In Flintkote Co. v. Aviva PLC, No. 13-4055 (3d Cir. Oct. 9, 2014), the Third Circuit Court of Appeals ruled that a non-signatory to an arbitration agreement was not equitably bound to arbitrate.
Case Background
The Flintkote Company, a major supplier of asbestos-based products, had procured a number of insurance policies from London insurance firms, including Aviva PLC. Flintkote and several of the London insurers—but not Aviva—entered into a mass settlement known as the Wellington Agreement, which required that disputes over coverage be resolved through mediation and arbitration. Invoking the Wellington Agreement, Flintkote initiated large-scale coverage-related mediation with some of those insurers. Aviva joined the mediation, although not contractually obligated to do so. Ultimately, when Aviva sought a declaratory judgment action against Flintkote to determine the scope of coverage, Flintkote moved in the District of Delaware to compel arbitration.
Analysis
In a September 30, 2013 Order, the Delaware District Court granted Flintkote’s motion, concluding that Aviva was equitably estopped from avoiding arbitration by virtue of Aviva’s participation in the earlier mediation. Applying Delaware law, the Third Circuit reversed, concluding that Aviva was not equitably bound to arbitrate based on the facts.
The Third Circuit first addressed the district court’s so-called “knowing exploitation” theory of equitable estoppel, in which a non-signatory is equitably precluded from embracing a contract, and then turning its back on a portion of that contract, such as an arbitration clause, that it finds disadvantageous. The Third Circuit found that Flintkote failed to adduce clear and convincing evidence that Aviva “embraced” the Wellington Agreement when it opted to participate in mediation alongside the other London insurers.
The Third Circuit also addressed the district court’s second theory that Aviva’s participation in mediation caused Flintkote to change its position to its detriment by delaying resolution of the underlying insurance claims. The Third Circuit found that Flintkote could not have reasonably relied on Aviva’s participation in the mediation as a basis to believe binding arbitration would occur with Aviva if the mediation failed.
