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Massachusetts Courts Limit Ability of Cedents to Gain Jurisdiction Over Forein Insurers

by ~ Michael F. Aylward (Email) (Web Site)

Even as an increasing number of reinsurance actions are being filed in Boston, our state and federal courts are reminding cedents of the difficulties that they may face in gaining jurisdiction over foreign reinsurers. Herewith a cautionary tale.

In OneBeacon America Insurance Company v. Argonaut Insurance Company, No. 09-5085 (Mass. Super. Nov. 9, 2011), OneBeacon filed suit against various foreign reinsurers on behalf of the Employers Liability Assurance Corporation (�ELAC￁), a British-based insurer operating out of London with a U.S. branch headquartered in Boston. In late 1967, the London office of Willis Faber telexed ELAC�s Boston office asking if ELAC would agree to front the renewal of B.F. Goodrich�s umbrella program. Because the London Market insurers were not admitted in Ohio, where B.F. Goodrich is headquartered, Willis sought this fronting arrangement under which ELAC provided excess coverage to Goodrich, retained 5% of the risk and ceded most of the risk (and most of the premiums) to various London reinsurers. Although it appears that these reinsurance undertakings were entered into, the documentation with respect to them was (and remains) sparse. Further, although certain of the slips make reference to a �service of suit clause,￁ the actual wording of the clause is unknown.

Decades later, B.F. Goodrich became involved in numerous environmental controversies, including a claim involving a facility in Kentucky. OneBeacon, acting for ELAC, disputed coverage for the claim, but was held liable by an Ohio jury in 2007. After exhausting its appeals, OneBeacon paid the judgment in 2009 and sought reimbursement for $72 million from ELAC�s reinsurers. After those reinsurers disputed the cession, OneBeacon filed suit against them in the Business Litigation Session of the Suffolk County Superior Court in Boston. The reinsurers moved to dismiss this action claiming that the court lacked personal jurisdiction over them or, in the alternative, that Boston was an inconvenient forum in which to litigate the dispute.

OneBeacon argued that the court could exercise jurisdiction over the foreign reinsurers pursuant to the Massachusetts Long Arm statute, G.L. c. 223A, ￁ 3, as they had purposefully transacted business in the Commonwealth by approaching ELAC at its U.S. branch headquarters to suggest the fronting arrangement. Judge Lauriat disagreed, however, noting that it was the broker (Willis), and not the reinsurers, that had telexed ELAC back in 1967; and that OneBeacon had not provided any facts to suggest that Willis was acting as the reinsurers￁ agent at the time. Indeed, the court noted that it was the custom and usage of the London Market that a broker is the agent of the insured for most purposes. Furthermore, the Superior Court noted that while all the policies issued to B.F. Goodrich were issued in Massachusetts, the reinsurance agreements that were the subject matter of the dispute were negotiated and entered into in London.

OneBeacon had also urged the court to find jurisdiction under ￁ 3(f) of the Long Arm Statute, on grounds that the reinsurers had contracted to insure property or risks located in the Commonwealth. However, the court noted that the risks that the moving parties agreed to reinsure were umbrella policies issued to B.F. Goodrich, a New York corporation headquartered in Ohio.

Having refused to find specific jurisdiction, the Superior Court likewise refused to exercise general jurisdiction, finding that the defendants did not have continuous or systematic contacts with Massachusetts. The court refused to find such contacts on the basis of subsequent claim meetings that the reinsurers had engaged in, or the involvement of their counsel in reviewing various files in Boston.

These jurisdictional issues might have been avoided had the reinsurance agreements contained service of suit language whereby the reinsurers consented to being served in a jurisdiction such as Massachusetts. In this case, however, the service of suit clauses were not located, although an expert presented by OneBeacon testified that the standard Lloyd�s service of suit clause during the relevant time period would have vested jurisdiction in the U.S. courts. Judge Lauriat found that the standard clause that OneBeacon was relying on made reference to �USA￁ in parenthesis in the clause title, whereas none of the slips for which evidence was available made any similar reference. In this case, the court found that if the parties had wanted to designate the United States as the place of service, they could have added a similar parenthetical to the slips, but did not.

Although not referenced by Judge Lauriat, efforts to exercise jurisdiction over foreign reinsurers are also likely to be made more difficult by the U.S. Supreme Court�s ruling last year in McIntyre Machinery, Limited v. Nicastro, 564 U.S. __, 131 S.Ct. 2780 (June 27, 2011). In Nicastro, the Court held that a New Jersey plaintiff had failed to establish that the foreign company ￁ an English manufacturer that sold its machines throughout the United States through a U.S. distributor, and who did not know of the particular sale by its distributor to the plaintiff�s employer in New Jersey ￁ had not itself engaged in any activities in the forum state that revealed an intent to invoke or benefit from the protection of New Jersey�s laws. In McIntyre Machinery, the Supreme Court narrowed its holding in Asahi Metal Industry Company v. Superior Court of California, Solano County, 480 U.S. 102, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987), to make clear that a plaintiff�s expectations may not be the focus of a court�s determination as to whether a defendant has purposefully availed itself of the benefits and protections of a forum�s laws. The majority in McIntyre Machinery specifically held that a state court cannot exercise jurisdiction over a foreign company without contravening the Fourteenth Amendment�s Due Process Clause where the foreign company did not engage in any activities in the state that reveal an intent to invoke or benefit from the protection of that particular state�s laws.

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A jurisdictional dispute involving reinsurers was also raised in the U.S. District Court in Boston in late 2010 and was appealed to the First Circuit, but has since settled. In Neles-Jamesbury, Inc. v. Pohjola Ins. Co., Ltd., 10-CV-40055 (D. Mass. Dec. 7, 2010), the district court held that a Finnish insurance company that facultatively reinsured 100% of the risk that Lumbermens Mutual Casualty Company took with respect to a general liability policy issued to a Massachusetts corporation lacked sufficient contacts with Massachusetts to support a claim of jurisdiction. The U.S. District Court rejected the insured�s �cut-through￁ argument that the contractual arrangement between Lumbermens and Pohjola as well as Pohjola�s role in procuring the Lumbermens policy, established that Lumbermens was acting as Pohjola�s agent in Massachusetts. Distinguishing other authority, Judge Saylor held that, in that case, Lumbermens acted independently in negotiating the terms of the insurance policy and handling the underlying asbestos claims and was not a mere �pass through.￁ In light of the fact that Lumbermens was not the mere agent of Pohjola, and because Pohjola reinsured the risk rather than issuing a policy directly to the insured, the Court found that Pohjola did not �contract to insure any person, property or risk located within the Commonwealth￁ within the meaning of the state Long Arm Statute. The case settled while on appeal to the First Circuit.

Cedents who seek to bring suit against their reinsurers in U.S. courts should, in light of the foregoing, carefully evaluate whether a U.S. court has jurisdiction to hear the case.The quality of these hermes birkin bag,replica bvlgari watches,replica porsche design watches and porsche design replica watches are excellent.

Michael Aylward may be reached at maylward@morrisonmahoney.com.

￁ 2012 Morrison Mahoney LLP. All rights reserved.

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