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A federal district court in Florida has granted an insurer’s motion to dismiss a lawsuit brought by its insured where the parties had not previously engaged in mediation as mandated by the insurance policy – even though neither the insurer nor insured had demanded mediation before the insured filed his lawsuit.

The Case

In early October 2018, the 2006 51-foot vessel named “CHRISTOPHER” sank at the dock at Dinner Key Marina in Miami, Florida, and sustained extensive damage.

The vessel’s owner, Henry Mullales, notified Aspen American Insurance Company, from which he had purchased a marine insurance policy providing hull and machinery coverage on the vessel for $290,000.

Aspen investigated and concluded that the damage sustained by the vessel was due to Mr. Mullales’ failure to exercise due diligence to properly manage the vessel or to maintain it in a seaworthy condition and/or that the vessel sank as a result of wear and tear, gradual deterioration, lack of maintenance, inherent vice, weathering, insects, mold, animal and marine life, or wet or dry rot.

Aspen then sent Mr. Mullales a letter denying coverage for the incident and explaining its reasons.

Mr. Mullales went to court, seeking a declaration that the investigative process employed by Aspen was “faulty as a matter of law, and that coverage be properly provided to [Mr. Mullales] for the claim at issue.” Mr. Mullales also alleged breach of the insurance contract.

In response, Aspen moved to dismiss, arguing that the case should be dismissed until the parties completed mediation pursuant to the policy.

The Aspen Policy

The Aspen policy provided:

Mandatory Non-Binding Mediation

With respect to any dispute concerning coverage or loss owed pursuant to this insuring agreement you agree to submit such dispute in the first instance to mandatory non-binding mediation. Such mediation shall be a condition precedent to any litigation between you and us. The location of the mandatory mediation shall be at a site mutually agreed by you and us and neither shall unreasonably withhold such agreement. The withholding of agreement to non-binding mediation in the city where the policy was delivered or the loss occurred shall be presumptively unreasonable and good cause must be shown for the withholding of such agreement. If the parties cannot agree on a location for the mediation, it shall take place in the jurisdiction where the loss occurred.

The cost of the mediation shall initially be borne equally by you and us. The ultimate cost may be the subject of negotiation during the mediation. If the mediation is unsuccessful, it is agreed that the cost of the mediation shall be taxed as a court cost in any subsequent litigation. The parties shall mutually agree on a mediator. If no mutual agreement is reached, then the insured shall have the right to select the mediator provided that he initially bears the full cost of the mediation. If the insured is unwilling to initially bear the full cost of mediation in exchange for the right to select the mediator, then the same right shall pass to the insurer(s).

The insurer has the right to obtain an Examination Under Oath of the insured before any mediation takes place.

Mediation shall take place within thirty (30) days of demand by either you or us provided a satisfactory proof of loss has been previously furnished and any requested Examination Under Oath has been completed. If the insured makes a demand for mediation before both satisfactory proof of loss and any requested Examination Under Oath have been completed, then mediation shall take place within thirty (30) days of the completion of both the satisfactory proof of loss and any requested Examination Under Oath.

The mediation shall be subject to a standard mediation confidentiality agreement.

The District Court’s Decision

The district court granted Aspen’s motion to dismiss, with leave to refile after the parties completed mediation.

In its decision, the district court found that the policy “clearly and unambiguously” required mediation as a condition precedent to litigation. The court added that, generally, where an agreement required mediation as a condition precedent to arbitration or litigation, the complaint “must be dismissed.”

The district court was not persuaded by Mr. Mullales’ argument that because Aspen had not requested mediation or completed an examination under oath, the mediation clause had not been properly invoked.

The district court reasoned that the policy did not require that an examination under oath be completed, but only that a requested examination under oath be completed. The district court said that it was “unaware” of any requested examination under oath.

Moreover, the district court ruled, Aspen’s motion was “sufficient to satisfy a demand for mediation” under the policy.

Finally, the district court rejected Mr. Mullales’ argument that the mediation clause was unenforceable because it failed to state a time frame by which Aspen had to demand mediation or within which the examination under oath had to be completed. It concluded that Mr. Mullales could not rely on a 2002 decision by a federal district court in Maine, Cumerberland & York Distributors v. Coors Brewing Co., No. 01-244-P-H (D. Maine Feb. 7, 2002), in which the Maine court made a “passing comment, in dicta, regarding a mediation clause that ha[d] no time limit for completion,” reasoning that the Maine court did “not analyze in any way” whether a mediation clause was unenforceable for failure to contain a time limit or lend support to that theory.

The case is Mullales v. Aspen American Ins. Co., No. 18-23661-CIV-MORENO (S.D. Fla. Nov. 29, 2018). Attorneys involved include: For Henry Mullales, Plaintiff: Carlos Alberto Ziegenhirt, LEAD ATTORNEY, Carlos A. Ziegenhirt, P.A., Miami, FL. For Aspen American Insurance Company, Defendant: Steven Eric Goldman, Goldman & Hellman, Fort Lauderdale, FL. For Aspen American Insurance Company, Counter Claimant: Steven Eric Goldman, Goldman & Hellman, Fort Lauderdale, FL. For Henry Mullales, Counter Defendant: Carlos Alberto Ziegenhirt, LEAD ATTORNEY, Carlos A. Ziegenhirt, P.A., Miami, FL.

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.