Global Reinsurance Corp. -U.S. Branch v. Equitas Ltd.

• Decision Date: 27 March 2012
• Parties: GLOBAL REINSURANCE CORPORATION–U.S. BRANCH, Formerly Known as Gerling Global Reinsurance Corporation–U.S. Branch, Respondent, v. EQUITAS LTD. et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

18 N.Y.3d 722

969 N.E.2d 187

946 N.Y.S.2d 71

2012-1 Trade Cases P 77,838

2012 N.Y. Slip Op. 02251

GLOBAL REINSURANCE CORPORATION–U.S. BRANCH, Formerly Known as Gerling Global Reinsurance Corporation–U.S. Branch, Respondent,

v.EQUITAS LTD. et al., Appellants.

Court of Appeals of New York.

March 27, 2012.

Simpson Thacher & Bartlett LLP, New York City (Kevin J. Arquit, Mary Kay Vyskocil and Summer Craig of counsel), and Simpson Thacher & Bartlett LLP, Washington, D.C. (Arman Y. Oruc of counsel), for appellants.

Cahill Gordon & Reindel LLP, New York City (Edward P. Krugman, S. Penny Windle and Lawrence A. Reicher of counsel), for respondent.

Dewey & LeBoeuf LLP, New York City (John M. Nonna, Larry P. Schiffer and Daniel T. Stabile of counsel), for Society of Lloyd's, amicus curiae.

OPINION OF THE COURT

Chief Judge LIPPMAN.

At issue is the sufficiency and extraterritorial reach of plaintiffs claim under New York State's antitrust statute, commonly known as the Donnelly Act (General Business Law § 340 et seq.).

Plaintiff is a New York branch of a German reinsurance corporation. Defendants (hereinafter collectively referred to as Equitas) are London, England based entities engaged in the business of providing retrocessionary reinsurance. Retrocessionary reinsurers, or retrocessionaires as they are known, write coverage for risks ceded to them by reinsurers, in this transactional context referred to as “cedents.”

According to the complaint, this action arises from practices employed in connection with the handling of claims made under retrocessional reinsurance treaties providing what is known as “non-life” coverage. Among the risks insured under this heading are those of environmental, catastrophic and asbestos related origin. Liabilities under policies insuring such risks typically are of the “long tail” variety; they may surface long after the policy period and it is clear in retrospect that underwriters did not accurately appreciate the magnitude of “non-life” risks or the unusual persistence of the liability they would engender.

Over the years, Lloyd's of London, an insurance marketplace composed of numerous competing insurance syndicates, themselves composed of individual underwriting participants (natural persons referred to as Names), issued, through its syndicates substantial non-life retrocessional coverage. By the early 1990s, it became evident that the liabilities arising under this coverage were mounting at an alarming rate and would soon outstrip the syndicates' reserves.

The syndicates individually proved unable to respond to this impending crisis, in significant part because in competing with each other for prospective business it was their practice to pay retrocessionary claims without haggling and without imposing onerous administrative burdens on their cedents. It was thus proposed that, since individual action by the syndicates to limit liability by more closely scrutinizing claims would be commercially unviable, the Names should agree to repose decision making with respect to the handling of certain liabilities arising under pre–1993 Lloyd's non-life retrocessionary coverage, in a newly created entity—a reinsurer that would, because it would be in perpetual “run-off” (i.e., merely concluding obligations under existing coverage and not soliciting new business), be free to adopt a more aggressive approach to the handling of claims. This proposal, as set forth by the governing body of Lloyd's in a “Reconstruction and Renewal Plan” (R & R plan), was approved by the Names and subsequently reviewed and found unobjectionable by United Kingdom and European Union antitrust regulatory authorities, i.e., the United Kingdom Department of Trade and Industry and the European Commission.¹

It was pursuant to the R & R plan that Equitas was created in 1996 to reinsure the otherwise uninsurable non-life retrocessionary obligations of the Lloyd's syndicates. And, in accordance with a Reinsurance and Runoff Contract (RROC), the Names reinsured with Equitas their risks under the Lloyd's syndicates' pre–1993 non-life retrocessionary treaties. The consideration for this coverage was comprised of some £14.7 billion in assets (premiums paid for the subject coverage) held by the syndicates and significant additional contributions by the Names individually, and by Lloyd's and its functionaries. Although subsequent to these transfers and until 2009 ² the Names remained severally liable under the coverage extended by the syndicates, pursuant to the RROC Equitas was given plenary power to manage claims arising under the subject pre–1993 coverage.³ The Names were concomitantly barred from reaching the funds transferred in exchange for the reinsurance provided by Equitas.

Plaintiff reinsurer purchased coverage for some of its non-life risks from Lloyd's retrocessionaires. The risks ceded by it to Lloyd's syndicates underwritten by pre–1993 retrocessionary coverage were, subsequent to the adoption of the R & R plan, in turn ceded by the Lloyd's retrocessionaires to Equitas under the RROC. According to plaintiff, Equitas adopted a “hard-nosed” approach to the handling of its claims, involving among other practices, holding payments due hostage to concessions by plaintiff and imposing extraordinarily onerous documentation requirements. In addition to commencing arbitration proceedings against the underwriters in which it sought damages for these alleged abuses under the governing insurance treaties, plaintiff filed this action in March 2007, asserting in its original complaint a Donnelly Act claim as well as one sounding in tortious interference with contractual relations.

On a CPLR 3211 motion preceding the one now before us, the tortious interference claim was dismissed, upon the ground then urged by Equitas that the wrongful conduct attributed by plaintiff to it had not been performed by it as a stranger to the contracts said to have been interfered with, but in its capacity as the claims handling agent of the contractually bound Names (20 Misc.3d 1115[A], 2008 N.Y. Slip Op. 51362[U], *8, 2008 WL 2676805 [2008] ). The motion court, however, sustained plaintiff's Donnelly Act claim finding, as is here relevant, that plaintiff had adequately alleged in the claim's support a geographical market for retrocessional non-life insurance limited to the Lloyd's marketplace. The court nonetheless granted plaintiff's request to amend its complaint to allege that the relevant market was global.⁴

The resulting second amended complaint, the pleading now at issue, alleges in support of the Donnelly Act claim that prior to the R & R plan and the consequent creation of Equitas, retrocessional non-life claims handling with respect to pre–1993 Lloyd's coverage was performed by the individual Lloyd's syndicates which, because they competed with each other for new business and were thus anxious to curry favor with potential cedents, were disposed to settle claims expeditiously and fairly. Following the R & R plan and the centralizing of all decision making respecting the handling of the subject category of claims in Equitas pursuant to the RROC, there ceased to be any competitive disincentive to the adoption of sharp claims management practices—Equitas had no interest in attracting prospective business; its sole mission was to marshal its fund with the considerable amount of parsimony necessary to cover the avalanche of liabilities that had led to its existence. The complaint further alleged that Lloyd's concentration of claims management decision making power in Equitas would operate to suppress competition in the delivery of a crucial component of the retrocessional non-life coverage product, namely, claims management, and that it would do so not only within the Lloyd's marketplace, but in the world.⁵

After the filing of the second amended complaint, Equitas again moved to dismiss pursuant to CPLR 3211. In deciding this motion, Supreme Court focused upon the circumstance that the complaint, while nominally alleging that the pertinent geographical market for the particular species of coverage at issue was global, actually seemed to continue to rely upon the existence of a cognizable submarket confined to the Lloyd's marketplace. Given the new allegations that there was a worldwide market for retrocessional non-life coverage, and the absence of any allegation that the coverage available in the Lloyd's marketplace could not be acquired elsewhere on competitive terms, the court concluded that Lloyd's was not a viable submarket and on that ground dismissed the Donnelly Act claim, since an assertion of market power adequate to sustain a claim for restraint of trade may only be demonstrated within the context of an identified relevant market or submarket (24 Misc.3d 264, 273–274, 876 N.Y.S.2d 325 [Sup. Ct., N.Y. County 2009] ).⁶

On plaintiffs appeal from the subsequently entered judgment dismissing the complaint,⁷ the Appellate Division, with one justice dissenting, reversed and reinstated the Donnelly Act claim. The Court found that the complaint adequately pleaded a worldwide market. And, while acknowledging that the crucial allegations contained in paragraph 36 of the amended pleading (n. 5, supra ), did not separately allege market power—i.e., that Lloyd's was capable of unilaterally raising prices for retrocessional non-life coverage in the relevant market significantly without losing any business ( see CDC Tech., Inc. v. IDEXX Labs., Inc., 186 F.3d 74, 81 [2d Cir.1999] )—the allegations read together and liberally construed were, in the Court's view, adequate to that purpose ( 82 A.D.3d 26, 35, 921 N.Y.S.2d 1 [1st Dept.2011] ). The Court rejected, either expressly or impliedly, defendants' remaining contentions, among them that there was no actionable conspiracy because Equitas had at all relevant times acted unilaterally and pursuant to agreements (the R & R plan and the RROC) approved by the United Kingdom and European...