Arbitration and Service of Suit Clauses

Passport Resorts LLC v. AmRisc, LLC, H046354, 2020 WL 4932287 (Cal. Ct. App. Aug. 21, 2020)

Mound Cotton prevailed on an appeal of the denial of a motion to compel arbitration. The insured operated a luxury hotel in Big Sur, California. In February 2017, severe rainstorms caused damage and a loss of access to the hotel due to the closure of an adjacent portion of a coastal highway. The insurers paid benefits under the policy for property damage to the hotel and for business interruption loss. Subsequently, a dispute arose between the parties over the amount of covered business income loss. The insured filed suit and the insurers invoked the policy’s arbitration clause. When the insured refused to arbitrate, the insurers moved to compel arbitration.

The trial court denied the insurers’ motion to compel, holding that arbitration was inconsistent with the service of suit provision in the insurance policy, which stated that the insurer “will submit to the jurisdiction of a Court of competent jurisdiction within the United States at the request of the Insured.” The insurers appealed and the California Court of Appeal reversed, holding that the arbitration clause was not inconsistent with the service of suit provision and was fully enforceable. The appellate court agreed with the majority of jurisdictions that have addressed the issue, noting that “arbitration and service of suit provisions in insurance policies can be harmonized by reading service of suit clauses as allowing the litigation of actions to compel arbitration and to enforce arbitral awards.”

The insurers were represented by partner Jonathan R. Gross.

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