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CESSNA AIRCRAFT CO. v. FIDELITY & CAS. CO.

August 26, 1985

CESSNA AIRCRAFT COMPANY, Plaintiff,
v.
FIDELITY AND CASUALTY COMPANY OF NEW YORK AND CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, AND CERTAIN BRITISH COMPANIES, Defendants; FIDELITY AND CASUALTY COMPANY OF NEW YORK AND CERTAIN COMPANIES AND UNDERWRITERS AT LLOYD'S OF LONDON, Plaintiffs, v. CESSNA AIRCRAFT COMPANY, Defendant



The opinion of the court was delivered by: COHEN

 I. INTRODUCTION

 On June 8, 1984 a unanimous jury returned a verdict in favor of the plaintiffs in three consolidated personal injury, wrongful death/or product liability cases; namely, Joseph E. Guarnere v. Shirley Harper, et al., Civil Action No. 80-3285, Thomas Cannuli v. Cessna Aircraft Company, Civil Action No. 81-2209, and Shirley Harper v. Cessna Aircraft Company, Civil Action No. 82-1052. The verdict awarded both compensatory and punitive damages in favor of all three plaintiffs and against Cessna Aircraft Company (hereinafter Cessna). The award of compensatory damages totaled $4,300,000, while punitive damages totaled $25,000,000. Shortly thereafter, Cessna filed motions with this Court seeking, alternatively, a new trial, judgment notwithstanding the verdict or a remittitur. At the request of all parties, and to facilitate a non-litigious conclusion of the matter, this Court postponed its adjudication of Cessna's motions on numerous occasions. Finally, in February, 1985, the parties to the consolidated actions reached a settlement whereby the plaintiffs agreed to accept approximately $13 million in return for the withdrawal of Cessna's motions and an agreement not to appeal.

 Underlying the negotiations between the individual plaintiffs and Cessna were discussions between Cessna and its insurers, Fidelity and Casualty Company of New York (hereinafter Fidelity) and Certain Underwriters at Lloyd's, London, and certain British Companies (hereinafter Lloyd's), relating to the payment of the damage award and, more importantly, the ultimate liability for the award of punitive damages. The actions presently before this Court are the outgrowth of a dispute between Cessna and its insurers on the issues of the insurability against punitive damage awards and the coverage provided by the insurance contracts herein at issue.

 Prior to any consideration of the ultimate issues, we must determine whether these two actions should be adjudicated in Federal court, State court, or both. On November 13, 1984, Fidelity and Lloyd's filed a declaratory judgment action in this Court seeking a determination of their obligation to pay punitive damages (hereinafter the Federal court action). Before filing its Answer to the Fidelity and Lloyd's Complaint, Cessna, on December 3, 1984, filed an essentially identical declaratory judgment action in the Law Division of New Jersey Superior Court, Essex County (hereinafter the State court action). On January 4, 1985, the State Court action was removed to this Court on the petition of Fidelity and Lloyd's. In the interim, on December 27, 1984, Cessna filed its Answer in the Federal court action. Thus, we currently have two actions before us involving identical parties as well as identical issues of fact and law.

 Fidelity and Lloyd's maintain that the State court amounts to a compulsory counterclaim to the Federal court action and is duplicative of that previously filed action. As such, they maintain that the State court action should be dismissed. Cessna, on the other hand, urges that the State court action was improperly removed to this Court. In support of its contentions, it relies upon a "Service of Suit" or forum selection clause, which is contained in the Lloyd's policies and which states, in effect, that Lloyd's agrees to submit to the jurisdiction of any court within the United States when a dispute arises as to the payment of sums alleged to be due under the policy. *fn1" By its motion, Cessna seeks the remand of the State court action and the dismissal, or stay, of the Federal court action. We shall first address Cessna's motion for remand.

 II. CESSNA'S MOTION TO REMAND THE STATE COURT ACTION

 A. Prior to addressing the merits of Cessna's motion, we must determine the applicability of the forum selection clause contained in its agreement with Lloyd's. *fn2" Service of suit clauses, or forum selection clauses as they are commonly known, have been held to be enforceable for a number of years. In the case of The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972), the Supreme Court held that a forum selection clause should be controlling "absent a strong showing that it should be set aside." Id. at 15. The Court, thus, placed the burden upon the party challenging the clause to "show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Id. In the instant case, Lloyd's does not actually challenge the general enforceability of forum selection clauses. Rather, it maintains that the clause is inapplicable under the present circumstances.

 First, Lloyd's urges that the clause does not forbid the institution of suit by the insurer prior to any action being taken by the insured. Assuming, arguendo, that this is true, Lloyd's has not challenged Cessna's concurrent ability to bring suit as well. The issue remains, therefore, what to do with these two actions now that they exist.

 Second, Lloyd's maintains that the clause has no applicability to a declaratory judgment action seeking a judicial determination of rights and responsibilities under a contract. In making this second argument, Lloyd's urges that, at most, its only obligation under the contract is to pay the sums in dispute and, since it has done so, this action falls outside the ambit of the clause. Lloyd's interpretation of this clause, however, is unreasonably narrow. It is uncontested that Lloyd's payment in settlement of the underlying consolidated cases was a conditional payment, which was made for legitimate tactical, as well as economic, reasons. *fn3" Although there has been a conditional payment of the amount owed, this cannot alter the fact that Lloyd's continues to dispute its legal obligation to pay.

 The cases cited by Lloyd's in its attempt to remove this clause from consideration are unpersuasive in light of our view that Lloyd's has not, within the meaning of the clause, paid the amounts due under the policy. A policy containing a clause stating, for example, that any dispute arising hereunder would be litigated in the forum selected by the insured, would likely have obviated the need for the instant action. See e.g., The Bremen, 407 U.S. at 2; Richardson Greenshields Sec., Inc. v. Metz, 566 F. Supp. 131 (S.D. N.Y. 1983); Air Economy Corp. v. Aero-Flow Dynamics, Inc., 122 N.J. Super. 456, 300 A.2d 856 (App. Div. 1973). However, the lack of such clarity, in these circumstances, is not dispositive. Because we interpret this dispute as one concerning a "failure to pay," we find the Lloyd's service of suit clause to be applicable. We turn now to the merits of Cessna's remand motion.

 B. Language identical to that in issue here has consistently been held to constitute a waiver, by the insurer, of its right to remove an action from state court to federal court. See Capital Bank and Trust Co. v. Associated International Co., 576 F. Supp. 1522 (M.D. La. 1984); Lavan Petroleum Co. v. Underwriters at Lloyd's, 334 F. Supp. 1069 (S.D. N.Y. 1971); Perini Corporation v. Orion Insurance Co., 331 F. Supp. 453 (E.D. Cal. 1971); Oil Well Service Co. v. Underwriters at Lloyd's London, 302 F. Supp. 384 (C.D. Cal. 1969); Euzzino v. London & Edinburgh Insurance Co., 228 F. Supp. 431 (N.D. Ill., E.D. 1964). In Euzzino, the various references in the clause to "such court" and the insurer's agreement to comply "with all requirements necessary to give such Court jurisdiction," were interpreted as a waiver of the right of removal. Euzzino, 228 F. Supp. at 433. The identical language is present in the clause herein at issue and compels the identical result. By inserting the forum selection clause in its agreement with Cessna, Lloyd's effectively waived its right to remove any subsequent dispute under the contract to Federal court. Thus, we shall grant Cessna's motion for remand of the State court action. *fn4"

 III. CESSNA'S MOTION TO DISMISS OR STAY THE FEDERAL COURT ACTION

 With the remand of the State court action, we now have identical actions continuing along parallel paths to adjudication. The issue before us, then, is whether the Federal court action should be halted in order to allow the State court to reach its determination ...


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