Insurers v. Gen. Elec. Int’l, Inc., 2023 U.S. Dist. LEXIS 68521 (N.D. Ga. Mar. 17, 2023)

Issue Discussed: Compel Arbitration

Submitted by Fielding Huseth, Raquel Pearkes, Elvis Mugisha

Date Promulgated: July 23, 2023

In 2019, a catastrophic equipment failure at the Hadjret En Nouss Power Plant located in Tipaza, Algeria owned by Shariket Karhraba Hadjret En Nouss (“SKH”) caused tens of millions of dollars in alleged business interruption losses and property damages. The defective equipment was designed, manufactured, and installed by various General Electric companies (“GE”), whom allegedly held themselves out to the insured and others as capable of safely designing, manufacturing, and installing
the gas turbine blade, which ultimately malfunctioned and caused the damage. SKH received partial reimbursement from its direct insurer, which in turn received partial reimbursement from its reinsurers and retrocessionaires (collectively, the “Insurance Entities”). The Insurance Entities, acting as SKH’s
subrogees, then filed suit against GE seeking reimbursement of losses incurred in connection with the equipment failure.

The power plant was constructed by SNC-Lavalin Constructeurs International Inc. (“SNC”), which served as the plant’s operator pursuant to an operation and maintenance contract with SKH that contained an arbitration provision. (SNC also was SKH’s majority owner.) SNC and GE also had services,
supply, and coordination contracts containing arbitration provisions. The arbitration clause in the services contract (“Services Contract”) for example, stated in part: “The Parties agree that any or all disputes arising from this Agreement or concerning it…shall be definitively resolved on the basis of
the Conciliation and Arbitration Rules of the International Chamber of Commerce….” No contract existed between SKH and GE.

Upon notice of the subrogation action, GE moved to compel arbitration under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”).
In doing so, GE asserted that the contracts with SNC, or SNC’s contract with SKH, sufficed to compel
Plaintiffs to submit to arbitration based on third-party beneficiary and estoppel theories.

The court concluded that the Services Contract conferred a benefit on the Insurance Entities. Specifically, it provided a warranty that appeared to cover the gas turbine incident. The court held, therefore, that the Insurance Entities were third-party beneficiaries of the contract. The court further held that the Insurance Entities were estopped from denying enforcement of the arbitration provision in that contract because they benefited from the warranty in the same contract.

The Insurance Entities separately argued that GE could not compel arbitration because the scope of the arbitration provision between SNC and GE did not cover the current matter. The court, however, held that the arbitrators would need to decide that issue because the arbitration clause delegated
the question of arbitrability to the arbitrators.