Lakehead Pipe Line Co. v. American Home Assur.
| Decision Date | 19 August 1997 |
| Docket Number | Civ. No. 5-95-42(MJD/RLE). |
| Parties | LAKEHEAD PIPE LINE COMPANY, INC., and Interprovincial Pipe Line Inc., Plaintiffs, v. AMERICAN HOME ASSURANCE COMPANY, et al., Defendants. |
| Court | U.S. District Court — District of Minnesota |
Laurie Jean Miller, Leo G. Stern, Richard D. Snyder, Crystal Olsen Glynn, Fredrikson & Byron, Minneapolis, MN, for Plaintiffs.
E. Curtis Roeder, Tony Raymond Krall, Kevin J. Kennedy, Kelly C. Dohm, David Makoto Hudson, Hanson Lulic & Krall, Minneapolis, MN, for Defendants.
This matter came before the undersigned United States Magistrate Judge pursuant to a general assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(A), upon the Motion of the Plaintiffs Lakehead Pipe Line Company, Inc., and Interprovincial Pipe Line Inc. ("Lakehead"), to Require Unauthorized Foreign or Alien Insurers to Post Bond, and the Motion of the Defendant Primary Insurers to Compel Arbitration or, in the alternative, to Bifurcate Trial.
A Hearing on the Bond Motion was conducted on December 12, 1996, at which time Lakehead appeared by Leo G. Stern, Esq., and the Primary Insurers appeared by Norman M. Abramson, Esq. With respect to the Arbitration Motion, consistent with the parties' agreement, the issues have been considered by the Court upon their written submissions and, for these purposes, Lakehead has appeared by Richard D. Snyder, Esq., and the Primary Insurers have appeared by Kelly C. Dohm, Esq.
For reasons which follow, we grant both Motions.
On March 3, 1991, a pipeline, which was owned and operated by Lakehead, ruptured near the City of Grand Rapids, Minnesota, with resultant claims of injury by various property owners who resided in areas adjacent to the rupture. When efforts to resolve the claimed injuries proved unsuccessful, an action was commenced in this Court on June 11, 1991, by certain of the property holders, entitled "Anderson et al. v. Lakehead Pipe Line Co., Inc."
Pursuant to a general liability policy, the Primary Insurers defended the interests of Lakehead in the Anderson proceeding, and indemnified Lakehead for a percentage of the proceeds, which were expended in settling that case, in the Summer of 1993. During the pendency of the Anderson matter, on or about February 27, 1992, Lakehead commenced a declaratory judgment action against the Primary Insurers, in Minnesota District Court, in order to obtain a determination of Lakehead's right to recover its claimed business interruption losses, that were occasioned by the pipeline rupture, from the Primary Insurers' general liability policy. The commencement of that action was prompted by a provision in the underlying policy which required that any such claim be initiated within one year after the claimed loss and, soon after its filing, the parties entered into a stipulated tolling agreement, which preserved their right to bring certain claims against the other, after the completion of the claims adjustment process, and which allowed the dismissal of the State Court action, on February 11, 1993.
Along with its other claims, Lakehead submitted claims of loss to the Primary Insurers, under Policy No. 102610 ("Primary Policy"),1 which were assertedly attributable to the interruption of Lakehead's business, that resulted from the pipeline failure, as well as to certain property damage which was asserted to have been caused by the pipeline's rupture. On March 26, 1992, the Primary Insurers notified Lakehead that its Proofs of Loss, which had been submitted for these claims, were formally rejected, due to "[o]verstatement in the amount and scope of the claim[,]" and because of the "[i]nclusion of inaccurate policy information including but not limited to the expiration date[.]" Thereafter, on March 17, 1995, Lakehead commenced this proceeding, in which it seeks a declaration that the Primary Insurers are obligated, under the Primary Policy, to indemnify Lakehead for its losses attributable to the failure of its pipeline.
Minnesota Statutes Section 60A.21, which is entitled the "Unauthorized Insurers Process Act," provides a mechanism by which service of process can be effected upon insurers who transact business in Minnesota without State authorization. As expressed by the Minnesota Legislature, the purpose behind the Statute, which was originally enacted in 1967, is as follows:
The legislature declares that it is the 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 policies. In furtherance of such state interest the legislature herein provides a method of substituted service of process upon such insurers and declares that in so doing it exercises its powers to protect its residents and to define for the purpose of this statute what constitutes doing business in this state and also exercises powers and privileges available to the states by virtue of [Title 15 U.S.C. § 1011 et seq.], which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states.
Minnesota Statutes Section 60A.21, Subdivision 1. Title 15 U.S.C. § 1011 et seq., which is also known as the "McCarran-Ferguson Act of 1945," was enacted by Congress as a response to the Supreme Court's decision, in United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), in which the Court held that insurance constitutes "commerce," within the meaning of the Commerce Clause. See, Western & Southern L.I. Co. v. Bd. of Equalization, 451 U.S. 648, 653, 101 S.Ct. 2070, 2075, 68 L.Ed.2d 514 (1981). By its enactment of the McCarran-Ferguson Act, "Congress removed all Commerce Clause limitations on the authority of the States to regulate and tax the business of insurance * * *." Id.
At issue in the Motion before us is the third subdivision of Section 60A.21, which provides, in pertinent part, as follows:
(1) Before any unauthorized foreign or alien insurer shall file or cause to be filed any pleading in any action, suit, or proceeding instituted against it such unauthorized insurer shall:
(a) Deposit with the administrator of the court in which such action, suit, or proceeding is pending cash or securities or file with such administrator a bond with good and sufficient sureties to be approved by the court in an amount to be fixed by the court sufficient to secure the payment of any final judgment which may be rendered in such action; or
(b) procure a certificate of authority to transact the business of insurance in this state.
(2) The court in any action, suit, or proceeding in which service is made in the manner provided in clauses (2) or (3) of subdivision 2 hereof, may, in its discretion, order such postponement as may be necessary to afford the defendant reasonable opportunity to comply with the provisions of clause (1) of this subdivision and to defend such action.
A "foreign" insurer is defined as a "compan[y] incorporated or organized in any other state or country[,]" Minnesota Statutes Section 60A.02, Subdivision 6, while an "alien" insurer denotes "an insurer domiciled outside of the United States, but conducting business within the United States." Id., Subdivision 19. The term "unauthorized insurer" is not defined in Chapter 60A, however, Minnesota Statutes Section 72A.491, Subdivision 22 defines "unauthorized insurer" as "an insurance company that has not been granted a certificate of authority by the [Commissioner of Commerce] to transact the business of insurance in this state."
Counsel for Lakehead advises that he has contacted the Minnesota Commissioner of Commerce, and has been informed by that Office that five of the Primary Insurers — specifically, R.A.F. McMillian Syndicate ("R.A.F."), Canadian Home Assurance Company ("Canadian"), Christiania General Insurance Corporation of New York ("Christiania"), Worcester Insurance Company ("Worcester"), and United Reinsurance Corporation of New York ("United") — are not certified, or licensed, to transact the business of insurance in this State and, therefore, are "unauthorized foreign or alien insurers." See, Affidavit of Leo G. Stern, at ¶ 18. For their part, the Primary Insurers have not disputed this representation. As a consequence, and consistent with the language of Section 60A.21, Subdivision 3(1)(a), Lakehead has sought to compel these five Defendants to post a bond which represents their share of the $25 million dollars in insurance coverage that is at issue in this litigation. Accordingly, Lakehead requests that these five Insurers be required to post a combined bond in the amount of $16,329,750.2 In the alternative Lakehead seeks to have the pleadings of these Defendants stricken for failure to post the required security.
In opposing Lakehead's Motion, the Primary Insurers raise several contentions, each of which we address in turn.3
The Primary Insurers' chief contention is that the provisions of Section 60A.21 do not apply to them because they were not "transacting insurance business" in Minnesota, as the Statute contemplates. We disagree.
Section 60A.21, Subdivision 2, provides for service of process on any unauthorized insurer who should engage, within the State, in any one of the following acts:
a. the issuance or delivery of contracts of insurance to residents of [Minnesota] or to corporations authorized to do business therein;
b. the solicitation of applications for such...
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