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CONTINENTAL CASUALTY v. CERTAIN UWTR. AT LLOYD'S LONDON

March 15, 2004.

CONTINENTAL CASUALTY COMPANY, Petitioner, -against- CERTAIN UNDERWRITERS AT LLOYD'S LONDON, Respondents


The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge

OPINION

Petitioner Continental Casualty Company seeks an order to compel certain Lloyd's of London Syndicates to arbitrate a dispute pursuant to the Federal Arbitration Act, 9 U.S.C. § 1-16. The petition is granted.

Facts

  In 1998 certain Lloyd's of London Syndicates agreed to enter into a reinsurance contract with The Legion Insurance Company. Syndicates agreed to underwrite "excess of loss" reinsurance for Legion according to the following percentages:

  Lloyd's Underwriter Syndicate No. 0376 (JHV) 27.48% Lloyd's Underwriter Syndicate No. 2376 (JHV) 32.52% Lloyd's Underwriter Syndicates 1207 (AST) 40.00% Page 2

  This agreement was embodied in a Placement Slip, dated April 23, 1998. The Slip provided that the Syndicates would "indemnify the Reinsured" for certain specified losses. The Slip defined the "Reinsured" as follows:
REINSURED: THE LEGION INSURANCE COMPANY, PA., NAIC; 24422 AND/OR LEGION INDEMNITY COMPANY AND/OR ALL OTHER COMPANIES, WHICH ARE NOW OR HEREAFTER BECOME PART OF MUTUAL RISK MANAGEMENT, LTD GROUP AND/OR THEIR QUOTA SHARE REINSURERS.
  The Slip subsequently underwent a series of revisions. On July 10, 1998 the Slip was amended to read:
 
REINSURED: THE LEGION INSURANCE COMPANY, PA., NAIC; 24422 AND/OR LEGION INDEMNITY COMPANY AND/OR ALL OTHER COMPANIES, WHICH ARE NOW OR HEREAFTER BECOME PART OF MUTUAL RISK MANAGEMENT, LTD GROUP AND/OR THEIR QUOTA SHARE REINSURERS AND/OR EAGLE STAR REINSURANCE COMPANY LIMITED IN RESPECT OF THEIR PARTICIPATION IN ANY FRONTING ARRANGEMENTS FOR GLOBAL MANAGERS, INC. ACCEPTANCES.
  Both of these clauses include "Quota Share Reinsurers" in their definitions of "Reinsured." As discussed below, Continental became such a quota share reinsurer.

  One of the conditions of insurance listed in the Placement Slip was labeled "Arbitration Clause." The parties concede that this had the effect of incorporating by reference a standard clause providing for arbitration of all Page 3 disputes arising from the Placement Slip.

  On January 1, 1998 Continental entered into an agreement with Legion to act as a quota share reinsurer to Legion. There were other quota share reinsurers. A quota share reinsurer is a reinsurer to whom the primary insurer cedes a percentage of the premiums and risks in a given class of business. In this case, Legion ceded 100% of its risk and premiums to a group of quota share insurers. Continental underwrote 20% of that risk. Any claim that was filed under the primary insurance contracts underwritten by Legion was thus paid by the quota share insurers in proportion to the share of risk they underwrote.

  It appears that Eagle Star Reinsurance Company, named in the July 10, 1998 definition of Reinsured, acted as a fronting company for Legion and took a quota share participation.

  The excess of loss reinsurance written by the Syndicates applied over a certain threshold level of loss. The details of the excess of loss coverage are somewhat complex and need not be described here. Page 4

  On March 26, 2001 the Syndicates notified Legion that it was rescinding their excess of loss reinsurance contract and tendered Legion's premium. The Syndicates claimed they had a right to rescission because of fraudulent misrepresentations on the part of Legion regarding the types of risk that Legion was underwriting. The Syndicates gave notice of rescission before any claims were made against the Syndicates. Legion refused to accept the check for the refunded premium, but has, nonetheless, never sought to enforce the excess of loss reinsurance contract or asserted any claims under it.

  Legion provided coverage to parties taking out insurance with Legion. Claims were made under this coverage and such claims were paid by Continental and other quota share reinsurers. It appears that payments made by the quota share reinsurers were high enough so that the excess of loss reinsurance coverage applied to the extent of $16.5 million.

  At some point Legion came under the administration of a liquidator in Pennsylvania. The exact date when this occurred is not in the record, but the administration was in effect at least by August of 2003. The issue arose as to how the quota share reinsurers could obtain reimbursement from the Syndicates under the excess of loss reinsurance. Legion and its liquidators took no steps to pursue any claims against the excess of loss reinsurers. Page 5 Continental addressed a claim to the Syndicates, which the Syndicates refused to honor. In October 2001 Continental issued a demand for arbitration against the Syndicates on the question of whether the Syndicates had a right to rescind their excess of loss reinsurance contract with Legion. ...


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