Flexi-Van Leasing, Inc. v. Through Transport Mutual Insurance Association

Flexi-Van Leasing, Inc. (Flexi-Van) (plaintiff) leased trailer equipment used for transporting cargo containers to Cho Yang Shipping Co., Ltd. (Cho) pursuant to multiple lease agreements. Each lease agreement required Cho to have insurance covering the replacement value of the leased equipment in the event that the leased equipment was damaged. Pursuant to the provisions of the lease agreement that required insurance coverage, Cho obtained an insurance policy from Through Transport Mutual Insurance Association (TTMIA) that covered the risk of a total loss of the leased equipment. Cho’s insurance agreement with TTMIA contained an arbitration clause that required any disputes between TTMIA and Cho, including any other parties named as an insured under the policy, to be resolved through arbitration. Flexi-Van was not a named insured under the policy. After Cho failed to make payments under the lease agreement with Flexi-Van due to financial difficulties, Flexi-Van filed suit seeking to recover the leased equipment plus monetary damages. Flexi-Van obtained a default judgment against Cho, but Flexi-Van could not recover any monetary damages because Cho was effectively bankrupt. Flexi-Van became a subrogee of Cho, meaning that Flexi-Van stood in Cho’s shoes, acquired Flexi-Van’s rights under the policy, and thereby became a beneficiary of that contract. TTMIA denied the claim on the grounds that Flexi-Van was not named as an insured under Cho’s insurance policy and thus could not assert a claim directly on Flexi-Van’s behalf. Flexi-Van then filed suit against TTMIA based upon TTMIA’s denial of Flexi-Van’s insurance claim under Cho’s policy. TTMIA moved to compel arbitration and dismiss the suit on the grounds that Flexi-Van was required to arbitrate its claim pursuant to Cho’s insurance policy. The district court initially denied the motion. Upon reconsideration, the district court ordered Flexi-Van to arbitrate and dismissed the case. Flexi-Van appealed.