United States District Court, Southern District of New York
April 15, 2003
ASSOCIATED AVIATION UNDERWRITERS AND ASSOCIATED AVIATION UNDERWRITERS, INC., PLAINTIFFS
ARAB INSURANCE GROUP (B.S.C.) AND ARIG REINSURANCE COMPANY, DEFENDANTS
The opinion of the court was delivered by: George B. Daniels, United States District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs brought this diversity action against defendants alleging that defendants breached the terms of the parties' aviation reinsurance agreements. Defendants filed a motion to dismiss for lack of personal jurisdiction. For the following reasons, defendants' motion to dismiss is granted.
Plaintiff Associated Aviation Underwriters ("Associated Aviation") is an unincorporated association of independent member insurance companies. The member insurance companies issue aviation and liability insurance policies to various airlines and product manufacturers. Associated Aviation has its principal place of business in New Jersey. All of the member insurance companies are licensed to do business in New York, and two of them are incorporated in New York.*fn1
Co-plaintiff Associated Aviation Underwriters, Inc. ("Underwriters") is a Delaware corporation with its principal place of business in New Jersey. Underwriters is the exclusive manager for underwriting and claims administration for Associated Aviation (collectively, plaintiffs may be referred to as "AAU").
Defendant Arab Insurance Group (B.S.C.) ("Arab Insurance") is a Bahrain corporation with its principal place of business in Bahrain. Co-defendant Arig Reinsurance Company ("Arig Reinsurance") is also a Bahrain corporation with its principal place of business in Bahrain. Arig Reinsurance is a wholly owned subsidiary of Arab Insurance (collectively, defendants may be referred to as "Arig").
The instant dispute arises out of a series of reinsurance contracts between the parties whereby defendants agreed to provide reinsurance to aviation and liability insurance policies that were issued to various airlines and product manufacturers for the 1996 through 2001 policy periods.*fn2 Under the reinsurance agreements, Arig accepted a fixed percentage share of the original insurance risks. AAU alleges that claims were paid to various insureds for losses incurred during the relevant period. A substantial portion of those losses include claims related to the terrorist attacks of September 11, 2001 and the November 12, 2001 airplane crash in Queens, New York. AAU contends, however, that Arig has failed to reimburse AAU for Arig's fixed percentage share of the claims. AAU brought this action against Arig seeking specific performance requiring Arig to increase the letter of credit to $30,761,400, damages in the amount of $3,989,000, declaratory relief, and reasonable attorneys' fees and costs.
Federal Rule of Civil Procedure 12(b)(2) allows a party to move to dismiss a Complaint where the court lacks personal jurisdiction over the defendant. See FED. R. Civ. P. 12(b)(2). The burden of establishing personal jurisdiction lies with the party seeking to assert such jurisdiction. See Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). However, a court must construe all pleadings and affidavits in the light most favorable to the party asserting jurisdiction. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985). The law of the forum in which the district court sits determines a defendant's amenability to suit in that forum. See Klinghoffer v. S.N.C. Achillle Lauro, 937 F.2d 44, 50 (2d Cir. 1991). Consequently, New York law governs the analysis of this case.
A. New York Insurance Law § 1213(b) and C.P.L.R. § 302(a)
Plaintiffs assert that this Court has personal jurisdiction over defendants pursuant to New York Insurance Law § 1213. Section 1213 provides a method of substituted service of process upon unauthorized foreign insurers who issue or deliver policies of insurance in this state. Section 1213(b) of the statute enumerates a list of "acts in this state, effected by mail or otherwise, by an unauthorized foreign or alien insurer" which constitute the appointment of the New York Superintendent of Insurance as the unauthorized insurer's attorney for service of process. N.Y. Ins. Law § 1213(b). One of the acts identified by subsection (b)(1)(A) is:
[T]he issuance or delivery of contracts of insurance
to residents of this state or to corporations
authorized to do business therein[.]
Id. at § 1213(b)(1)(A). Section 1213(b), therefore, acts as an extension of New York's long arm statute. Personal jurisdiction may be asserted by a New York court over an unauthorized foreign insurer and the New York Superintendent of Insurance is appointed the insurer's attorney for service of process.
Section 1213 is a desirable statute by which to assert personal jurisdiction over a defendant because § 1213(c) requires all unauthorized alien insurers to file a security sufficient to secure payment of any final judgment before filing any pleadings.*fn3 See id. at § 1213(c). Further, § 1101(b)(2)(G) of the New York Insurance Law expressly makes § 1213 applicable to reinsurance contracts. See id. at § 1101(b)(2)(G); British Int'l. Ins. Co. Ltd. v. Seguros La Republica, S.A., 212 F.3d 138, 141 (2d Cir. 1990).
Defendants argue that this Court does not have personal jurisdiction over them pursuant to § 1213. Defendants contend that, in order for delivery of a reinsurance contract by mail to take place "in the state" for the purposes of subsection (b)(1)(A), it must be mailed within or into New York. Defendants contend that they never delivered anything into New York, but rather delivered the reinsurance contracts to plaintiffs' office in New Jersey. Plaintiffs, on the other hand, argue that delivery of policies into New York is not essential for jurisdiction under (b)(1)(A). Plaintiffs point out that the member insurance companies are all licensed to do business in New York, and that a substantial portion of the original insurance claims relate to airplane crashes that occurred in New York. Plaintiffs contend that these circumstances constitute sufficient contacts with New York so as to create personal jurisdiction over defendants.
As noted earlier, subsection (b)(1)(A) provides for personal jurisdiction when "by mail or otherwise" an unauthorized foreign insurer "issu[es] or deliver[s]  contracts of insurance to residents of this state or to corporations authorized to do business therein[.]"*fn4 N.Y. INS. LAW § 1213(b)(1)(A). A statutory provision, however, should not be read in isolation from the body of the Act to which it is a part, nor from the Act's purpose or policy. See United States v. Pacheco, 225 F.3d 148, 154 (2d Cir. 2000). Rather, a court must "interpret a specific provision in a way that renders it consistent with the tenor and structure of the whole act or statutory scheme of which it is part." Id.
The legislative intent of the statute is codified under § 1213(a). The legislature was concerned that unauthorized foreign insurers were performing activities in New York that constitute "doing business" in the state, yet were not subject to the personal jurisdiction of New York courts. Therefore, residents of the state could not sue the unauthorized foreign insurers in New York. The purpose of the New York state statute is clearly articulated:
The purpose of this section is to subject certain
insurers to the jurisdiction of the courts of this
state in suits by or on behalf of insureds or
beneficiaries under certain insurance contracts. The
legislature declares that it is a subject of concern
that many residents of this state hold policies of
insurance issued or delivered in this state by
insurers while not authorized to do business in this
state, thus presenting to such residents the often
insuperable obstacle of resorting to distant forums
for the purpose of asserting legal rights under such
N.Y. INS. LAW § 1213(a) (emphasis added). "The principal purpose of the statute, then, is to subject unauthorized foreign and alien insurers who have transacted business in the state to the jurisdiction of the New York courts." Morgan v. Am. Risk Management, Inc., No. 89 cv 2999, 1990 WL 106837, at *5 (S.D.N.Y. July 20, 1990). According to the statute, § 1213 was enacted by the legislature as an exercise of its "power to protect its residents and to define, for the purpose of this section, what constitutes doing business in this state[.]" N.Y. INS. LAW § 1213(a). Thus, the legislature determined that when a policy is "issued or delivered in this state," Id. (emphasis added), the insurer is doing business in New York. Simply put, it is the act of issuing or delivering a policy into New York, that constitutes the grounds by which a New York court may assert personal jurisdiction over an unauthorized alien insurer under subsection (b)(1)(A).
Upon reading the statute as a whole, it is clear that merely issuing insurance outside this state to a New York citizen or insuring property that is fortuitously destroyed in New York is not enough. Rather, a defendant must also have purposeful contacts with New York state. The legislature determined that issuing or delivering a policy within or into New York qualifies as "purposeful contacts" so that a court may assert personal jurisdiction over the unauthorized foreign insurer.
Existing case law in New York state further supports such a conclusion. In Chase Manhattan Bank v. AXA Reinsurance, 752 N.Y.S.2d 17 (App. Div. 2002), the defendant there filed a third party complaint against its reinsurer. The reinsurance contract was negotiated, executed, and delivered in London through the defendant's London affiliate and the reinsurance company's London underwriting agent. The Appellate Division affirmed the trial court's dismissal of the third party complaint against the reinsurance company on the grounds that the court lacked personal jurisdiction. The Appellate Division found that:
Section 1213(b)(1) requires the acts necessary to
confer jurisdiction to be "acts in this state,
effected by mail or otherwise." Thus, had the
reinsurance agreement been mailed to [the reinsured]
into New York, the statute would have conferred
jurisdiction. However, merely providing reinsurance on
a New York policy does not create jurisdiction.
Chase Manhattan Bank, 752 N.Y.S.2d at 19. The court then found that a reinsurance contract is "essentially an indemnity agreement," and "the rule in New York is clear that an indemnity agreement alone does not provide a sufficient contact with New York simply because the underlying events that trigger the indemnification occur in New York." Id.
Similarly, in New York Central Mutual Ins. Co. v. Johnson, 688 N.Y.S.2d 681 (App. Div. 1999) the Appellate Division cited Birmingham Fire Ins. Co. v. KOA Fire & Marine Ins. Co., 572 F. Supp. 962 (S.D.N.Y. 1983) for the proposition that "simply supplying reinsurance on New York insurance policies does not give rise to jurisdiction under the transacting business test without some further contact." New York Central, 688 N.Y.S.2d at 639. Birmingham Fire involved two insurance companies that sued their reinsurer for failing to indemnify them pursuant to their reinsurance agreements. The reinsurer then commenced a third party action against the reinsurance broker that helped arrange the reinsurance agreements. The reinsurance broker moved to dismiss for lack of personal jurisdiction and the court granted that motion. In so doing, the court found that a reinsurance agreement is analogous to an indemnity agreement and that "an indemnity agreement alone does not provide a sufficient contact with New York simply because the underlying events that trigger the indemnification occur in New York." Birmingham Fire, 572 F. Supp. at 967.
Plaintiffs cite John Hancock Prop. and Cas. Ins. Co. v. Universale Reins. Co., Ltd., 147 F.R.D. 40 (S.D.N.Y. 1993), for the proposition that § 1213 does not require that the policies be delivered into New York. However, John Hancock is distinguishable and should be limited to its facts. The plaintiff there was a Delaware corporation licensed to do business in New York with its principal place of business in Massachusetts. The defendant was a Swiss company, not licensed to do business in New York, with its principal place of business in Zurich. The plaintiff communicated to the defendant only through plaintiffs reinsurance intermediary, which was incorporated in New York and had its principal place of business in New York. The parties also had a forum selection clause in their contract, which the court had upheld in a previous order. That clause provided for jurisdiction in the event of a dispute in any court of competent jurisdiction within the United States. Since there was a forum selection clause directing any disputes to be resolved in any court in the United States, and New York was the only jurisdiction where any contact or communications between the parties took place, it can fairly be said that the defendant consented to personal jurisdiction in New York. Under these unique facts, the John Hancock court then found that delivery of the policy to the plaintiff in New York was not required to invoke § 1213 jurisdiction. See John Hancock, 147 F.R.D. at 50.
In this case, unlike the situation in John Hancock, there has been no allegation that the parties entered into a forum selection clause voicing a preference for any jurisdiction, let alone for New York. Furthermore, no communications between the parties took place in New York. Rather, all communications took place between Bahrain and New Jersey. Unlike John Hancock, if this case is dismissed from this Court for lack of personal jurisdiction, plaintiffs still have New Jersey as an appropriate forum in the United States in which to bring their suit. Consequently, John Hancock is distinguishable.
The case law interpreting the predecessor to § 1213, New York Insurance Law § 59-a,*fn5 also consistently found personal jurisdiction proper in cases where the policy was executed in or mailed into New York state. See e.g. Aero Assoc., Inc. v. La Metropolitana, 183 F. Supp. 357 (S.D.N.Y. 1960) (personal jurisdiction over defendants proper pursuant to § 59-a where reinsurance contract was executed and delivered to plaintiff in New York by defendants' New York broker); Clifton Prod., Inc. v. Am. Universal Ins. Co., 169 F. Supp. 842 (S.D.N.Y. 1959) (granting defendant's motion to dismiss on the grounds that plaintiff could not invoke § 59-a as plaintiff was not a New York resident, and finding that "the New York Legislature, exercising its regulatory power over insurance business conducted in the state for the benefit of New York residents, intended the benefits of the statute to be limited to insured New York residents only.") (emphasis added); Ace Grain Co. v. Am. Eagle Fire Ins. Co., 95 F. Supp. 784 (S.D.N.Y. 1951) (personal jurisdiction over defendant proper under § 59-a where contracts of insurance were delivered to the plaintiff in New York). Plaintiffs' argument, therefore, that § 1213(b)(1)(A) does not require the policies to be issued or mailed within or into New York is contradicted by the statute, as well as the case law.
Plaintiffs also argue that defendants "transacted business" in the state, creating personal jurisdiction pursuant to § 1213(b)(1)(D), and New York's long arm statute, C.P.L.R. § 302(a). In support of this argument, plaintiffs point to a cocktail party in New York City that defendants held for plaintiffs and some of defendants' other clients in 1996. Further, plaintiffs again point to the fact that all of plaintiffs' member insurance companies are licensed to do business in New York, and a substantial portion of the insurance claims plaintiffs paid were related to the terrorist attacks in lower Manhattan and the plane crash in Queens.
Subsection (b)(1)(D) of the New York Insurance Law provides for personal jurisdiction and the appointment of the Superintendent of Insurance as the attorney for service of process where the unauthorized alien insurer undertakes "any other transaction of business" in the state. N.Y. INS. LAW § 1213(b)(1)(D). Likewise, New York's long arm statute, C.P.L.R. § 302(a), provides for personal jurisdiction where the non-domiciliary "transacts any business within the state or contracts anywhere to supply goods or services in the state. . . ." N.Y. C.P.L.R. § 302(a) (emphasis added). The "transacting business" requirement of subsection (b)(1)(D) is analogous to that found in C.P.L.R. § 302(a). See Farm Family Mutual Ins. Co. v. Nass, 126 Misc.2d 329 (N.Y. Sup.Ct. 1984) (finding phrase "transaction of business" contained in § 59-a, the predecessor to § 1213, to be analogous to the phrase "transacts any business" contained in C.P.L.R. § 302(a)). Therefore, the same analysis is appropriate as applied to both statutes. To assert personal jurisdiction pursuant to C.P.L.R. § 302(a), there must be "some articulable nexus between the business transacted and the cause of action sued upon." See McGowan v. Smith, 419 N.E.2d 321, 323 (N.Y. 1981) (citations omitted). Further, "there must have been some `purposeful activity' within the State that would justify bringing the nondomiciliary defendant before the New York courts." Id. at 322 (citations omitted). A court will look to the totality of circumstances concerning a party's connection to the forum state in making the personal jurisdiction determination. See Fort Knox Music, Inc. v. Baptiste, 203 F.3d 193, 196 (2d Cir. 2000).
Defendants' activities with respect to New York state do not rise to the level of "purposeful activity" as required by the "transacting business" requirement of C.P.L.R. § 302(a). The cocktail party defendants threw in 1996 was a one-time social event, and no business was conducted there. In fact, it was not geared exclusively toward plaintiffs, as defendants invited multiple clients to attend. Furthermore, although a substantial part of the insureds' claims arise from the September 11 terrorist attacks in New York and the plane crash in Queens, this alone does not equate a finding that the defendants, themselves, had any purposeful business contacts with New York. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 312 (1980) (holding that Oklahoma court did not have personal jurisdiction over car distributor with no contacts with Oklahoma where ultimate purchaser of the car bought the car in New York and fortuitously got in an accident while driving through Oklahoma).
Plaintiffs' further reliance on the citizenship of their member insurance companies and the locality where each are licensed to do business does not trigger jurisdiction under § 1213. The determinative factor for the "transacting business" test is not plaintiffs' contacts with New York (or their member insurance companies' contacts), but rather the defendants contacts with New York. The critical inquiry for these purposes is not where the member insurance companies are citizens nor where they are licensed to do business. As discussed above, plaintiffs have not shown that defendants have any purposeful contacts with New York, such that they may reasonably foresee the prospect of defending a suit here. Nor have plaintiffs produced any evidence at all that defendants contracted to supply any goods or services in New York.
Consequently, the assertion of personal jurisdiction here would not comport with the Fourteenth Amendment's requirement of due process. Defendants do not have "minimum contacts" with New York and therefore the maintenance of this suit would offend "traditional notions of fair play and substantial justice." See Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Consequently, this Court cannot assert personal jurisdiction over the defendants on the basis of either subsection (b)(1)(A) or (b)(1)(D) under New York Insurance Law § 1213, or under C.P.L.R. § 302(a).
B. The Air Stabilization Act
Plaintiffs also assert that this Court has personal jurisdiction over defendants pursuant to the recently enacted Air Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, § 408(b)(3), 115 Stat. 230 (2001), amended by Aviation and Transportation Security Act, 107 Pub. L. No. 107-71, § 201, 115 Stat. 597 (2001) ("Aviation Security Act") (collectively, the "Air Stabilization Act"). Defendants argue, however, that a reinsurance contract is a "collateral source" obligation, and that the grant of jurisdiction to this district in the Act for claims arising out of the September 11 terrorist attacks, therefore, does not apply. The Air Stabilization Act provides, in relevant part:
(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 to the terrorist-related aircraft crashes of
September 11, 2001.
Air Stabilization Act, § 408(b)(3). As part of the amendments to the Act, Congress specifically excluded from the grant of exclusive jurisdiction to this district "civil actions to recover collateral source obligations." Aviation Security Act, § 201(b)(3). The amendments broadly define "collateral source" as "all collateral sources, including life insurance, pension funds, death benefit programs, and payments by Federal, State, or local governments related to the terrorist-related aircraft crashes of September 11, 2001." Id. at § 402(4).
Here, plaintiffs have brought this civil action against defendants to recover payments allegedly owed on a series of reinsurance contracts. As Congress specifically excluded life insurance claims from the grant of exclusive jurisdiction — even those brought by direct victims of the attacks or their relatives — it would be anomalous for this Court to hold that Congress did not also intend to exclude reinsurance claims brought by insurance carriers. Simply stated, the assertion of a reinsurance claim is not the type of dispute Congress intended to benefit from the grant of jurisdiction by the Act. See Canada Life Assurance Co. v. Converium Ruckerversicherung (Deutschland) AG, 210 F. Supp.2d 322 (S.D.N.Y. 2002) (finding that dispute between two reinsurance companies involving reinsurance claims resulting from the September 11 terrorist attacks did not fall under the Act's jurisdictional grant); 730 Bienville Partners, Ltd. v. Assurance Co. of Am. Int'l, No. Civ.A. 02-0 1006, 2002 WL 985809 (E.D. La. April 16, 2002) (denying defendant's motion to transfer venue to the Southern District of New York pursuant to the Air Stabilization Act where dispute involved insurance coverage for business losses tangentially caused by the terrorist attacks). Therefore, this Court does not have personal jurisdiction over defendants pursuant to the Air Stabilization Act.
For the foregoing reasons, defendants' motion to dismiss for lack of personal jurisdiction is GRANTED.*fn6