Patton Boggs Reinsurance Newsletter - March 2013: A Brief Review of Reinsurance Trends in 2012: Jurisdiction and Venue

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In 2012, several courts faced the challenge of whether a foreign reinsurer is subject to the personal jurisdiction of U.S. courts and consistently held that contracting with a cedent who conducts business in a particular forum is insufficient for an insured to hale a reinsurer into a court in that jurisdiction. In Schultz v. Ability Ins. Co., No. C11-1020, 2012 WL 4794365 (N.D. Iowa Oct. 9, 2012), a policyholder brought claims in Iowa federal court against Bermuda-based reinsurance companies affiliated with the insurer relating to long term care benefits. 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 the companies did 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 failed to show 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. Further, this case also points out to Bermuda and other off-shore affiliates of U.S. companies that keeping corporate separateness and observing all the appropriate regulatory and corporate governance compliance rules is crucial to avoid being haled into court.

A similar case in California also dealt with a Bermuda-based reinsurer, with similar results. In Hollander v. XL Ins. (Bermuda) Ltd., No. B230807, 2012 WL 4748956 (Cal. Ct. App. Oct. 5, 2012), a California appeals court affirmed a trial court's order quashing service of a summons and complaint for lack of personal jurisdiction against a Bermuda insurer. The Bermuda insurer made a special appearance and moved to quash because it did not issue the policies in issue, did not do business in California, and its small number of insureds in California did not subject it to jurisdiction. The policyholder argued that the Bermuda insurer did substantial business in California and was party to a quota share reinsurance agreement that resulted in the Bermuda company's sharing in California risks. In affirming the trial court, the appellate court held that the minimal California policyholders the insurer had, and its participation in the reinsurance agreement, were too de minimis to confer jurisdiction. The court also rejected any alter ego theory.

The climate is a bit different for foreign reinsurers who choose to bring suit in the U.S. In ABA Capital Mkts. Corp. v. Provincial De Reaseguros C.A., 101 So. 3d 385 (Fla. Dist. Ct. App. 2012), a Florida state appellate court affirmed the lower court's order permitting a Venezuelan reinsurer to avail itself of the forum of its choice. The foreign reinsurer entered into a transaction with an entity incorporated in the British Virgin Islands ("BVI Entity"). The transaction involved a bond swap and off-shore investments in U.S. dollars. When the BVI Entity refused to return the bonds or transfer them to a designated custodian, the reinsurer filed suit in Florida state court. The BVI Entity moved to dismiss the complaint for forum non conveniens, arguing that Venezuela was the more appropriate forum. On appeal, the court applied a four-part analysis, reviewing 1) whether an adequate alternative forum exists; 2) relevant factors of private interest; 3) factors of public interest, where private interests are in balance or near equipoise; and 4) if the plaintiff could reinstate its suit in the alternative forum without undue inconvenience or prejudice. After noting that Venezuela was a suitable alternative forum, the appellate court turned to private interests. Although acknowledging that a plaintiff's choice of forum is generally respected, the court stated that a plaintiff's choice "is given less deference when the plaintiff is not a resident of the forum state, or has little bona fide connection to that state." The court found, however, that the main witness and president of the BVI Entity resided in Miami, the BVI Entity held the bonds in Miami and maintained bank accounts there, other witnesses had traveled from Venezuela to Miami and were able to continue to do so, and all key documents had been translated from Spanish to English. Ultimately, the court held that although the Venezuelan reinsurer was "entitled to less deference" than a plaintiff who resided in Florida, the lower court correctly denied the BVI Entity's motion to dismiss. Finding that the second factor of its analysis was not met, the court did not address the remaining factors.

Courts typically uphold contractual forum selection clauses, and forum selection for an arbitration arising out of a reinsurance dispute is no exception. In Employers Ins. Co. of Wausau v. Arrowood Indemn. Co., Nos. 12-cv-283-bbc, 12-cv-284-bbc, 12-cv-285-bbc, 2012 WL 5306152 (W.D. Wis. Oct. 26, 2012), the parties could not agree on the method for selecting arbitration panels in disputes arising from a series of reinsurance contracts. The cedent argued that venue was not proper in Wisconsin because the contracts all had New York forum selection clauses in their arbitration provisions. In transferring the cases to New York, the court agreed with the cedent and found that the forum selection clause was mandatory and must be enforced under Section 4 of the FAA. The court rejected arguments that FAA Section 5's appointment of the arbitrator or umpire provisions, which are not affected by venue, would require the case to stay in Wisconsin.