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