Jurisdiction Issues

FEDERAL COURT REMANDS CITING SERVICE OF SUIT CLAUSE

May 15, 2013 by Carlton Fields

Plaintiff Insurance Company of the State of Pennsylvania (“INSCOP”) brought suit in New York state court against TIG, its reinsurer, alleging it breached six different facultative reinsurance agreements. TIG removed to federal court. INSCOP moved to remand, citing the service of suit clause which, though not quoted in the opinion, presumably authorized service of suit in New York. TIG argued that only some of the agreements contained the clause, but the court found there were no competing service of suit clauses for other jurisdictions, and that the absence of the clauses in some of the treaties did not overcome the presumption in favor of remand where the limits of federal court jurisdiction are at issue. Insurance Co. of the State of Pennsylvania v. TIG Insurance Co., No. 12-CV-6651 (USDC S.D.N.Y. March 11, 2013).

This post written by John Pitblado.

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TRUSTMARK NOT LIABLE FOR FAILING TO OBTAIN SETOFF IN LONG-RUNNING BATTLE OVER RETROCESSION AGREEMENTS

April 17, 2013 by Carlton Fields

A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).

DECLARATORY RELIEF ACTION REJECTED AS A MEANS TO CHALLENGE INTERLOCUTORY ARBITRATION ORDERS FOR LACK OF “RIPENESS”

February 25, 2013 by Carlton Fields

In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

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Court Sua Sponte Orders Reinsurer to Submit Copies of Contracts to Prove Proper Forum

February 22, 2013 by Carlton Fields

An Illinois federal court sua sponte ordered R&Q Reinsurance Co., the plaintiff in a newly filed case, to provide copies of the contracts at issue, based on the complaint reflected that neither party resided in Illinois for jurisdictional purposes, although the complaint alleged that the contracts were negotiated and would be administered in Illinois. The Court ordered production of the contracts under the suspicion that they contained forum selection or choice-of-law clauses. R&Q Reinsurance Co. v. Sentry Insurance, No. 12 C 9788 (USDC N.D. Ill. Dec. 12, 2012).

This post written by John Pitblado.

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COURT DECLINES TO ORDER PREJUDGMENT SECURITY FROM A FOREIGN NATIONAL DOING REINSURANCE BUSINESS

February 20, 2013 by Carlton Fields

Pine Top Receivables LLC (“PTR”) was formed when a buyer purchased the assigned rights under certain reinsurance contracts from the Illinois liquidator handling the Pine Top Insurance Company receivership. PTR then brought suit against reinsurer Banco De Seguros Del Estados, which had entered into reinsurance contracts with Pine Top. PTR alleged that Banco owed more than $2,000,000 in overdue balances on the contracts. PTR’s suit sought to compel arbitration. Banco filed a motion to dismiss on jurisdictional grounds. PTR moved to strike the motion, on the grounds that Banco had not paid prejudgment security under Illinois’ statute requiring security by a nonresident reinsurer. Banco resisted the motion, asserting that the Foreign Sovereign Immunities Act prohibited the assessment of any “attachment” on a foreign governmental entity. The Court agreed with Banco, finding that it is a government instrumentality of the Republic of Uruguay, and that pre-judgment security under the statute was effectively an “attachment” as the term is used in the Act. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estados, No. 12 C 6357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by John Pitblado.

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