Jurisdiction Issues

BOSTON’S ‘BIG DIG’ CONSTRUCTION PROJECT LEADS TO REINSURANCE DISPUTE; COURT GRANTS MOTION TO TRANSFER

November 4, 2008 by Carlton Fields

This action stems from litigation arising from Boston’s “Big Dig” construction project. In early 2003, the Massachusetts Turnpike Authority (as manager of the project) made a claim against a subcontractor, Parsons Corporation (“Parsons”), arising from construction delays. Parsons gave notice of the claim to its liability insurer, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). The claim against Parsons was settled in November 2007 for more than $1.5 million. In April 2008, National Union demanded payment of the $500,000 alleged limit of the reinsurance contract from its reinsurer, Syndicate 1861, for indemnity under the agreement. Syndicate 1861 denied the claim.

In the instant matter, National Union filed suit against Tonicstar (the “capital provider” to Syndicate 1861) in California federal court alleging that Tonicstar wrongfully denied paying National Union the amount due to it under the contract. Tonicstar argued that National Union did not give timely notice under the agreement or fulfill its claims cooperation clause. Tonicstar also moved to transfer, stay or dismiss the suit, arguing that California was not a suitable forum and noting that a substantially similar suit was proceeding in New York.

Persuaded by Tonicstar’s argument that National Union was forum shopping, the California court granted Tonicstar’s motion to transfer the action to the Southern District of New York. National Union Fire Ins. Co. of Pittsburg v. Tonicstar Ltd., Case no. 08-03706 (USDC C.D. Cal. Aug. 20, 2008). Further information about this motion is found in a Memorandum of Law filed in the case.

This post written by Lynn Hawkins.

CASE UPDATE: COURT RULES ON JURISDICTION AND DISMISSAL ISSUES IN THE HUNTSMAN/INTERNATIONAL RISK INSURANCE LAWSUITS

October 22, 2008 by Carlton Fields

We previously posted on May 14, 2008 about a group of reinsurers’ successful effort to transfer venue in a casualty coverage dispute. In an update to that litigation, the transferee court ruled on four motions in two related lawsuits: a motion to remand the transferred lawsuit to state court; a motion to enjoin related state court litigation; a motion to dismiss for lack of subject matter jurisdiction; and a motion to dismiss for failure to state a claim. Initially, the court found that remand should be denied because it had federal question jurisdiction under the New York Convention, 9 U.S.C. § 201 et seq. Specifically, jurisdiction was proper because arbitration agreements between citizens of foreign countries and citizens of the United States were implicated. This opinion also addresses the interesting question of whether the parties should be realigned for purposes of evaluating diversity of citizenship. Huntsman Corp. v. International Risk Ins. Co., Case No. 08-1542 (USDC S.D. Tex. Sept. 26, 2008). The motion to enjoin the state court litigation was denied as moot because, by the time of the rulings, the state case had been removed and was the subject of the decided motion to remand. Ace American Ins. Co. v. Huntsman Corp., Case No. 07-2796 (USDC S.D. Tex. Sept. 26, 2008). The motion to dismiss for lack of subject matter jurisdiction was denied. The principal thrust of that motion was that the defendant’s (International Risk Insurance Company) liability to its co-defendant (Huntsman) under an insurance policy had not yet been determined; however, the court found that this did not warrant dismissal of the reinsurers’ claim to compel arbitration with IRIC because, among other things, the reinsurers’ liability to IRIC under reinsurance certificates was intertwined with IRIC’s demand that the reinsurers accept the defense of IRIC’s lawsuit against Huntsman in related litigation. Finally, the court denied Huntsman’s motion to dismiss the reinsurers’ claim to compel arbitration, and to dismiss the reinsurers’ claim for declaratory relief. Ace American.

This post written by Brian Perryman.

FEDERAL APPELLATE COURT AFFIRMS STAY IN CASE INVOLVING PARALLEL STATE PROCEEDING

October 21, 2008 by Carlton Fields

Although this case does not directly address reinsurance or arbitration issues, it may be of interest to our readers, as it is a federal appellate opinion covering the relationship between parallel proceedings in federal and state court. Specifically, the Eleventh Circuit affirmed a district court’s decision to grant the defendant’s motion to stay pending a state court action involving the same issues. Plaintiff, Great Lakes Reinsurance (UK) PLC, appealed the ruling arguing that the lower court: (1) failed to apply the proper test governing whether to stay a declaratory judgment action; and (2) failed to give sufficient weight to the fact that the uniquely federal issues of admiralty law were central to the federal case.

The Eleventh Circuit disagreed with both arguments, and affirmed a stay of the case pending the resolution of the state court case. In Ameritas Variable Life Ins. Co. v. Roach, the Eleventh Circuit set forth nine factors that a court should consider in determining whether to accept or decline jurisdiction under the Declaratory Judgment Act when a related state action is pending. Although the district court did not expressly cite to the Ameritas case, the Eleventh Circuit found that the district court did sufficiently address certain prongs of the test. Additionally, the Eleventh Circuit concluded that the fact that the case involved admiralty law issues did not control the district court’s decision whether to stay the case. Great Lakes Reinsurance v. TLU Ltd., No. 08-11588 (11th Cir. Oct. 10, 2008).

This post written by Lynn Hawkins.

MCCARRAN-FERGUSON ACT DOES NOT PERMIT STATE LAW TO INVALIDATE CONTRACTUAL PROVISION FOR ARBITRATION UNDER INTERNATIONAL TREATY

October 14, 2008 by Carlton Fields

Plaintiff Louisiana Safety Association of Timbermen – Self Insurers (“LSAT”) filed an action in federal district court in Louisiana seeking to enforce the assignment of a reinsurance contract entered into between its predecessor in interest, Safety National Casualty Corporation (“SNCC”), and SNCC’s reinsurer, Certain Underwriters at Llloyd’s, London (“Lloyd’s”). Lloyd’s refused to recognize the attempted assignment by SNCC to LSAT of SNCC’s rights under the reinsurance contract on the ground that the reinsurance pertained to underlying personal injury claims under workers compensation insurance, and thus were non-assignable rights.

Lloyd’s sought, in response to LSAT’s suit, an order referring the matter to arbitration, as required under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). The Convention, an international treaty, requires that courts of signatory states “shall, at the request of one of the parties, refer the parties to arbitration. . .” LSAT contended that a Louisiana statute barring mandatory arbitration provisions in insurance contracts reverse-preempted the Convention, under the McCarran-Ferguson Act. The district court granted summary judgment to LSAT, finding that the Louisiana statute supersedes the Convention. Lloyd’s appealed. The Fifth Circuit reversed, holding that while McCarran-Ferguson reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. Safety Nat’l. Cas. Corp. v. Certain Underwriters at Lloyd’s, London, et al., No. 06-30262 (5th Cir. Sept. 29, 2008).

This post written by John Pitblado.

ILLINOIS APPELLATE COURT AFFIRMS STAY OF STATE COURT DECLARATORY JUDGMENT ACTION PENDING INTERNATIONAL ARBITRATION

August 25, 2008 by Carlton Fields

Boeing insured satellites it manufactured partly through a Bermuda captive, which reinsured 100% of the risks, partly through Lloyds’ syndicates, which syndicates also assumed part of the risk as direct insurers. When a satellite sold to a Middle Eastern company failed, an arbitration was commenced under the auspices of the International Chamber of Commerce in Paris, France, with the governing law being the civil laws of Abu Dhabi, United Arab Emirates. The rules of that proceeding provided for limited discovery. The Lloyds’ syndicates filed a declaratory judgment action against Boeing in Illinois state court, seeking a declaration of their obligations as both direct insurer and reinsurer. The court stayed the lawsuit pending the outcome of the arbitration. The court of appeals affirmed, finding that the action was premature prior to the determination of liability in the arbitration, and that it was an improper attempt to obtain discovery for use in the arbitration. The dual roles of some of the parties in the two proceedings played an important role in the decision. This opinion presents a very interesting analysis of the interface between these two proceedings. Certain Underwriters at Lloyds’ v. Boeing, No. 1-07-1667 (Ill.Ct.App. Je. 30, 2008).

This post written by Rollie Goss.