Patton Boggs Reinsurance Newsletter- March 2013: Illinois Federal Court Refuses to Strike a Motion to Dismiss on Foreign Sovereign Immunities Act Grounds

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Pine Top Receivables of Ill., Inc. v. Banco de Seguros Del Estado, No. 12 C 6357, 2012 WL 6216759 (N.D. Ill. Dec. 13, 2012).

Doing reinsurance business with non-U.S. reinsurers owned by foreign governments often raises interesting issues of enforcement and collection. In this case, a receiver of an insolvent reinsurer sold and assigned its receivables from a retrocessionaire, an instrumentality of the Republic of Uruguay. The assignee sought to collect payments allegedly due or to compel arbitration. The retrocessionaire filed a motion to dismiss the cause of action to compel arbitration. The assignee moved to strike the motion to dismiss. The court denied the assignee's motion to strike.

In denying the motion to strike the retrocessionaire's motion to dismiss, the court addressed the assignee's claim that the motion to dismiss was improper because the retrocessionaire had not paid pre-judgment security as required by state law. The Illinois statute (215 ILCS 5/123) is one of the many pre-answer or pre-judgment security provisions in state insurance laws that require an unauthorized foreign or alien company to post security before it can take any action in court or arbitration. The retrocessionaire argued that the security statute did not apply because the retrocessionaire was an instrumentality of a foreign state and is immune from pre-judgment security under the Foreign Sovereign Immunities Act ("FSIA") (28 U.S.C. § 1602) and that the assignee lacked standing to make the motion.

The court found that the assignee had standing to make the motion. More importantly, however, the court held that the retrocessionaire was immune from pre-judgment security under FSIA. The court rejected the assignee's argument that the pre-judgment security requirement was not an "attachment" within the definitions of FSIA by looking to the practical effect of the security. The court also found that neither the arbitration clause nor the collateral clause in the relevant contracts resulted in an affirmative waiver of the retrocessionaire's immunity.

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