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Zurich wins arbitration bid in Adidas coverage dispute

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Zurich Insurance Co., as the insurer for Adidas, can proceed with arbitration in a coverage dispute with a Panama transportation company that was a named insured in a policy issued by a now-insolvent insurer, says a federal court.

Herzogenaurach, Germany-based Adidas Group had consigned 574 boxes of clothing to Panama City-based Crowley Latin America Services for transport to Indiana via the port of Gulfport, Mississippi, in October 2011, according to Tuesday’s ruling by the U.S. District Court in New York in Zurich Insurance Co. v. Crowley Latin America Services L.L.C.

Crowley in turn engaged Gulfport-based CW Enterprises Inc. to take the goods by land from Gulfport to Indiana, according to the ruling. Dallas-based Gramercy Insurance Co. insured CW for the cargo, and Crowley was named as an additional insured on the policy. 

A second insurer, Beacon Insurance Co., a unit of Hamilton, Bermuda-based OneBeacon Insurance Co., also contracted to cover Crowley’s liabilities, according to the ruling.

While in transit from Gulfport to Indiana, Adidas’ clothing aboard CW’s truck was damaged by fire. As Adidas’ insurer, Zurich paid for the loss, then sought to recover that amount from Crowley because of its alleged neglect in causing the damage.

Gramercy was declared insolvent in August 2013 and its liabilities assumed by the Ridgeland, Mississippi-based Mississippi Insurance Guaranty Association.

Zurich filed a petition with the District Court to compel arbitration. Crowley opposed this, contending that under the Federal Arbitration Act, arbitration is barred by state insurance law that prohibits subrogated claims against the insured of an insolvent insurer.

But pointing to the Beacon coverage, the U.S. District Court disagreed. The Mississippi Insurance Guaranty Association law prevents recovery “only where there is single insolvent insurer, and does not purport to bar recovery where there are other, solvent insurers,” said the court in ruling the case can proceed to arbitration.