Patton Boggs Reinsurance Newsletter- March 2013: Texas Appellate Court Concludes that Foreign Country Judgments Assessing Costs against an Insurer Are Enforceable Under Foreign Country Money-Judgments Statute


New Hampshire Ins. Co. v. Magellan Reins. Co. Ltd., 02-00334-cv, 2013 WL 105654 (Tex. App. Jan. 10, 2013).

A Texas intermediary appellate court affirmed a trial court's denial of an cedent's motion for nonrecognition of certain foreign country judgments. Following the dismissal of a suit brought by the cedent against a reinsurer in the Turks and Caicos Islands ("TCI"), the reinsurer obtained two "judgments" assessing costs against the cedent. The reinsurer then sought to enforce the judgments in Texas, and the cedent moved for nonrecognition.

The cedent contended that the "judgments" were not "judgments on the merits" arising from a cause of action asserted by the reinsurer, because they provided for taxation of costs only. Rejecting this argument, the Texas appellate court held that the Uniform Foreign Country Money-Judgment Act, as implemented in Texas, does not restrict a defendant's ability to enforce a foreign judgment to only those cases where the defendant has prevailed on its own cause of action. The cedent also asserted that the cost assessments were not "judgments" because they were entered by TCI court personnel other than the TCI justices who ruled on the substantive issues of the cedent's action. In response, the Texas court observed that under the law of the United Kingdom (relevant because TCI is a British overseas territory), the term "judgment" includes cost assessments, and further cited a number of U.S. cases where "later-determined cost assessments" were recognized as "judgments" under the Uniform Foreign Country Money-Judgment Act. The court, however, cautioned that its ruling was driven by the facts of the case, and its opinion "should not be construed as holding that in every case, a cost assessment from a foreign country court will be enforceable as a judgment."

Finally, the cedent contended that the "loser pays" principle (the "English rule") is intended to punish unsuccessful litigants, and therefore cost assessments are properly regarded as "penalties," which are expressly excluded from the definition of "foreign country judgment" under the Act. Rejecting this argument, the court cited authority reasoning that the English rule is designed to compensate a defendant that is forced to defend the suit, rather than penalize the losing plaintiff. Further, the court observed that a judgment is considered "penal" when "its purpose is to punish an offense against the state," but not when it simply affords a "private remedy" to a wronged party. Accordingly, the court affirmed the trial court's order denying the cedent's motion for nonrecognition.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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