Employers Ins. of Wausau v. Estado, 99-1304

• Decision Date: 15 December 1999
• Docket Number: No. 99-1304,99-1304
• Citation: 199 F.3d 937
• Parties: (7th Cir. 1999) Employers Insurance of Wausau, Plaintiff-Appellee, v. Banco De Seguros Del Estado, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 937

199 F.3d 937 (7th Cir. 1999)

Employers Insurance of Wausau, Plaintiff-Appellee, v. Banco De Seguros Del Estado, Defendant-Appellant.

No. 99-1304

In the United States Court of Appeals For the Seventh Circuit

Argued September 13, 1999

Decided December 15, 1999

Appeal from the United States District Court for the Western District of Wisconsin. No. 98 C 521--Barbara B. Crabb, Judge.

Before Posner, Chief Judge, and Cudahy and Kanne, Circuit Judges.

Kanne, Circuit Judge.

Banco De Seguros Del Estado ("Banco") was a member of a Lloyd's, London syndicate that reinsured several insurance policies underwritten by Employers Insurance of Wausau ("Wausau"), a Wisconsin insurance company. In September 1995, an arbitration panel awarded Wausau $7,783,324 from the syndicate, of which Banco was liable for $181,319. When Wausau filed a petition in the district court to confirm the arbitration award against Banco Banco moved to vacate, claiming that Wausau's service of notice of arbitration did not comply with the terms of their reinsurance contract or with the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. sec.sec. 1330, 1602-1611. The district court granted Wausau's motion to confirm and denied Banco's motion to vacate. Banco appeals, claiming that the district court made errors of law and fact in determining that notice of arbitration had been served properly on Banco. Finding no error, we affirm.

I. History

Banco is the state insurance bank and an instrumentality of the Sovereign Republic of Uruguay. Wausau is a mutual insurance company organized under Wisconsin law with its principal place of business in Wausau, Wisconsin. Between 1966 and 1973, Wausau entered into a series of contracts known as excess retrocessional insurance treaties ("Treaties") with more than 100 underwriters at Lloyd's, London and other London market insurance companies, including Banco, commonly referred to as the "retrocessionaires." Under the Treaties, the retrocessionaires agreed to reinsure Wausau for specified percentages of direct reinsurance losses paid by Wausau, as long as those losses were within the coverage of the Treaties.

The Treaties were identical to one another, except for the specific percentages of coverage allocated to a particular party under each one. Each Treaty contained an arbitration clause, which stated that any arbitration requested by the parties would take place in Wausau, Wisconsin. The arbitration clause did not specify what procedures would be used in the event of an arbitration. Each Treaty also contained a "Service of Suit" clause, which provided that:

It is agreed that in the event of a failure of the [retrocessionaires] hereon to pay any amount claimed to be due hereunder, [retrocessionaire], at the request of the reinsured, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction . . .

It is further agreed that service of process in such suit may be made upon Messrs. Mendes & Mount . . . and that in any suit instituted against [retrocessionaires], [retrocessionaires] will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.

[Mendes & Mount] are authorized and directed to accept service of process on behalf of [retrocessionaires] in any such suit and/or upon the request of the reinsured to give a written undertaking to the reinsured that they will enter a general appearance upon [retrocessionaire's] behalf in the event such suit will be instituted.

Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, [retrocessionaires] hereby designate the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as their true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the reinsured . . . and hereby designate the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof.

The New York law firm of Mendes & Mount was designated as the party to accept service for Banco. Each Treaty also contained an "intermediary clause," which designated Pritchard & Baird, Inc., ("Pritchard") as the "intermediary . . . through whom all communications and transactions relating thereto shall be transmitted by the parties."

Pursuant to the intermediary clause, Wausau and the retrocessionaires originally communicated through Pritchard. However, Pritchard became insolvent in 1975, and the parties to the Treaties thereafter used Leslie & Godwin, a British firm, as an intermediary. The parties never amended their Treaty to reflect this change. Leslie & Godwin contacted Banco through another intermediary, Argenhall, S.A., an Argentine brokerage firm.

In 1984, Wausau began to submit proofs of loss to Leslie & Godwin and to Lord, Bissell & Brook, counsel to the lead underwriter among the retrocessionaires, Merrett Syndicate. These proofs of loss showed that policy-holders on policies reinsured by Wausau suffered extensive injuries related to asbestos contamination. Merrett Syndicate engaged Lord, Bissell & Brook to audit these claims and determine whether they fell within the scope of the Treaties. Despite continued submissions of proofs of loss, the retrocessionaires refused to reimburse Wausau for its losses.

By 1991, Wausau determined that the retrocessionaires had not complied with the terms of the Treaties. On May 27, 1991, Wausau sent a demand for arbitration to Lord, Bissell & Brook, as agent for Merrett Syndicate, according to the custom of Lloyd's, London that the lead underwriter traditionally handles claims on behalf of all underwriters in a syndicate. Lord, Bissell & Brook then forwarded Wausau's arbitration demand to Leslie & Godwin, who attempted to notify the other retrocessionaires. In June 1991, Leslie & Godwin sent Argenhall a letter informing Banco of Wausau's arbitration demand and asking for confirmation that Lord, Bissell & Brook would represent them. Banco claims that it never received this communication. In the letter, Leslie & Godwin requested that Banco respond, but Banco did not.

On August 19, 1991, Wausau petitioned the Marathon County Circuit Court in Wisconsin for an order compelling the retrocessionaires to proceed with arbitration. The Wisconsin Commissioner of Insurance was served with two copies of the petition, and Mendes & Mount was served with one copy. In addition, Wausau provided Leslie & Godwin and Lord, Bissell & Brook each with a copy of the petition. The caption of the petition identified the respondents to the petition as including "certain London Market Insurance Companies, including those identified in Appendix A." Appendix A to the petition lists among the respondents the following two parties: "Banco" and "Banco di Seguros del Estado." Banco claims that Mendes & Mount did not notify it of the petition.

The trial court granted Wausau's motion in October 1991, and the Wisconsin Court of Appeals affirmed the circuit court's decision in Employers Ins. of Wausau v. Jackson, 505 N.W.2d 147 (Wis. Ct. App. 1993). In February 1995, the Wisconsin Supreme Court also affirmed. See Employers Ins. of Wausau v. Jackson, 527 N.W.2d 681 (Wis. 1995). The arbitration proceedings commenced in the summer of 1995. In August 1995, Leslie & Godwin again contacted Argenhall and attempted to inform Banco that it was a party in the arbitration proceeding and to ask Banco if it wished Lord, Bissell & Brook to represent it in the proceedings. Banco did not respond to this message and did not participate in the proceedings.

On September 18, 1995, the arbitration panel issued an award in favor of Wausau in the amount of $7,783,324 as a full and final settlement of all its loss claims. The retrocessionaires were each liable for a portion of the award, which varied according to each retrocessionaire's proportionate share of the coverage allocation. The retrocessionaires were given forty-five days to pay their respective shares. If they did not pay, each would be subject to stiff penalties, including 7.5 percent interest and joint and several liability for attorneys' fees and costs, and would be required to provide a $9,000,000 letter of credit to Wausau to secure payment of the retrocessionaires' ultimate liability. Banco's share of the total award was $181,319 but Banco was not listed on the arbitration award. Banco claims that it was never informed of the arbitration proceedings, and it has not paid either its share of the award or its additional penalties, which now exceed $9,000,000.

In July 1998, Wausau filed a petition to confirm the arbitration award as to Banco in the United States District Court for the Western District of Wisconsin. Wausau served this petition on both the Wisconsin Commissioner of Insurance and on Mendes & Mount. Banco's name was listed in the caption, and Mendes & Mount caused process to be served on Banco at its principal place of business in Montevideo, Uruguay. Banco responded to the motion with a motion to vacate the arbitration panel's award. It claimed that it had never received notice of the arbitration and was not properly served in accordance with Wisconsin law or the requirements of the FSIA. On January 5, 1999, the district court denied Banco's motion to vacate and granted Wausau's motion to confirm. The court found that service on Mendes & Mount and the Wisconsin Commissioner of Insurance of the petition to compel arbitration was sufficient to meet the requirements of the Treaties, Wisconsin law and the constitutional right to due process.

II. Analysis

On appeal, Banco argues that the district court erred by determining that Wausau's service of process was effective as to Banco, and it argues that the...