Guarantee Trust Life Insurance Company (“GTL”) sells health insurance to college students, and obtained reinsurance from First Student Programs, LLC (“FSP”). The reinsurance agreement required that FSP obtain reinsurance, and it purportedly reached an agreement to reinsure its risks with American United Life Insurance Company (AUL), which also provided excess reinsurance directly to GTL. When AUL failed to pay claims, GLT sued FSP for breach of the reinsurance requirement of their agreement, and FSP filed a third-party complaint against AUL. AUL moved to dismiss. In an earlier dispute between GTL and AUL, which was arbitrated, an arbitrator found that AUL was not contractually bound to provide excess reinsurance to GTL. AUL contended that this prior adjudication precluded FSP’s claim against it based upon the doctrine of res judicata.
Applying Pennsylvania law, the US District Court for the Northern District of Illinois granted AUL's motion to dismiss in part, and denied it without prejudice in part. The court determined that FSP's breach of contract action should not be dismissed because it was not clear, as a matter of law, that FSP was acting merely as an agent for GTL when it allegedly contracted with AUL so the rule that agents may not sue for contracts entered into on behalf of a principal should not be applied here. The court further held that FSP sufficiently pleaded a claim for promissory estoppel but applied Pennsylvania's “gist of the action” doctrine to dismiss the fraud claim. The court surmised that the fraud claim was inextricably tied to the breach of contract claim so it was barred as a matter of law under the doctrine. The court also dismissed the indemnification and contribution claims as they were expressly conditioned upon a finding that FSP is liable to GTL, and those parties had settled the matter as between them.
Finding that the third party excess reinsurance agreement was not actually intended to benefit FSP, the court dismissed FSP's Third-Party Beneficiary claim. AUL’s res judicata defense remains pending. Guarantee Trust Life Ins. Co. v. First Student Programs, LLC, Case No. 05-1261 (USDC N.D.Ill. Jan. 28, 2009).
This post written by John Black.