Mutual Ben. Life Ins. Co. v. Zimmerman
| Decision Date | 08 January 1992 |
| Docket Number | Civ. A. No. 91-1945 (AJL). |
| Citation | 783 F. Supp. 853 |
| Parties | MUTUAL BENEFIT LIFE INSURANCE, COMPANY, Beneficial Life Insurance Company, General American Life Insurance Company, Manufacturers Life Insurance Company (USA), New York Life Insurance Company, Oxford Life Insurance Company and Standard Insurance Company, Plaintiffs, v. George G. ZIMMERMAN, George G. Zimmerman & Company, Inc., William J. Flynn, Wm. J. Flynn Associates, Inc., Paul J. Bargnesi, Samuel C. Corey, and Consultants & Administrators, Inc., Defendants. |
| Court | U.S. District Court — District of New Jersey |
COPYRIGHT MATERIAL OMITTED
John J. Sheehy, Kenneth L. Miller, Rogers & Wells, New York City, and Marc S. Friedman, Friedman Siegelbaum, Roseland, N.J., for All American Life Ins. Co.
Gerald A. Liloia, Peter C. Harvey, Riker, Danzig, Scherer, Hyland & Perretti, Morristown, N.J., for George G. Zimmerman & Co., Inc., George G. Zimmerman and Hartford Line Slip, Inc., formerly known as Zimmerman Line Slip, Inc.
Hugh P. Francis, Francis & Berry, Morristown, N.J., for William P. Flynn and William J. Flynn & Associates, Inc.
Mark F. Hughes, Jr., Robinson, St. John & Wayne, Newark, N.J., for Consultants & Administrators, Inc., Samuel C. Corey and Paul J. Bargnesi.
Richard K. Willard, Richard H. Porter, John F. Kostyack, Steptoe & Johnson, Washington, D.C., and Robert E. Bartkus, Pinto, Rodgers & Kopf, Morristown, N.J., for Mut. Ben. Life Ins. Co., Beneficial Life Ins. Co., General American Life Ins. Co., The Mfrs. Life Ins. Co. (USA), New York Life Ins. Co., Oxford Life Ins. Co., and Standard Ins. Co.
Michael E. Donovan, Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., Newark, N.J., for Integrated Resources Life Ins. Co.
Richard M. Eittreim, McCarter & English, Newark, N.J., for Provident Mut. Ins. Co. of Philadelphia.
Reid Evers, Transamerica Occidental Life Ins. Co., Los Angeles, Cal., and Donald Horowitz, Hackensack, N.J., for Transamerica Occidental Life Ins. Co.
Robert A. Knuti, Lord, Bissel & Brook, Chicago, Ill., and William B. McGuire, Tompkins, McGuire & Wachenfeld, Newark, N.J., for Sec. Ben. Life Ins. Co.
This is a consolidated action (the "Consolidated Action") of four actions, the first, (the "All American Action"), brought by plaintiff All American Life Insurance Company ("All American") against Beneficial Life Insurance Company ("Beneficial"), General American Life Insurance Company ("American Life"), Maine Fidelity Life Insurance Company ("Maine Fidelity"), Mutual Benefit Life Insurance Company ("Mutual"), Oxford Life Insurance Company ("Oxford Life"), New York Life Insurance Company ("New York Life"), Provident Mutual Life Insurance Company of Philadelphia ("Provident Mutual"), Integrated Resources Life Insurance Company ("Integrated Resources"), Security Benefit Life Insurance Company ("Security Benefit"), Standard Insurance Company ("Standard Life"), and Transamerica Life Insurance Company ("Transamerica") (collectively, the "All American Action Defendants"); the second, (the "Security Benefit Action"), is brought by Security Benefit against All American, Bankers Security Life Insurance Society ("Bankers Security"), Business Men's Assurance Company ("BMA"), Consultants and Administrators ("C & A"), United Olympic Life Insurance Company ("United Olympic"), William J. Flynn ("Flynn"), Wm. J. Flynn & Associates ("Flynn & Associates"), George G. Zimmerman ("Zimmerman") and George G. Zimmerman & Company, Inc. ("Zimmerman & Co.") (collectively, the "Security Benefit Action Defendants"); the third, (the "Mutual Action"), brought by plaintiffs Mutual, Beneficial, American Life, Manufacturers Life, Oxford Life, New York Life and Standard Insurance (collectively, the "Mutual Action Plaintiffs") against defendants Zimmerman, Zimmerman & Co., Flynn, Flynn & Associates, Paul J. Bargnesi ("Bargnesi"), Samuel C. Corey ("Corey"), C & A, All American and BMA (collectively, the "Mutual Action Defendants"); and the fourth, (the "United Olympic Action"), brought by United Olympic and Bankers Security against Transamerica.
Currently before the court are motions brought by Zimmerman & Co., and by Flynn and Flynn & Associates (collectively, the "Movants")1 to compel arbitration by the Mutual Plaintiffs and the All American Action Defendants and to stay the discovery and proceedings of the Consolidated Action pending resolution of the arbitration.2 Jurisdiction is alleged pursuant to 28 U.S.C. § 1331; 18 U.S.C. § 1964 and 28 U.S.C. § 1367, supplemental (pendant) jurisdiction. For the reasons set forth below the motions to compel arbitration and to stay the Consolidated Action are denied.
Reinsurance is a secondary level of insurance of risks. Pursuant to a reinsurance contract, primary insurers cede some or all of the risks they have insured to reinsurers. In exchange, the reinsurers receive a percentage of the premiums collected by the primary insurers. Zimmerman & Co. Brief, 1; Zimmerman Aff., Ex. D, 5; First Amended Complaint in the Security Benefit Action, filed 29 October 1991 (the "Security Benefit Complaint"). Reinsurers may join pools, otherwise known as line slips. Zimmerman & Co. Brief, 1. A reinsurance pool has a manager, whose relationship with the reinsurance pool members is governed by a management agreement. Id.; Security Benefit Complaint, ¶ 23. Under the terms of the management agreement, each member of the reinsurance pool agrees to accept a certain portion of all risks accepted by the reinsurance pool manager. Id., ¶ 24.
Reinsurance relationships are frequently established through "reinsurance brokers" or "reinsurance intermediaries." Id., ¶ 19. A reinsurance intermediary advises his or her client of the best available reinsurance program and places the client with the reinsurers at competitive prices and terms. Id. The manager of a reinsurance pool contracts with reinsurance intermediaries to bring together primary insurers and reinsurers. Zimmerman & Co. Brief, 1-2. Primary insurers enter a reinsurance contract with the reinsurance pool.
Retrocessionaires represent the third level of insurers. Reinsurers retrocede a portion or all of the risks they incur to retrocessionaires. Id. Retrocessionaires may join retrocessionaire pools which function the same as a reinsurance pool. Id. It is the custom of the reinsurance and retrocession industry that the parties to reinsurance agreements owe one another a duty of utmost good faith. Security Benefit Complaint, ¶ 17.
Insurance packages may be marketed, sold and administered by insurance company employees or third party administrators. Id., ¶ 28. A third party administrator receives commissions on the insurance packages it administers.
Zimmerman Line Slip, Inc. ("Zimmerman Line Slip")3 is a reinsurance pool incorporated under the laws of New Jersey. Second Amended Complaint of the Mutual Action Plaintiffs, ¶¶ 8, 23 (the "Mutual Complaint"). Its underwriting year is organized by calendar year. Zimmerman Aff., ¶ 3. For the 1988 underwriting year (the "1988 Pool"), Zimmerman Line Slip had thirteen reinsurance companies as members (the "1988 Pool Members"), seven of which are the Mutual Action Plaintiffs and eleven of which are the All American Action Defendants. Id. Zimmerman Line Slip executed a management agreement (the "Management Agreement") with each of the 1988 Pool Members. Mutual Complaint, ¶ 25. The Management Agreement governs the authority and responsibility of Zimmerman Line Slip with respect to the 1988 Pool Members. Zimmerman Aff., ¶ 4. The 1988 Pool Members agreed to accept the following percentage share in the 1988 Pool:
Mutual 9.09% *,4 **5
Beneficial 6.82% *, **
American Life 15.15% *, **
Manufacturers Life 10.00% *
New York Life 9.09% *
Oxford Life 1.51% *, **
Standard 10.00% *, **
Security 12.12% **
Transamerica 4.55% **
Integrated Resources 7.57% **
Provident Mutual 4.55% **
Maine Fidelity 10.00% **
U.S. Cap. Ltd. 9.55% **6
("U.S. Cap.")
Mutual Complaint, ¶¶ 1-7; Zimmerman Aff., ¶¶ 9-10. Each 1988 Pool Member received a pro rata share of premiums from the primary insurer. Id., ¶ 8. In turn, each 1988 Pool Member agreed to pay claims submitted by the primary insurer according to their agreed upon share. Id. The Management Agreement contained an arbitration clause which provides:
As a condition precedent to any right of action hereunder, any dispute or difference hereafter arising with reference to the interpretation, application, or other effect of this Agreement or any part hereof, ... shall be referred to a Board of Arbitration....
Id., Ex. A., Art. X (emphasis added).
Article IV of the Management Agreement provides:
Zimmerman Line Slip shall conduct and manage said Reinsurance business according to its complete discretion, but in a manner consistent with the terms of this Agreement. Any claims or suits as a result of Zimmerman Line Slip's acts or conduct or negligence shall solely be the liability of Zimmerman Line Slip.
Id., Art. IV. Article IV further provides Zimmerman Line Slip "shall have full power and authority ... to negotiate, underwrite ... and accept Reinsurance Contracts ... in the reinsurer's name and behalf permitted by Zimmerman Line Slip Charter...." Id., Art. IV(a).
Article XI, entitled "Limits and Class of Business Authority" provides:
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