Reinsurance Focus

Two recent opinions illustrate the need to assess jurisdiction when proceeding in arbitration-related matters. The Seventh Circuit Court of Appeals recently held that it did not have appellate jurisdiction over an arbitration dispute involving a collective bargaining agreement for interstate truckers. Since appellate jurisdiction was predicted on a jurisdictional grant in the Federal Arbitration Act, 9 U.S.C. §16(a)(1), and 9 U.S.C. §1 exempts from the FAA’s scope employment agreements involving interstate commerce, the court found, after a remand for fact finding, that it did not have jurisdiction under 9 U.S.C. §16 because the dispute involved truckers working in interstate commerce, and dismissed the appeal for lack of jurisdiction. International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast LLC, No. 11-2097 (7th Cir. Dec. 13, 2012).

Of perhaps more interest to reinsurance practitioners, one party in a reinsurance arbitration filed an action in United States district court in Wisconsin seeking a declaration that the law firm representing the opposing party could not represent the opposing party in an arbitration pending in New York due to a conflict of interest. Jurisdiction was predicated on diversity of citizenship and amount in controversy. The court raised a question of subject matter jurisdiction on its own, and determined that the amount in controversy was not measured by the amount in dispute in the arbitration, but rather by the cost of replacing counsel, and that there was no good faith basis for believing that the cost of replacing counsel would satisfy the jurisdictional requirement of $75,000. The court therefore remanded the case to state court on its own motion. National Casualty Co. v. Utica Mutual Insurance Company, Case No. 12-657 (USDC WD Wis. Dec. 12, 2012).

This post written by Rollie Goss.

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Plaintiff and defendant were parties to a contract under which dispute arose and arbitration was demanded. Plaintiff filed an action in state court seeking to disqualify defendant’s counsel due to an alleged conflict of interest. Defendant removed to federal court. The federal court sua sponte raised the issue of whether the amount in controversy requirement for a diversity action was satisfied. After briefing on the issue, the court held that the requirement was not met, and that the exposure in the underlying arbitration was not the appropriate measure for amount in controversy, but rather only the financial impact of having counsel disqualified and retaining new counsel was implicated. The removing defendant failed to establish the requirement and remanded the case to state court. National Casualty Co. v. Utica Mutual Insurance Co., No. 12-cv-657-bbc (USDC W.D. Wis. Dec. 12, 2012).

This post written by John Pitblado.

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Plaintiffs, five Lloyd’s of London underwriters, filed suit in Ohio federal court seeking a declaration that an alleged reinsurance agreement between them and defendant Stonebridge Casualty Insurance Company’s predecessor in interest was invalid because plaintiffs had no knowledge of it. Plaintiffs’ Ohio action was filed after Stonebridge had successfully moved in Florida federal court to compel arbitration of disputes arising under the agreement. Stonebridge moved to have the Ohio action transferred to Florida or dismissed. In response, plaintiffs argued that the Florida court lacked jurisdiction due to the presence of an Ohio forum selection clause in the reinsurance agreement. The court found that this clause did not strip the Florida court of its diversity jurisdiction. The court chastised plaintiffs for attempting to rely on a forum selection clause in a contract that they had not even acknowledge existed. The Ohio court similarly rejected plaintiffs’ argument that venue was improper in Florida, given that many of the relevant negotiations occurred in Florida, and key witnesses and documents were located in Florida. Certain Underwriters at Lloyd’s, London v. Stonebridge Casualty Insurance Co., Case No. 2:12-cv-160 (USDC S.D. Ohio Dec. 12, 2012).

This post written by Ben Seessel.

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We previously posted on a putative class action filed in federal court in California alleging violations of the Real Estate Settlement Procedures Act in the placement of private mortgage insurance and its reinsurance with captive reinsurance companies. After partially lifting a stay put in place pending a deicison by the United States Supreme Court in a pending case, the district court has dismissed, with prejudice, claims against what it terms non-contracting parties, finding that the plaintiff lacked standing to bring such claims and that, in the alternative, the claims were barred by the applicable statute of limitation. The court found that the Complaint at best alleged parallel threads of misconduct rather than an overall “captice reinsurance scheme.” Claims against other defendants were dismissed with leave to amend. McCarn v. HSBC USA, Inc., Case No 12-375 (USDC ED Cal. Nov. 13, 2012).

This post written by Rollie Goss.

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Continental Casualty Company sold its crop insurance book of business to IGF Insurance Company, which subsequently sold the business to Acceptance Insurance Companies. Continental asserted claims against IGF, its affiliates, and certain of its officers and directors, alleging that $24,000,000 that Acceptance paid IGF to purchase the business had been illegally diverted to IGF affiliates and IGF officers and directors, rendering IGF unable to pay its significant debt to Continental. The court found that IGF had illegally diverted the $24,000,000 and, further, that certain of its officers and directors were jointly and severally liable for the debt owed to Continental. More than two years later, these officers and directors filed a motion to amend the court’s findings of fact and conclusions of law and for entry of judgment in their favor. The court rejected the directors’ request in substance, amending only an inconsequential finding of fact. IGF Insurance Co. v. Continental Casualty Co., Case No. 1:01-cv-799-RLY-MJD (S.D. Ind. Nov. 14, 2012).

This post written by Ben Seessel.

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An appellate court upheld the denial of dismissal of a lawsuit relating to certain offshore bond transactions (made in U.S. Dollars) between a Venezuelan reinsurer and a British Virgin Islands company, finding that Florida was a proper forum for the case. The reinsurer filed suit in Florida, a state in which the defendant had a business address, and the defendant moved to dismiss, contending that Venezuela, rather than Florida, was the proper forum. The lower court denied the motion and the appellate court affirmed, holding that the defendant failed to meet its burden of establishing that all of the following four factors were met to show improper forum: (1) adequate alternative forum; (2) private interests; (3) public interest; and (4) inconvenience/prejudice. While it was undisputed that Venezuela was an adequate alternative forum, the court held that private interests, such as access to evidence and witnesses, adequate enforcement of judgments, and expense, did not balance in the defendant’s favor. ABA Capital Markets Corp. v. Provincial De Reaseguros C.A., Case No. 3D12-130 (Fla. Ct. App. Nov. 7, 2012).

This post written by Michael Wolgin.

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A Florida appellate court affirmed a ruling denying a motion to dismiss based on claims of improper forum. ABA Capital Markets Corporation, a foreign entity based in the British Virgin Islands, was sued in Florida state court by Venezuelan reinsurer Provincial De Reaseguros, in connection with payment disputes arising from the parties’ bond trades and other off-shore investment transactions. Addressing common law factors, the Court found that (1) Venezuela would have been an adequate alternative forum; but that (2) private, practical interests, including the residence of some key witnesses in Florida, militated against transfer to another forum or dismissal; (3) public interests, including ABA’s connection to the forum, militated against transfer or dismissal; and (4) inconvenience/prejudice to the parties were not factors. ABA Capital Markets Corp. v. Provincial De Reaseguros C.A., No. 3D12-130 (Fla. Ct. App. Nov. 7, 2012).

This post written by John Pitblado.

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In a dispute over a long-term care insurance contract, a court rejected the plaintiff’s allegation that five defendants “are an association of entities acting together for the purpose of providing long term care insurance under the name Ability Insurance and also act as the alter egos and/or agents of each other.” The defendants are Ability Reinsurance Holdings (a Bermuda-based holding company) and 4 subsidiaries, including Ability Resources Holdings, Ability Insurance (U.S. insurer), Ability Reinsurance (Bermuda-based captive reinsurer) and Ability Resources, Inc. The court granted a motion for judgment on the pleadings in favor of the Bermuda-based holding company, the Bermuda-based captive reinsurer, and Ability Resources Holdings for lack of personal jurisdiction based on the determination that they do not act as an alter ego for Ability Insurance. The court held that while regulators permitted Ability Insurance to purchase reinsurance from a member of the same corporate family, that fact “does not render the contractual relationship a ‘sham’ or otherwise make Ability Reinsurance (Bermuda) susceptible to suit in Iowa.” The court also dismissed the claims against Ability Resources, Inc., holding that simply alleging that Ability Resources is the alter ego of Ability Insurance, “without more,” failed to satisfy federal pleading requirements. Schultz v. Ability Insurance Co., Case No. 2:11-cv-01020-JSS (USDC N.D. Iowa Oct. 9, 2012).

This post written by Abigail Kortz.

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Howden North America, Inc., a subsidiary of the Howden Group, Ltd. (“HNA”), manufactures equipment for the petrochemical, steel, mining, and cement production industries. HNA faces liability for asbestos exposure which allegedly caused personal injuries, from the 1960s through the 1990s. HNA looked to its insurers, which resulted in dispute with certain of its excess liability carriers. In 2009, HNA brought suit in Pennsylvania federal district court, seeking declaration as to the construction of the insurance policies at issue. In 2011, HNA joined a separate coverage action also pending in Pennsylvania and implicating some of the same policies and coverage layers, brought by a different primary policy holder. Meanwhile, in 2010, one of the excess carriers brought suit in the London High Court of Justice, seeking declarations involving some of the same policies at issue in the two Pennsylvania actions. In June 2012, the Pennsylvania court held, among other things, that English law does not apply, and denied motions to dismiss by the foreign defendants under the premise of forum non conveniens.

The British court has now held that English law governs with respect to one subset of the policies at issue, and that it is the appropriate court to hear those claims. It noted that because the British case is further along in terms of discovery, that it could be tried sooner and more efficiently. The British court also considered the problem of inconsistent judgments in the parallel proceedings, but held that “this is a position which the court in each country must accept.” As to the other subset of policies, the British Court declined to exercise jurisdiction, based on a lack of justiciability. Ace European, Ltd. v. Howden Group. Ltd., [2012] EWHC 2427 (High Court of Justice, Queen’s Bench Division, Commercial Court Sept. 17, 2012).

This post written by John Pitblado.

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The Fourth Circuit issued an opinion “preserving the United States’ ability to speak with one voice” in regulating foreign arbitrations. ESAB Group argued that a South Carolina statute “reverse preempts” federal law pursuant to the McCarran-Ferguson Act which is directed at protecting state insurance regulation by implied preemption by federal domestic commerce legislation. In particular, the Court of Appeals considered whether McCarran-Ferguson applied such that state law can reverse preempt federal law to invalidate a foreign arbitration agreement mandating dispute resolution before Swedish tribunals. The court concluded that the federal government articulated a uniform policy in favor of enforcing agreements to arbitrate internationally (through a treaty and its enacting regulations) even when a contrary result would be forthcoming in a domestic context. Thus, insurance disputes were not exempted from the treaty, which controlled. In addition, the Court of Appeals held that the district court properly exercised personal jurisdiction over Zurich Insurance, and that the court was within its rights to remand nonarbitrable claims to state court. ESAB Group, Inc. v. Zurich Insurance PLC, No. 11-1243 (4th Cir. July 9, 2012).

This post written by John Black.

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