Reinsurance Focus

Plaintiff, Midwest Employers Casualty Company (“MECC”) filed an action to bar Legion Insurance Company (“Legion”) from arbitrating forty-three reinsurance contracts, which MECC claimed did not contain arbitration provisions. MECC also sought a declaration of its liability under those contracts. Legion filed a motion to dismiss on four separate grounds. The court denied the motion to dismiss.

First, Legion, which is in liquidation, argued that because the Pennsylvania court had in rem jurisdiction over its assets, the Missouri federal court could not exercise jurisdiction. The court disagreed, finding that while the liquidation action was in rem, the present action was in personam. Second, Legion argued that the case was “reverse preempted” by the McCarran-Ferguson Act. The court disagreed on the basis that the ultimate issue in the case was a standard contract dispute, and did not involve the state’s regulation of insurance. Third, Legion argued that the court should abstain from deciding the case under Burford v. Sun Oil Company. In Burford, the Supreme Court held that abstention is appropriate where “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” The district court concluded that abstention under Burford was not appropriate because this case did not affect complex state administrative processes and would not impair the liquidation process. Finally, Legion argued that full faith and credit and the principle of comity required the court to defer to the liquidation proceedings. The court disagreed, finding that those principles did not prevent its exercise of jurisdiction. Midwest Employers Casualty Co. v. Legion Ins. Co., Case No. 4:07-cv-00870, (USDC E.D. Mo. Nov. 11, 2007).