Sphere Drake Ins. Ltd. v. All Am. Ins. Co.

Sphere Drake Insurance Limited (plaintiff) hired an agent, Euro International Underwriting (EIU), to issue reinsurance policies for Sphere Drake up to a certain amount. Purporting to act on Sphere Drake’s behalf, EIU sold reinsurance policies to All American Insurance Company (defendant) that agreed to arbitrate any disputes about the policies. All American made claims under the reinsurance policies that Sphere Drake denied. Sphere Drake contended that the sales to All American had exceeded the limits of EIU’s authority, meaning that Sphere Drake had never authorized the policies. The parties agreed that whether Sphere Drake owed anything under the policies turned on whether EIU had issued them as Sphere Drake’s authorized agent. All American invoked the arbitration agreement to send the dispute to private arbitration. Sphere Drake argued that if EIU was not its agent for purposes of issuing the policies, then EIU also could not have bound Sphere Drake to the arbitration clauses in them. Sphere Drake filed a lawsuit in federal court, asking the court to first decide whether Sphere Drake was bound by the arbitration agreement before the matter was sent to arbitration. All American countered that, under the arbitration agreement’s terms, the parties had agreed that an arbitrator would decide this issue. The district court found that a court could decide this preliminary issue, and All American appealed.