[co-author: Matthew Burrows - Law Clerk]

A New York district court granted Hudson Specialty Insurance Company’s (“Hudson”) petition to compel arbitration against New Jersey Transit Corporation (“N.J. Transit”) after determining that the parties had agreed to arbitrate pursuant to the Federal Arbitration Act. In late October 2012, Hurricane Sandy damaged N.J. Transit’s facilities and equipment triggering policies issued by Hudson and various other property casualty insurance companies. The original action was submitted to New Jersey state court to interpret “Flood Sublimit” and “Named Windstorm” provisions in the policies, the former of which limited Hudson’s flood damage liability to $100 million. Hudson sought to compel arbitration based on the arbitration provision within the policy. N.J. Transit argued that the arbitration agreement was unenforceable as it never assented to the provision, and furthermore, never saw the arbitration provision until the policy was issued. It alleged that they relied on a prior draft of the policy without such a provision.

The court rejected N.J. Transit’s arguments for a number of reasons. The arbitration provision was included in the policy quote accepted by Hudson’s insurance broker, which referenced arbitration. The court noted that N.J. Transit “cannot have it both ways.” Either N.J. Transit assented to the policy in 2012 or it did not. Instead, “N.J. Transit is clearly seeking to benefit from the Policy by demanding coverage for its losses after Hurricane Sandy and has thus manifested its assent.” The court also rejected N.J. Transit’s final effort to oppose arbitration alleging that the provision was unenforceable because it lacked certain key terms. Here, the arbitration provision was a complete form where the alleged missing terms had no bearing on the enforceability of the provision. Hudson Specialty Ins. Co. v. N.J. Transit Corp., No. 15-cv-89 (ER) (USDC S.D.N.Y. June 5, 2015).