## Facts

- Flexi-Van Leasing, Inc. leased intermodal chassis and generator sets to Cho Yang Shipping Co., Ltd. under multiple leases.
- The leases required Cho Yang to maintain “all risk” physical damage insurance equal to the replacement value of the leased equipment.
- Cho Yang obtained coverage from Through Transport Mutual Insurance Association, Ltd., whose policy contained a clause requiring arbitration in London.
- Cho Yang later experienced financial collapse, failed to return significant leased equipment, and became effectively insolvent.
- Flexi-Van obtained a default judgment against Cho Yang but could not collect.
- Flexi-Van submitted a claim to the Association for the missing/damaged equipment, asserting subrogation and/or third-party beneficiary rights under Cho Yang’s policy; the Association denied coverage, arguing Flexi-Van was not a named insured.
- Flexi-Van sued the Association and its U.S. manager, Thomas Miller (Americas) Inc., in the District of New Jersey under New Jersey’s direct-action statute.
- The district court, on reconsideration, compelled arbitration in London and dismissed the action, concluding the direct-action statute did not override arbitration, Flexi-Van was bound as a third-party beneficiary, and the Association was not an “unauthorized insurer” under New Jersey law.

## Issues

1. Whether New Jersey’s direct-action statute permits court litigation against the insurer despite an arbitration clause in the insured’s policy.
2. Whether a non-signatory claimant asserting rights as a third-party beneficiary and/or subrogee is bound by the policy’s arbitration clause.
3. Whether the insurer qualified as an “unauthorized insurer” under New Jersey law such that state statutory restrictions would render the arbitration clause unenforceable.

## Decision

- The Third Circuit affirmed the order compelling arbitration in London and the dismissal of the federal action.
- The court held that New Jersey’s direct-action statute did not supersede the policy’s arbitration clause.
- The court held that Flexi-Van, seeking recovery under the policy as a third-party beneficiary/subrogee, was bound by the policy’s arbitration provision.
- The court agreed that the Association was not an “unauthorized insurer” for purposes of the New Jersey statutes invoked to defeat arbitration.

## Legal Principles

- Under the Federal Arbitration Act, courts generally must enforce valid arbitration agreements according to their terms absent a clear contrary command.
- A state statute creating a direct cause of action against an insurer does not, without clear displacement of arbitration, eliminate an otherwise enforceable arbitration obligation applicable to the dispute.
- A third-party beneficiary or subrogee invoking contract benefits is typically subject to the contract’s dispute-resolution terms, including arbitration and forum-selection provisions.
- State-law limits on arbitration clauses directed at “unauthorized insurers” apply only if the insurer falls within the statutory definition; failure to meet that definition leaves the arbitration clause enforceable.

## Conclusion

The Third Circuit required Flexi-Van to arbitrate its coverage dispute in London because its claim depended on rights under the insured’s policy, which included a binding arbitration clause not displaced by New Jersey’s direct-action statute or by statutes regulating unauthorized insurers.


Flexi-Van Leasing, Inc. v. Through Transp. Mut. Ins. Ass’n, 108 F. App’x 35 (3d Cir. 2004)