Patton Boggs Reinsurance Newsletter - March 2013: A Brief Review of Reinsurance Trends in 2012: Choice of Law

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An Illinois state court held that a contractual provision for choice of law in arbitration has no bearing on a choice of law determination outside of the arbitration context. In Amerisure Mut. Ins. Co. v. Global Reinsurance Corp. of Am., No. 10 L 012665 (Ill. Cir. Ct. Nov. 7, 2012), the court dismissed a cedent's complaint seeking attorney fees for a reinsurer's alleged unreasonable failure to settle a claim. The cedent submitted a claim to the reinsurer, which the reinsurer refused to pay. Under an arbitration clause in the reinsurance contract, the parties commenced arbitration in Illinois and applied Illinois law. Following the arbitration, the cedent filed suit seeking attorney fees under state law after an appeals court ruled that the arbitration panel exceeded its authority in awarding attorney fees, and the lower court erred in confirming that award. The court dismissed the cedent's complaint because under a choice of law analysis, New York law, not Illinois law, applied, and New York law does not provide for attorney fees when an insurer fails to settle a claim. The reinsurance contract did not have a choice-of-law clause applicable to litigation. The only choice-of-law clause in the reinsurance contract governed the applicable law in arbitration. As a result, the court applied a two-step choice of law analysis. First, the outcomes would differ if New York or Illinois law applied because only the Illinois Insurance Code, and not New York law, provides for attorney fees when a reinsurer unreasonably fails to settle a claim. Second, New York had more significant contacts because the reinsurer was a New York company, and the place of performance and last act under the reinsurance contract was either in New York or Michigan. The court found that the Illinois contacts were that the cedent had an Illinois attorney and the arbitration took place in Illinois. Despite Illinois' interest in discouraging alleged unreasonable conduct by insurers, the court held that New York had the most significant contacts and that New York law applied. As such, under New York law, the cedent could not recover attorney fees from the reinsurer.