Jurisdiction Issues

REINSURANCE BROKER MAY NOT PROCEED TO INTERLOCUTORY APPEAL AFTER DISAPPOINTMENT ON MOTION FOR SUMMARY JUDGMENT

April 24, 2008 by Carlton Fields

A reinsurance broker unsuccessfully sought an interlocutory appeal from a federal district court’s denial of its motion for summary judgment. The cause of action in the case was the Pennsylvania tort of negligent misrepresentation. It was alleged that the broker presented material misinformation to an Italian reinsurer that induced the reinsurer to reinsure various property and casualty risks in the United States. The broker argued on summary judgment that, under Pennsylvania law, this tort could not apply to it, since it was not a “professional information provider.” The court denied the summary judgment motion, and the broker subsequently moved to certify the question for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). The district court denied this motion, too. After noting that interlocutory appeals are generally disfavored, the district court found that there was no controlling question of law as to which there was a substantial ground for difference of opinion (a requisite of a § 1292(b) certification). Although the broker contended that Pennsylvania law does not impose liability for negligent misrepresentation on a reinsurance broker who negligently provides information to a potential reinsurer, the district court essentially determined that this was not a per se rule, especially given that part of the service of acting as a reinsurance broker is to provide information about the risk on which a reinsurer expects to be able to rely. The court found, therefore, that it was not clear that the broker’s proposed question was “controlling.” The district court also determined that an immediate appeal would not materially advance the ultimate termination of the litigation (another requisite of certification), observing that the case was already “on the eve of trial.” For these reasons, the motion for leave to appeal was denied. United National Insurance Co. v. Aon, Ltd., Case No. 04-539 (USDC E.D. Pa. Apr. 7, 2008).

This post written by Brian Perryman.

COURT DISMISSES CASE AGAINST INSURERS ALLEGING UNDERREPORTING OF WORKERS’ COMPENSATION PREMIUMS

April 22, 2008 by Carlton Fields

The Workers’ Compensation Reinsurance Association and the Minnesota Workers’ Compensation insurance Association sued nine insurers, alleging violation of the federal RICO statute and unjust enrichment due to the intentional underreporting of the amount of workers’ compensation insurance they had written in order to minimize assessments and reinsurance premiums. Disagreeing with a Magistrate Judge, a District Judge granted a motion to dismiss, dismissing the RICO claims with prejudice and the unjust enrichment claims for lack of jurisdiction. The court found that allegations focusing on the participation of the defendants in their own business, rather than the business of an enterprise, failed to allege a RICO violation. The unjust enrichment claim failed due to the failure properly to allege diversity jurisdiction. The RICO claims were dismissed with prejudice, and the unjust enrichment claims were dismissed without prejudice. Workers’ Compensation Reinsurance Association v. American International Group, Inc., Case No. 07-3371 (USDC D. Minn. Mar. 28, 2008).

This post written by Rollie Goss.

REINSURER’S AGENT IMPROPERLY JOINED IN INSURED’S ACTION AGAINST REINSURER

April 14, 2008 by Carlton Fields

Plaintiff, First Automotive Service Corporation (“FASC”), insures extended vehicle service contracts sold to automobile dealers and vehicle owners. Defendant, Northbrook Indemnity Company, is the reinsurer for a portion of that risk, and defendant, First Colonial Insurance Company (“First Colonial”), acts as “agent” and “manager” for Northbrook. FASC filed this lawsuit in state court in mid-2007 alleging that Northbrook owed FASC in excess of $10 million for claims arising under the four placement slips. Northbrook removed the case to federal court based upon diversity jurisdiction, contending that First Colonial corporation (a Florida corporation), had been fraudulently joined to defeat diversity. In their motion to remand, plaintiffs asserted that the parties were properly named.

The Court denied plaintiffs’ motion to remand, finding that “plaintiffs provide no basis for the Court to find that First Colonial acted as other than agent for Northbrook as it pertains to the placement slips,” and that “[t]here was no express agreement alleged or established by evidence that First Colonial would be personally liable to . . . FASC as reinsurer.” As such, the court concluded that “First Colonial, as agent to insurer Northbrook, is not a proper party in plaintiffs’ declaratory judgment action because as agent it is not a party to the contract between the insured and the insurer.” First Automotive Services Corp. v. First Colonial Ins. Co., Case No. 07-682 (USDC M.D. Fla. March 25, 2008).

This post written by Lynn Hawkins.

BARBADOS REINSURER SUBJECT TO U.S. JURISDICTION

March 13, 2008 by Carlton Fields

Phencorp is a reinsurance company organized under the laws of Barbados. Phencorp is a wholly owned subsidiary of Philip Services Corporation (“PSC”), a Delaware corporation. In 2004, Central States sued Phencorp to recover funds allegedly owed to it by PSC under ERISA. After improperly serving the complaint on one of Phencorp’s former employees, the court directed that Phencorp could be properly served through its attorneys. The parties were permitted to conduct discovery on the issue of jurisdiction. This matter came before the court on Phencorp’s motion to dismiss the Complaint for lack of personal jurisdiction.

The court denied Phencorp’s motion to dismiss, concluding that although Phencorp had no employees, physical place of business or real estate in the U.S., it had sufficient contacts to support personal jurisdiction. Specifically, the court found that Phencorp had entered into at least five reinsurance agreements with fronting companies that have operations in the U.S., and that Phencorp agreed to submit disputes arising under the reinsurance contracts to arbitration in New York. Additionally, Phencorp maintained a post office box in Florida through an agent. Lastly, the court noted that Phencorp maintained a bank account in the U.S. and requested to be treated as a domestic corporation for U.S. tax purposes. Central States v. Phencorp Reinsurance Company, Case No. 04 C 5655 (USDC N.D. Ill. Jan. 11, 2008).

This post written by Lynn Hawkins.

DISTRICT COURT FINDS COMMERCIAL ACTIVITY EXCEPTION TO FOREIGN SOVEREIGN IMMUNITIES ACT NOT APPLICABLE TO ALLEGED REINSURANCE SCHEME

February 28, 2008 by Carlton Fields

In a June 7, 2007 post, we reported on a decision of the US Court of Appeals for the Second Circuit which affirmed the dismissal of claims alleging that an Indonesia state-owned social security insurer operated a reinsurance scam. The district court dismissed the claims after finding that the alleged activity was covered by the Foreign Sovereign Immunities Act, and the “commercial activity” exception to immunity did not apply. The Court of Appeals affirmed, but remanded the case for reconsideration of whether a negligent supervision claim was covered by the “commercial activity” exception. On remand, the district court has found that the negligent supervision claim does not come within the bounds of the “commercial activity” exception to immunity, and is therefore barred by the doctrine of sovereign immunity. The district court accordingly dismissed the remaining claim. Anglo-Iberia Underwriting Management Co. v. Lodderhose, Case No. 9700084 (USDC S.D. N.Y. Jan. 22, 2008).

This post written by Rollie Goss.