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Insured Can't Run From Arbitration For Damaged Adidas Products



On December 20, 2016, filed at Zurich Insurance Co.'s ("Zurich"), as a subsidiary of Adidas Group ("Adidas"), on Crowley Latin America Services LLC ("Crowley"), a transportation and logistics company. The underlying dispute is unloaded from a fire-damaged shipment of Adidas clothing. The Court allowed Zurich to complete arbitration based on its service contract with Adidas.

In October 2011, Crowley shipped 574 boxes of Adidas clothing from Honduras to Indiana, via a port in Mississippi. The shipment was caught while in transit with CW Enterprises, Inc. ("CW"), a trucking company hired by Crowley. Crowley was additionally insured under CW's policy.

Zurich covered Adidas', and then, as an equitable subrogee, sought to recover the payments from Crowley based on its alleged negligence. Zurich moved to compel arbitration with Crowley based on an arbitration commission in Crowley's service contract with Adidas, which required arbitration of all disputes in New York and following to the FAA. While the dispute was pending, CW's insurer became insolvent and the Mississippi Insurance Guaranty Association assumed its assets.

The Court disagreed, finding the FAA only when its application would be contrary to state law. The Court further found that Mississippi law applies only if it is insured by a single insolvent carrier. In Crowley's case, the company had at least one other solvent insurer ̵

1; its direct insurer. Therefore, the Court found that the FAA does not contravene state law, which rendered the arbitration clause enforceable.

The Court also rejected Crowley's attempt to avoid Zurich's suit based on language from its service contract with Adidas, which purported to enforcement of the contract at third parties. The Court thinks that the limitation on third-party claims did not affect Zurich's equitable rights to subrogation, which exists independent of any contract.

This decision under the power and limitations of language in business contracts to affect insurance disputes. For example, the case here, an insurance dispute may become intertwined with the enforcement of a service contract. This is especially so where the insurer acts as a subroute. Likewise, contractual efforts to limit subrogation rights may be unsuccessful where such rights exist at common law. The case is Zurich Ins. Co. v. Crowley Latin Am. Serv no. 16-CV-1861 (JPO) (S.D.N.Y. Dec. 20, 2016).


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