Jurisdiction Issues

TRIO OF CASES BETWEEN INSURERS AND REINSURERS REDUCED TO TWO

April 22, 2014 by Carlton Fields

Within weeks of each other, three suits were filed involving overlapping parties and similar claims regarding arbitration of disputes arising from reinsurance agreements between Transatlantic and Continental and between Transatlantic and AIG. In one of the three suits, National Indemnity Company (“NICO”) sought a preliminary injunction in the District of Nebraska enjoining Transatlantic from compelling NICO to arbitration in the other two actions in Illinois and New York. Considering the issue of where NICO’s claims should be resolved, the Nebraska court determined that while it could enjoin Transatlantic from compelling NICO to arbitration, it did not have the authority under the Federal Arbitration Act to compel arbitration under agreements that chose Illinois and New York as the venue for arbitration. The court would not therefore be able to grant complete relief to the parties. Comprehensive resolution could only be achieved by severing NICO’s claims and transferring those relating to the Transatlantic-Continental agreement to the Northern District of Illinois and those relating to the Transatlantic-AIG agreements to the Southern District of New York. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-CV-74 (USDC D. Neb. Mar. 31, 2014).

This post written by Abigail Kortz.

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COURT SANCTIONS PARTY FOR IMPROPER REMOVAL OF ACTION SEEKING CONFIRMATION OF ARBITRATION AWARD

April 16, 2014 by Carlton Fields

The facts in Jackson v. Sleek Audio, LLC, et. al., Case No. 13-80725-CIV-Marra (S.D. Fla. March 17, 2014) stemmed from an arbitrators award against Curtis Jackson (“Jackson”) in his action against former business associates, Sleek Audio and others (“Sleek”). The arbitrator’s award included an award of attorney’s fees for which, Jackson contended, he lacked authority to award under the Federal Arbitration Act, 9 U.S.C. §1, et. seq. (“FAA”) and under Florida law.

Following the award by the arbitrator, Jackson brought an action in the Southern District of Florida seeking to vacate the arbitration award and also removed Sleek’s petition in the State Court seeking confirmation of the award. Jackson argued the arbitrator relied on the FAA’s preemption of Florida law in finding authority to award attorney’s fees and, thus, the issue of the FAA’s preemption formed the basis of the federal question jurisdiction. Sleek then moved to dismiss the action to vacate the award and to remand its own action seeking confirmation of the award. The parties agreed there was no diversity of citizenship and the federal court did not have jurisdiction under the FAA.

In its analysis of federal question jurisdiction, the Court first restated the principle that only complete preemption can convert state law claims into federal statutory claim in order to serve as a basis for federal question jurisdiction. In this case, the FAA did not completely preempt state law and thus could not form an independent basis for jurisdiction. The Jackson Court concluded that Jackson therefore did not have “an objectively reasonable basis for removal” and ordered Jackson to pay Sleek’s costs, including attorney’s fee, incurred in connection the removal proceedings.

This post written by Leonor Lagomasino.

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REINSURANCE ARBITRATION DISPUTE TRANSFERRED TO VENUES IN WHICH ARBITRATIONS WERE PENDING

April 8, 2014 by Carlton Fields

National Indemnity Company (NICO) sought an injunction in a Nebraska federal district court to prevent Transatlantic Reinsurance Company and its subsidiary (collectively, Transatlantic Re) from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. Transatlantic Re had commenced arbitrations in Illinois and New York (and initiated actions in those jurisdictions to compel NICO’s participation), pursuant to applicable forum selection clauses contained in Transatlantic Re’s reinsurance agreements with cedents. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York. The court analyzed venue provisions in the Federal Arbitration Act and different judicial approaches thereto, and concluded that Nebraska was limited in its jurisdiction over the claim. Illinois and New York were authorized under the FAA to compel arbitration if necessary, whereas Nebraska possessed jurisdiction only to enjoin NICO’s participation. Transfer, the court concluded, would promote judicial economy. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-cv-00074 (USDC D. Neb. Mar. 31, 2014).

This post written by Michael Wolgin.

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SERVICE OF SUIT ENDORSEMENT DEEMED TO WAIVE INSURER’S RIGHT TO REMOVE ACTION TO FEDERAL COURT

March 18, 2014 by Carlton Fields

A Missouri federal district court remanded a coverage action brought against Illinois Union Insurance Company (“Illinois Union”) by its insured, holding that the Policy’s Service of Suit Endorsement (“Endorsement”) waived Illinois Union’s right to remove the action to federal court notwithstanding the Policy’s Jurisdiction and Venue clause which stated that the Insurer did not waive its right of removal. The Endorsement provided that, at the insured’s request, Illinois Mutual will submit to the jurisdiction of any court of competent jurisdiction. The Endorsement also included the conspicuous statement “This Endorsement Changes the Policy, Please Read it Carefully.” Characterizing it as “meritless”, the Court rejected Illinois Union’s argument that the Endorsement did not waive Illinois Union’s right of removal because the Endorsement did not explicitly state that it substituted the Jurisdiction and Venue clause. Instead, citing principles of contract interpretation, the Court found that if the terms of the endorsement and the general provisions of the policy conflict, the terms of the endorsement prevail. The Endorsement in this case supplanted the Jurisdiction and Venue clause found in the general provisions of the policy and, therefore, waived Illinois Union’s right to remove the case to federal court. Both of these clauses are commonly found in reinsurance agreements, and this opinion illustrates that careful drafting is necessary to achieve the desired business result. Hazelwood Logistics Center, Inc. v. Illinois Union Insurance Company, No. 4:13-CV-2572 CAS (USDC E.D. Mo. Feb. 28, 2014).

This post written by Leonor Lagomasino.

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COURT STANDS BY DECISION DENYING DISMISSAL OF CASE INVOLVING REINSURANCE OF PERFORMANCE BOND

February 27, 2014 by Carlton Fields

A New York federal district court denied reconsideration of its refusal to dismiss a case for forum non conveniens or lack of personal jurisdiction, in a dispute involving reinsurance of a performance bond insuring the payment of fees for the right to administer Argentina’s postal services. The court was unpersuaded by the fact that the insured’s principal place of business and operations were located in Argentina, given that the reinsurer conducted relevant reinsurance business through its New York office. St. Paul Fire & Marine Insurance Co. v. Aseguradora de Creditos y Granatias, Case No. 1:12-cv-04627 (USDC S.D.N.Y. February 6, 2014).

This post written by Michael Wolgin.

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