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MEADOWS INDEM. v. BACCALA & SHOOP

March 29, 1991

MEADOWS INDEMNITY COMPANY LIMITED, PLAINTIFF,
v.
BACCALA & SHOOP INSURANCE SERVICES, INC., G.L. HODSON & SONS, INC., CORROON & BLACK OF ILLINOIS, INC., CORROON & BLACK CORPORATION, PURITAN INSURANCE COMPANY, INSCO LIMITED, NATIONAL EXCESS INSURANCE COMPANY, THE MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY, OLD REPUBLIC INSURANCE COMPANY, NUTMEG INSURANCE COMPANY, TWIN CITY FIRE INSURANCE COMPANY, HARTFORD CASUALTY INSURANCE COMPANY, LTD., PACIFIC INSURANCE COMPANY, LTD. AND HARTFORD FIRE INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Mishler, District Judge.

MEMORANDUM OF DECISION AND ORDER

Defendants Insco Limited, Old Republic Insurance Company, Nutmeg Insurance Co., Twin City Fire Insurance Co., Hartford Casualty Insurance Co., Pacific Insurance Co., and Hartford Fire Insurance Co. (collectively the "Issuing Company defendants") move to stay this action in favor of arbitration based on the arbitration clauses in their reinsurance contracts with plaintiff, Meadows Indemnity Company Limited ("Meadows"). Defendants Baccala & Shoop Insurance Services, G.L. Hodson and Sons, Inc., Corroon & Black of Illinois, Inc., Corroon & Black Corporation, and National Excess Insurance Co. (collectively the "Managing Agent defendants"), move to stay the claims against them pending the arbitration between the Issuing Company defendants and Meadows or, alternatively, to dismiss the complaint pursuant to Fed.R. Civ.P. 12(b)(1) (lack of subject matter jurisdiction), 12(b)(6) (failure to state a claim upon which relief can be granted), and failure to satisfy the pleading requirements of Rule 9(b). Meadows opposes the motions.

BACKGROUND

This suit arises out of Meadows' participation with the Issuing Company defendants in a "reinsurance pool" from 1979 to 1984. Reinsurance is a transaction whereby an insurance company agrees to indemnify another insurance company against all or part of the loss which the latter may sustain under policies which it has issued. Reinsurance provides the means by which insurance companies spread among other companies the risks they have underwritten. Through reinsurance in such a "pool," the ultimate loss liability on a particular policy or loss is spread among a number of insurance market entities.

The following facts are alleged by Meadows in the complaint. Meadows is an insurance company organized and existing under the laws of Guernsey.*fn1 Meadows is a wholly owned subsidiary of Gould, Inc., which is headquartered in Ohio.

The Managing Agent defendants, as intermediaries, established and managed a reinsurance pool for the Issuing Company defendants and other primary insurers (the "Pool"). Meadows engaged Corroon & Black of Illinois to provide consulting services in connection with Meadows' entry into the reinsurance business. The Managing Agent defendants, primarily Corroon & Black Corporation, provided information and advice to Meadows inducing Meadows to contract with the Issuing Company defendants into the Pool and to renew such reinsurance contracts. The initial information and subsequent renewal information consistently indicated that the Pool was acquiring profitable business in accordance with the stated goals, and that the Pool was well managed by Baccala & Shoop Insurance Services. Meadows and the Issuing Company defendants executed thirty-four reinsurance contracts between 1979 and 1984.

Meadows alleges that, unbeknownst to it, the Managing Agent defendants managed the Pool for the purpose of reaping risk-free commissions to the detriment of the reinsurers, and without regard to their fiduciary obligations to manage the Pool in the best interests of all of the Pool participants, including Meadows. The Managing Agent defendants allegedly manipulated the underwriting and administration of the Pool to the detriment of Meadows, and failed to disclose information material to Meadows' decision whether or not to renew its yearly contracts with the other members of the Pool.

Meadows alleges that when the Issuing Company defendants became primary insurers in the Pool, they manipulated the underwriting of the Pool for their own ends, without the knowledge and to the detriment of Meadows and its co-reinsurers. In addition, the Issuing Company defendants, working in concert with the Managing Agent defendants, allegedly developed or became apprised of information material to Meadows' decision to renew its participation in the Pool, which they failed to disclose to Meadows, thereby inducing Meadows' yearly execution of Pool contracts.

Meadows alleges the following causes of action against defendants:

  (1) violation of and conspiracy to violate the
      Racketeer Influenced and Corrupt Organizations
      Act, 18 U.S.C. § 1962(a), (c), (d) ("RICO");

(2) civil conspiracy;

(3) fraud in the inducement;

(4) breach of fiduciary duties;

(5) malpractice;

(6) negligence;

(7) unjust enrichment;

  (8) breach of contract as against Corroon & Black
      of Illinois.
  As a condition precedent to any right of action
  hereunder, any dispute arising out of this
  contract shall be submitted to the decision of a
  board of arbitration composed of two arbitrators
  and an umpire. . . .

Two of the contracts*fn2 provide:

  If any dispute shall arise between the reinsured
  and the reinsurer, either before or after the
  termination of this contract, with reference to
  the interpretation of this contract or the rights
  of either party with respect to any transactions
  under this contract, the dispute shall be referred
  to three arbitrators, one to be chosen by each
  party and the third by the two so chosen. . . .

The Issuing Company defendants assert that the court should stay the claims against them and order arbitration pursuant to the arbitration clauses in the contracts between them and Meadows. The Managing Agent defendants contend that the court, in the exercise of its discretion, should also stay this action as to them (though they are not parties to the contracts containing the arbitration clauses) because the claims ...


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