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CANADA LIFE ASSUR. v. CONVERIUM

April 19, 2002

THE CANADA LIFE ASSURANCE COMPANY, PLAINTIFF,
V.
CONVERIUM RÜCKERVERSICHERUNG (DEUTSCHLAND) AG, F/K/A ZURICH RÜCKVERSICHERUNG (KOLN) AG, DEFENDANT.



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

MEMORANDUM AND ORDER

This is a case of first impression concerning the jurisdictional reach of the Air Transportation and System Stabilization Act ("Air Stabilization Act"). Pub.L. No. 107-42, 115 Stat. 230 (Sept. 22, 2001) (amended by the Aviation and Transportation Security Act, Pub.L. No. 107-71, 115 Stat. 597 (Nov. 19, 2001) ("Aviation Security Act")). This action involves a dispute between two foreign reinsurance companies concerning reinsurance claims resulting from the September 11th terrorist attacks. Defendant Converium Rückerversicherung (Deutschland) Ltd. ("Converium")*fn1 moves to dismiss plaintiff The Canada Life Assurance Company's ("Canada Life") complaint for lack of subject matter jurisdiction, or in the alternative, to dismiss or stay the action and compel arbitration. Canada Life moves for an order requiring Converium to post a bond. For the reasons set forth below, Converium's motion to dismiss the complaint for lack of subject matter jurisdiction is granted and thus this Court may not consider Canada Life's motion to require a bond.

Background

Canada Life is a Canadian reinsurance corporation accredited in New York State. (Compl. ¶ 4.) Converium is a German reinsurance corporation. (Compl. ¶ 4.) Reinsurance is a business arrangement where primary insurers transfer or "cede" their risks of loss from the contracts they sell. Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 15.01[a] (9th ed. 1998); Graydon S. Staring, Law of Reinsurance § 1:1 (1993).

Typically, an insurance company pays a certain percentage of the premiums it collects to a reinsurer in exchange for that reinsurer's promise to be responsible for the same percentage of the potential losses on the specified policies of the primary insurer. This paradigm is known as "quota-share" reinsurance. Ostrager & Newman, supra § 15.02[a]; Staring, supra § 2:4. As such, reinsurance is simply "insurance for insurance companies." Continental Casualty Co., v. Stronghold Ins. Co., 77 F.3d 16, 20 (2d Cir. 1996).

Reinsurance companies, in turn, may reduce their exposure to potential losses by diversifying their underlying obligations among other reinsurers. Reinsurance involving a reinsurer's purchase of another reinsurer's obligations is known as retrocessional reinsurance, with the additional reinsurer referred to as a retrocessionaire. Ostrager & Newman, supra § 15.01[c](4); Staring, supra § 1:1.

During 2000 and 2001, Converium participated in two reinsurance facilities managed by Insurance Service Associates, Ltd. ("ISA"). (Compl. ¶ 12.) The ISA facilities are part of a network of insurance companies through which the insurance industry distributes certain risks of loss. Those facilities enabled Canada Life to reduce its exposure on its portfolio of reinsurance contracts by ceding portions of the contracts' premiums and risk of losses to Converium and other retrocessionaires. (Compl. ¶¶ 12, 14.) The facilities' co-participants agreed to indemnify Canada Life and assumed their share of premiums pursuant to "quota-share retrocession reinsurance agreements." (Compl. ¶ 14.) Canada Life alleges that from, 2000 to 2001, its quota-share retrocession reinsurance agreements with Converium provided that Canada Life would retain approximately 28 percent of the premiums with commensurate risk of loss on each reinsurance contract. Converium's alleged share of the premiums and risk of loss on each underlying reinsurance contract written by ISA ranged from 20 to 25 percent. (Compl. ¶¶ 14-15.)

On September 11, 2001, the terrorist hijackings and resulting aircraft crashes in New York, Virginia and Pennsylvania claimed more than 3,000 lives. See Eric Lipton, A New Count of the Dead, But Little Sense of Relief, N.Y. Times, Dec. 2, 2001, at A41. The September 11th attacks impacted many of the ISA facilities' participants, including Canada Life, by precipitating claims under the numerous catastrophe, occupational accident, personal accident, group life and abnormal mortality loss policies for which the ISA facilities held reinsurance policies. (Compl. ¶ 13.) "Those original insurance losses have included workers' compensation and life benefits claims by the families of employees of the Fire Department of the City of New York, Marsh & McLennan, . . . [and] Cantor Fitzgerald . . . [among others]." (Compl. ¶ 13.) Through the ISA facilities, Canada Life has been paying primary insurers responsible for the claims made under those policies. (Compl. ¶ 13.)

On December 12, 2001, Canada Life filed this action alleging that Converium breached the quota share retrocession agreements by failing to indemnify its full percentage share of Canada Life's September 11th losses and by failing to post an $82.4 million letter of credit for its liability pursuant to the ISA facilities' underlying agreements. (Compl. ¶¶ 16-19.)

Ten days after the terrorist attacks, Congress enacted the Air Stabilization Act, which President Bush signed into law on September 22, 2001. The Air Stabilization Act was meant to bolster an airline industry reeling from the horrific events of September 11th. 147 Cong.Rec. S9589 (Sept. 21, 2001) (remarks of Sen. Hutchinson). As part of that legislation, Congress created a federal cause of action for certain litigation "arising out of" the events of September 11th. Specifically, the Act provided in Section 408(b):

(1) Availability of action. There shall exist a Federal cause of action for damages arising out of the hijacking and subsequent crashes of American Airlines flights 11 and 77, and United Airlines flights 93 and 175, on September 11, 2001. Notwithstanding section 40120(c) of title 49, United States Code [49 U.S.C.A. § 40120(c)], this cause of action shall be the exclusive remedy for damages arising out of the hijacking and subsequent crashes of such flights.
(2) Substantive law. The substantive law for decision in any such suit shall be derived from the law, including choice of law principles, of the State in which the crash occurred unless such law is inconsistent with or preempted by Federal law.
(3) Jurisdiction. The United States District Court for the Southern District of New York shall have original and exclusive jurisdiction over all actions brought for any claim (including any claim for loss of property, personal injury, or death) resulting from or relating ...

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