Missouri Court Finds Insurance Contract’s Arbitration Clause Unenforceable As Against Public Policy

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This case arose from an accident at the General Motors plant in Kansas City, Kansas, where an electrician employed by Capital Electric Construction Company, Inc. was severely injured due to negligence by Solaris Power Services, LLC in failing to de-energize equipment on which he was working. Capital was insured by Liberty Mutual Fire Insurance Company. Associate Electric & Gas Insurance Services, LTD. (AEGIS), provided excess liability insurance to Capital. A coverage dispute arose after an uncontested $44 million judgment was entered against Solaris. Solaris alleged it was or should have been an additional insured under both policies, but that both insurance companies wrongly denied it coverage.

AEGIS moved to stay the litigation and compel arbitration on the grounds that its policy contained a mandatory arbitration clause. AEGIS argued that North Dakota law, rather than Missouri law, should apply to the dispute. While Section 435.350 of the Missouri Arbitration Act prohibits mandatory arbitration provisions in insurance contracts, AEGIS argued that under North Dakota law, the policy’s arbitration clause was valid and enforceable. The Court disagreed, reasoning that a Missouri court would apply the law of another jurisdiction only where “not contrary to a fundamental policy of Missouri.” The Court refused to do so here because the arbitration clause at issue directly contravened Missouri public policy. Alternatively, the Court found that the arbitration provision would still be found unenforceable even if it were to apply Kansas law per the policy’s choice of law provision. Simon v. Liberty Mut. Fire Ins. Co., Case No. 17-cv-0152 (USDC W.D. Mo. Dec. 8, 2017)

 

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