Arbitration

• Author: International Law Group

In July 1994, the F/V CAPE COD, a commercial fishing vessel, which the Rosalie & Matteo Corporation (RMC) of Gloucester, Massachusetts owned, sank at sea, injuring Francesco DiMercurio, a crew member. When DiMercurio sued RMC in the Massachusetts federal court, however, RMC defaulted. The federal court awarded DiMercurio $350,000 damages in March 1997. RMC then assigned to DiMercurio all rights it had against Sphere Drake Insurance PLC (SDI) of London under its policy with it.

When DiMercurio filed a $350,000 claim with SDI, however, the latter contested it and invoked a clause in the insurance contract that required arbitration in London of all disputes over coverage.

At this point, DiMercurio sued SDI in federal court. The court, however, gave summary judgment to SDI, holding that the arbitration clause did not divest the state courts of jurisdiction. Plaintiff then noted an appeal. He challenged the arbitration clause on two grounds. First, he contended that the clause violated Section 22 of the Massachusetts statutes that voids "any condition, stipulation or agreement [in an insurance policy] depriving the courts of the commonwealth of jurisdiction of actions against [the insurer]." Secondly, plaintiff brands the clause as unconscionable, mainly on grounds of lack of mutuality. The U.S. Court of Appeals for the First Circuit, however, affirms.

The Court first points out that Chapter Two of the Federal Arbitration Act (FAA), 9 U.S.C. Sections 201-208 governs the validity of this arbitration clause. The FAA, in turn, implemented the U. N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, T.I.A.S. No. 6997. Since the clause meets Convention requirements, the issue is whether it is "null and void, inoperative or incapable of being performed" under Art. II, Sec. 3.

In plaintiff's view, this arbitration clause does oust the state courts of jurisdiction by taking the dispute out of the commonwealth courts. Nor does the FAA trump section 22 because the McCarran-Ferguson Act, 15 U.S.C. Section 1012(b) expressly precludes state laws regulating insurance from being preempted by federal statute.

The Circuit Court then laments the frequent lack of precision in the use of the term "jurisdiction" by the court rulings on which plaintiff relied. The text and legislative history of the FAA, however, shows that Congress grasped the underlying distinctions in the courts' powers.

"Further evidence that Congress views...