitration Act mandates, “Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract…” Failure to abide by these notice provisions eviscerates the compelling party’s ability to force arbitration. But, the parties to a contract are free to agree that South Carolina state law or a specific set of arbitration rules and procedures will apply to an arbitration agreement. Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 539, 542 S.E.2d 360, 363 (2001). However, to the extent South Carolina state law may invalidate the arbitration agreement, that state law is preempted if the arbitration agreement is valid under The Federal Arbitration Act (“FAA”). Soil Remediation Co. v. Nu-Way Envtl., Inc., 323 S.C. 454, 459, 476 S.E.2d 149, 152 (1996). The Federal Arbitration Act (“FAA”) applies in federal or state court to any arbitration agreement regarding a transaction that in fact involves interstate commerce, regardless of whether or not the parties contemplated an interstate transaction. Munoz, 343 S.C. at 538, 542 S.E.2d at 363. Thus, a well drafted choice of law clause might be read by a Judge to allow a party to enforce an arbitration provision wherein the Notice provisions under the South Carolina Uniform Arbitration Act were not followed. Suffice it to say that all South Carolinian coverage attorneys would agree that we would prefer not to have a hurricane hit our home state but that if such an event were to occur, there would be a lot to litigate.