Reinsurance Focus

The plaintiff, Huntsman, took out a casualty insurance policy with the defendant, International Risk Insurance Company (“IRIC”), a captive insurer that had been formed for the sole purpose of insuring Huntsman’s companies through the reinsurance market. IRIC then entered into separate reinsurance agreements with a group of reinsurers. After a fire at its ethylene plant, Huntsman submitted claims to the reinsurers and received payments totaling $305 million. However, a dispute arose concerning Huntsman’s right to receive additional payments under the casualty policy and the reinsurance certificates, and the reinsurers filed a lawsuit in the United States District Court for the Southern District of Texas seeking an order compelling arbitration or, in the alternative, declaring that Huntsman was not entitled to coverage for certain claimed items. After the reinsurer’s lawsuit was filed, Huntsman filed its own lawsuit in the state district court for Jefferson County, Texas, seeking a judicial declaration that IRIC was obligated to pay the amounts demanded by Huntsman. In turn, IRIC tendered the defense of Huntsman’s state court lawsuit to the reinsurers. When this tender was rejected, IRIC filed a third-party petition against the reinsurers in the state suit. The reinsurers then removed the state suit to the United States District Court for the Eastern District of Texas, and moved to transfer the removed suit for consolidation with its own ongoing suit in the Southern District of Texas.

The motion to transfer venue was granted. The court cited the “first-to-file” rule, which states that when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap. The court found that both lawsuits involved the same parties, same loss and same underlying insurance policy. The central dispute in both cases was whether Huntsman was due additional sums under the policy and reinsurance certificates. Each case also involved an interpretation of the dispute resolution provision contained in the certificates. The court rejected Huntsman’s argument that the first-to-file rule should not apply because the reinsurer’s suit was filed in anticipation of Huntsman’s suit. The court observed that the first-to-file rule not only determines which forum may decide the merits of the case, but also which forum should decide whether a later suit should be dismissed, stayed or transferred and consolidated. Huntsman Corp. v. International Risk Insurance Co., Case No. 08-CV-029 (USDC E.D. Tex. Apr. 22, 2008).

This post written by Brian Perryman.