Carlton Fields

This case arose from an interpleader action in the federal district court in Minnesota. Benchmark Insurance Co. appointed Sunz Insurance Co. to underwrite and issue large-scale deductible workers’ compensation insurance policies. The policies required the insured to post sufficient cash or cash-equivalent collateral to secure the insured’s obligations for claims within the deductible. Benchmark and Sunz entered into a reinsurance contract that required Benchmark to cede to Sunz all premiums and losses on the policies that Sunz issued on Benchmark’s behalf. Sunz thereafter informed Benchmark that Benchmark was holding too much deductible collateral and demanded it be released to Sunz. Benchmark calculated it was holding approximately $20.5 million in excess collateral of a number of its insureds.

On June 3, 2020, the district court ordered Benchmark to deposit those interpleader funds with the court’s registry. Most of the insureds named in the interpleader complaint disclaimed their interest in the funds, and the funds were subsequently withdrawn by Sunz. Certain insureds who did not disclaim their interests filed counterclaims against Benchmark, some of which also filed cross-claims against Sunz for breach of contract, asserting that the program agreements between each cross-claimant and Sunz were superseded by the insurance policies issued by Sunz to the cross-claimants and thus excluded the program agreement from application. The program agreements each required any dispute arising out of the program agreement to be submitted to binding arbitration.

In July 2020, Sunz moved to dismiss the cross-claims, or in the alternative, to compel arbitration. On February 23, 2021, the district court denied Sunz’s motion. Sunz appealed the portion of the February 23 order denying the motion to compel arbitration to the Eighth Circuit and moved before the district court to stay the entire action pending the appeal. Cross-claimants conceded that the matter should be partially stayed but that the district court should allow the parties to litigate whether the cross-claimants were entitled to the interpleaded funds.

In determining whether to grant a stay, the district court conducted a balancing test of the following four factors:

  • Whether the stay applicant has made a showing that it is likely to succeed on the merits;
  • Whether the applicant will be irreparably injured absent a stay;
  • Whether issuance of the stay will substantially injure the other parties interested in the proceeding;
  • Where the public interest lies.

The district court found that the factors weighed in favor of a stay, particularly because allowing the parties to litigate the issue of entitlement to the interpleaded funds risked inconsistent rulings and potential costs that should not be expended while the Eight Circuit resolved the issue of whether such issues will be arbitrated.

Benchmark Insurance Co. v. Sunz Insurance Co., No. 0:20-cv-00908 (D. Minn. May 12, 2021).