378 F. Supp. 3d 687 | E.D. Ill. | 2019
Alea Group Limited provided reinsurance to Legion Indemnity Company. Shortly after the terms of their agreements ended, Legion entered liquidation proceedings and the respondent (the Director of Insurance of the State of Illinois) was appointed as liquidator. Petitioner Catalina Holdings (Bermuda) Limited bought Alea. Many years later, the Director sent Catalina an offer to settle an outstanding balance that she said had resulted from claims ceded under the original agreements between Alea and Legion. When Catalina refused to pay, the Director initiated arbitration, citing arbitration clauses in the old reinsurance agreements. Catalina filed counterclaims before the arbitrators for unpaid premiums and attorney's fees, and the panel ruled in Catalina's favor. Catalina then filed a petition to confirm *690the panel's award. The Director moves to dismiss.
I. Legal Standards
A complaint must contain a short and plain statement of factual allegations that plausibly suggest a right to relief. Ashcroft v. Iqbal ,
II. Facts
Alea Group Limited provided reinsurance to Legion Indemnity Company during the early 2000s. [25-2] at 3-4.
As it turns out, Legion had run into financial trouble. It was placed into conservatorship in 2002 and entered liquidation proceedings in 2003. [25-1] at 3; [25-2] at 4; [19-2] § D. The Illinois Director of Insurance was appointed as liquidator shortly thereafter.
The parties agreed to hold arbitration hearings in Chicago, id. n.11, and those hearings took place before a panel of arbitrators during the summer of 2018. [25] at 3, [25-3]. The panel ultimately awarded Catalina $ 76,602.63 in unpaid premiums and $ 437,501.04 in attorneys' fees and costs. [25] at 3-4.
III. Analysis
A. Subject Matter Jurisdiction & Choice of Law
The Convention governs my review of the petition, not the Pennsylvania Uniform Arbitration Act. The arbitration clause dictated the rules and procedures that governed the arbitration proceeding-not my review of the arbitrator's award. See, e.g. , [22-3] at 28 ("the arbitration will be in accordance with the rules and procedures established by the Uniform Arbitration Act as enacted in Pennsylvania"); Generica Ltd. v. Pharm. Basics, Inc. ,
I have jurisdiction over the petition. The arbitration agreement arises out of a dispute over reinsurance contracts, see
*692B. McCarran-Ferguson Preemption
The Director contends that the Convention is reverse-preempted by the McCarran-Ferguson Act. See
This case does not require me to construe any federal law in a way that "invalidate[s], impair[s] or supersede[s]" state law. "The term 'invalidate' ordinarily means 'to render ineffective, generally without providing a replacement rule or law,' " and the term " 'supersede' ordinarily means 'to displace (and thus render ineffective) while providing a substitute rule.' " Humana Inc. v. Forsyth ,
Confirming the arbitration award would not "invalidate, impair or supersede" Illinois's liquidation statutes. Article XIII both grants the Director title to all of Legion's contracts (that were in existence as of the date of the liquidation order), 215 Ill. Comp. Stat. Ann. 5/191, and authorizes her to institute any "action, claim, suit, or proceeding upon any cause of action" so long as it is not time-barred. 215 Ill. Comp. Stat. Ann. 5/194(b). The Director assumed control of Legion's contracts, requested payment on balances she believed to be outstanding and, when Catalina refused, demanded arbitration proceedings pursuant to the reinsurance agreements. [25-1] at 4. The Director appears to have thought there was nothing inconsistent with arbitrating a claim that would eventually be dealt with in liquidation court right up until the panel ruled in Catalina's favor.
According to the Director, the petition risks interference with two sections of Article XIII that say that Sangamon and Cook County are the "exclusive forums for the liquidation of the insurer." [19] at 8 (citing 215 Ill. Comp. Stat. Ann. 5/188 ; 215 Ill. Comp. Stat. Ann. 5/188.1 ); [26] at 12.
*693But neither section says that. At most, section 5/188 obligates the Director to report certain companies to the Attorney General, who then has a duty to apply by complaint (in Cook or Sangamon County or "the circuit court of the county in which such company has, or last had its principal office," 215 Ill. Comp. Stat. Ann. 5/188 ) for an order to liquidate or seek "other relief as the nature of the case ... may require."
Nor will confirming the panel's award "decide the existence of liability and amount" that the Director owes Catalina. [26] at 7. Liability and amount has already been decided. [25] at 3-4. The petition asks me to perform a very limited review to confirm that the decision was not reached in violation of the Arbitration Act or the Convention. I am precluded from doing anything more than that.
Even if Catalina's counter-claim for unpaid premiums in the arbitration proceedings constituted a separate "claim" on Legion's estate, it is not clear that would pose a problem for the liquidation court. The statute and case law explain how reinsurance claims should be prioritized. 215 Ill. Comp. Stat. Ann. 5/205 ; In re Liquidations of Reserve Ins. Co. ,
Stephens v. Am. Int'l Ins. Co. ,
Even if there were a need, I find the Fourth Circuit's and Fifth Circuit's treatment of the issue more persuasive. See ESAB Grp., Inc. v. Zurich Ins. PLC ,
The Seventh Circuit has not yet spoken on the issue. See also Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado ,
C. Burford Abstention
The Supreme Court's decision in Burford "has become the doctrine of choice in analyzing whether to abstain in favor of state insurance liquidation and rehabilitation proceeding" because "its analysis provides the closest fit." Prop. & Cas. Ins. Ltd. v. Cent. Nat. Ins. Co. of Omaha ,
There are two "essential elements" to this type of Burford abstention: the state must offer a forum where these claims may be litigated, and that forum must "stand in a special relationship of technical oversight or concentrated review to the evaluation of those claims."
First, is the suit based on a cause of action that is exclusively federal? Second, does the suit require the court to determine issues that are directly relevant to state policy in the regulation of the insurance industry? Third, do state procedures indicate a desire to create special state forums to regulate and adjudicate these issues? Fourth, are difficult or unusual state laws at issue?
Hartford Cas. Ins. Co. v. Borg-Warner Corp. ,
Abstention would be inappropriate under Burford and Hartford . The cause of action is exclusively federal. [1] at 2 (citing
*696It does not require me determine the priority of Catalina's claim on Legion's estate or engage in any other way with Illinois's insurance or liquidation laws. See [19] at 10. All it calls on me to do is either confirm or vacate the panel's award. With a decision in hand, the Director and Catalina will be free to proceed before the liquidation court as they and that court-and the State of Illinois-see fit. See [6] at 5; McRaith v. Am. Re-Ins. Co. , No.
The third factor is the only one that arguably weighs in favor of abstention. But it does not weigh heavily. Even though Illinois has created a special forum for adjudicating the liquidation of insurance companies, the Director's characterization of the liquidation court as an exclusive "special forum" for all matters related in any way to any insolvent insurance company overstates the breadth of Illinois's insolvency regime. And to the degree Catalina's petition requests an order going beyond the confirmation of the underlying award, that request is without merit and will not be granted (at least absent a motion to modify the award, in which case the Burford abstention analysis might need to be revisited). See
Hartford is also factually distinguishable. Hartford's complaint required that the federal court "estimate the dividend that reinsurance creditors of [the defendant] will receive from the rehabilitation process" and also "interpret the reinsurance treaties."
In the alternative, the Director moves for a stay of this action pending completion of the liquidation proceedings. See [19] at 2, 13; Quackenbush v. Allstate Ins. Co. ,
D. The Anti-Suit Injunction & Other Arguments
The liquidation order prohibits "[t]he officers, directors, agents, third party administrators, managing general agents, servants, representatives, policyholders, creditors and employees" of Legion (and anyone else "having knowledge" of the order *697) from "bringing or further prosecuting any claim, action, or proceeding at law ... against [Legion] or ... the Director or Liquidator, except insofar as those claims, actions or proceedings arise in or are brought in the liquidation proceedings." [19-2] at 7-8. It does not preclude this court from deciding a petition to confirm an arbitration award. If a party subject to the anti-suit injunction violated it, the court that issued the injunction can order a remedy. Hearing the petition in this court would not deny full faith and credit to the anti-suit injunction.
The Director cites only one other binding decision ( Underwriters Nat. Assur. Co. v. N. Carolina Life & Acc. & Health Ins. Guar. Ass'n ) but there, the question was whether a North Carolina court was required to afford full faith and credit to an Indiana court's judgment.
The Director's final argument asserts that Catalina has failed to provide an agreement signed by both parties. [26] at 14-15. That argument was advanced for the first time on the final pages of the Director's reply. It was waived. See Gold v. Wolpert ,
IV. Conclusion
For the foregoing reasons, the Director's motion to dismiss, [19], is denied. A status hearing is set for April 3, 2019, at 9:30 a.m. The parties should be prepared to address the Director's motion to remand, [28] and the Director's motion to vacate. See Exhibit B to the Notice of Removal, Legion Indemnity Company, In Liquidation v. Catalina Holdings (Bermuda) Limited , No. 18-cv-06595 (N.D. Ill. Sept. 27, 2018) ECF No. 1-2.
Bracketed numbers refer to entries on the district court docket.
Catalina filed a motion to seal the final arbitration award, [5], and I granted that motion. [11]. But Catalina later disclosed the amounts awarded. [25] at 3-4. The Director also partially disclosed those figures (and other aspects of the final award) in her briefing on the motion to dismiss or stay. See, e.g. , [19] at 10 n.3. There is an exception to the parties' confidentiality agreement whenever the parties agree to disclosure via written agreement, [5-1] at 2, § 2, and whenever disclosure is made "in connection with court proceedings relating to any aspect of the arbitration, including but not limited to motions to confirm, modify or vacate an arbitration award." Id. at 2, § 3.
Catalina requests confirmation of the award under the Federal Arbitration Act, which requires that parties seeking review of an arbitral award "establish some independent basis for federal subject matter jurisdiction." Yasuda Fire & Marine Ins. Co. of Europe, Ltd. v. Cont'l Cas. Co. ,
Section 5/188.1 adds that, in certain circumstances, upon the filing of the complaint, the court must enter an order enjoining "the company ... from disposition of its property and from further transaction of its business except with the concurrence of the Director until the further order of the court." 215 Ill. Comp. Stat. Ann. 5/188.1. Section 5/187(2) defines "company" to include all "non-risk bearing entities or persons engaged in any aspect of the business of insurance on behalf of an insurer against which a receivership proceeding has been or is being filed under this Article, including but not limited to, entities that provide ... underwriting, claims handling, or any other similar services to that insurer, ..., if the entity or person is an affiliate of that insurer." 215 Ill. Comp. Stat. Ann. 5/187(2). Section 5/187(4) defines "affiliate" to mean "a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the person specified." There has been no showing that Catalina was acting "on behalf of" Legion or that Catalina directly or indirectly controlled Legion; it just provided them with reinsurance. See [25-2] at 3-4. Even if § 5/188.1 applies, the Director does not dispute that it failed to raise these points in the arbitration proceedings (Catalina points out that the Director "affirmatively authorized the panel to proceed" after those counterclaims were filed, [25] at 10 (citing [25-3] at 6:20-7:4) ), so the counterclaims were at least with the Director's "concurrence," if not outright approval.
I also find persuasive decisions finding that the McCarran-Ferguson Act does not preempt the federal diversity jurisdiction statute. Hammer v. United States Dep't of Health & Human Servs. ,
That being said, the Director has not waived either her abstention or anti-suit injunction arguments. See [25] at 9 (citing Clark v. Underwriters Mgmt. Corp. , No.