As we previously reported, the District of Connecticut in September denied a motion to transfer based on a mandatory forum selection clause in a reinsurance contract in a dispute between Applied Underwriters, Inc. and its affiliates, and Aiello Home Services (“Aiello”), over a workers’ compensation insurance product. There, the court held the forum selection clause did not bind Aiello relative to defendants other than Applied affiliate Applied Underwriters Captive Risk Assurance Company (“AUCRAC”), did not apply to Aiello’s specific claims against AUCRAC, and was generally unenforceable under Nebraska and federal law. In the present opinion, the court granted a motion for reconsideration to clarify its prior ruling, but denied the requested relief.
The court addressed whether the claims and parties are subject to the forum selection clause and whether the resisting party showed that the enforcement of the clause would be unjust or the clause was otherwise invalid.
On reconsideration, AUCRAC first argued that the claims, while not “arising out of” the contract, are “related to” the reinsurance contract. Noting that the Second Circuit interprets the language “related to” broadly, the court reaffirmed its original ruling the claims fall outside the scope of the forum selection clause. Aiello’s statutory claims concern deceptive behavior that predated the reinsurance contract and the court was unable to determine the extent to which the alleged misrepresentations induced the parties to agree to the contract, concluding that those claims were not “related to” the contract.
Despite not needing to reach the enforceability of the forum selection clause because the court held Aiello’s claims did not “relate to” the reinsurance contract, the court analyzed the clause’s enforceability to clarify statements from its September ruling. Because Second Circuit precedent for evaluating enforceability provides that federal law controls, the court clarified that although it found the forum selection clause is unenforceable under Nebraska law, it did not ground the decision on the motion to transfer on state law. The court then doubled-down on its assessment that the forum selection clause was unenforceable under federal law because of the accompanying inefficiencies and risk of inconsistent judgments. However, it specified that it was not suggesting inefficiency alone renders the clause unenforceable, but rather in the circumstances here the inefficiency constituted sufficient injustice.
Charter Oak Oil Co. v. Aiello Home Servs., Case No. 17-689 (D. Conn. Feb. 26, 2018).
This post written by Thaddeus Ewald .
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