Page:Dollar Rent A Car of Washington v. Travelers Indemnity.pdf/3

 had violated the terms of the preliminary injunction and holding them in civil contempt.

A. Facts.

Dollar, a national car rental company, requires each of its licensees and subsidiaries who operate automobile rental businesses to carry a fixed amount of insurance coverage. In addition, landlords of the licensees and subsidiaries, such as airport authorities, may also require insurance coverage. In 1982, Dollar commenced negotiations with Travelers to provide this insurance coverage and to permit Viking of Turks and Caicos, a subsidiary of Dollar, to reinsure the business written by Travelers for Dollar licensees and subsidiaries. As a result of these negotiations, Travelers issued policies of insurance to Dollar licensees and subsidiaries, which policies provide in pertinent part: “10. Cancellation. This policy may be cancelled by [Travelers] by mailing to the named insured … written notice stating when not less than ten days thereafter such cancellation shall be effective.” In addition, a Reinsurance Agreement between Travelers and Viking was executed for the period April 1, 1982 to July 1, 1983. The Reinsurance Agreement provided in pertinent part: “[Viking] will provide at the request of [Travelers], Letter(s) of Credit under which drafts may be drawn by [Travelers] … in amount or amounts as determined by [Travelers], as security for payment of [Viking’s] obligations under this Reinsurance Agreement.” The Reinsurance Agreement further provided for arbitration “[i]f an irreconcilable difference of opinion should arise as to the interpretation of this Reinsurance Agreement.” Dollar guaranteed Viking’s performance under the Reinsurance Agreement and agreed to provide the letters of credit referred to in the Reinsurance Agreement, In June, 1982, Travelers requested and received a $500,000 letter of credit. In June, 1983, it was agreed that the Reinsurance Agreement would be extended through July 1, 1984. Travelers prepared and signed a new Reinsurance Agreement which was sent to Dollar for signature by Viking. However, the new Reinsurance Agreement was never signed by Viking. In November, 1983, Travelers requested and received a $200,000 letter of credit. In April, 1984, Travelers requested an additional $1,440,000 letter of credit. Dollar and Viking refused to provide this letter of credit on the ground that Travelers had no valid reason to demand additional security since Viking had never failed to honor its obligation to reimburse Travelers for policy losses. Thereafter, Travelers notified Dollar that it would not renew those 54 of the 90 Dollar subsidiaries or licensees whose policies with Travelers expired on July 1, 1984. On June 1, 1984, Travelers gave notice to those 54 Dollar subsidiaries or licensees that their policies would not be renewed.

Viking filed an action in the Los Angeles Superior Court to compel Travelers to arbitrate the disputes between the parties and to enjoin Travelers from making further demand for letters of credit, drawing upon the existing letters of credit and terminating existing policies issued to Dollar subsidiaries and licensees. Contemporaneously, Dollar filed an action in the Los Angeles Superior Court seeking damages and injunctive relief. Temporary restraining orders were issued in both actions but, before the motions for preliminary injunction could be heard, the actions were removed to United States District Court for the Central District of California. The actions were consolidated by order of the district court. Dollar and Viking moved the