Patton Boggs Reinsurance Newsletter - December 2012: Iowa Federal Court Dismisses Claims Against Bermuda Reinsurance Affiliates

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Schultz v. Ability Ins. Co., No. C11-1020, 2012 WL 4794365 (N.D. Iowa Oct. 9, 2012).

In this long term insurance benefits dispute, claims were brought by the policyholder against Bermuda-based reinsurance companies affiliated with the insurer.  The Bermuda companies (and others) filed a motion for judgment on the pleadings.  In addressing whether the court had personal jurisdiction over the Bermuda companies, the court found that there were no direct contacts with Iowa, no offices or employees in Iowa, and that they do not conduct business in Iowa.  Although the policyholder pointed out that nearly 75 percent of the insurer’s risk was reinsured in Bermuda, the court held that the policyholder had not made out a prima facie case showing that the insurer was the alter ego of the Bermuda companies or acted as their agent.  The court stated that “[w]hile one can question the wisdom of regulators permitting [the insurer] to purchase reinsurance from a member of the same corporate family, it does not render the contractual relationship a ‘sham’ or otherwise make [the Bermuda companies] susceptible to suit in Iowa.”

Piercing the corporate veil and proving an alter ego corporate theory is very difficult as this case shows.  What this case also points out to Bermuda and other off-shore affiliates of U.S. companies is that keeping corporate separateness and observing all the appropriate regulatory and corporate governance compliance rules is crucial to avoid being haled into court.

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