Odyssey re (London) v. Stirling Cooke Brown Hold.
| Decision Date | 25 February 2000 |
| Docket Number | No. 99 Civ. 2326(NRB).,99 Civ. 2326(NRB). |
| Parties | ODYSSEY RE (LONDON) LIMITED, Plaintiff, v. STIRLING COOKE BROWN HOLDINGS LIMITED, Stirling Cooke Brown Insurance Brokers Limited, Stirling Cooke Brown Reinsurance Brokers Limited, Stirling Cooke Brown North American Holdings Limited, Stirling Cook Brown North American Reinsurance Intermediaries Inc., Nicholas Brown, Raydon Underwriting Management Company Limited, Jeh Re Underwriting Management (Bermuda) Limited, Reginald Billyard, Web Management LLC, Euro International Underwriters Limited, John Hubert Whitcombe, and Christopher R. Henton, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Thomas R. Manisero, Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., New York City, for plaintiff.
Robert S. Frank, West Lawrence, NY, for Jeh Re Underwriting Management (Bermuda) Ltd., Reginald Billyard, defendants.
The plaintiff, Odyssey Re (London) Limited ("Odyssey"), a London-based corporation engaged in the business of insurance and reinsurance, brought this action against the defendants, a group of British and Bermudan insurance and reinsurance companies, their subsidiaries, and a number of individual principals of those companies. Odyssey asserts three counts against the each of the various defendants: (1) common law fraud; (2) violation of the Racketeer Influenced & Corrupt Organizations Act ("RICO" or the "Act"), 18 U.S.C. § 1962(c); and (3) violation of RICO's conspiracy provision, 18 U.S.C. § 1962(d). In brief, plaintiff alleges that the defendants engaged in an international conspiracy to fraudulently induce Odyssey to reinsure drastically unprofitable worker's compensation policies. Currently pending are several motions to dismiss this action based on various grounds.
A brief description of the named defendants in this case is necessary to begin this opinion.1 The first group of defendants are Euro International Underwriters Limited ("Euro"), John Hubert Whitcombe ("Whitcombe"), and Christopher R. Henton ("Henton"), collectively the "Euro defendants." According to plaintiff's Amended Complaint,2 Euro is "a corporation that Whitcombe and Henton began operating under English law in February 1997, and maintains its principal place of business [in] London, England." Comp. ¶ 17. Both Henton and Whitcombe, the Amended Complaint alleges, reside in Essex, England and are "citizen[s]" (or, more accurately, subjects) "of the United Kingdom." Id. ¶¶ 18-19. Whitcombe "approached Odyssey through Horace Holman International ("Holman"), a London broker, and requested Odyssey to extend [b]inding [a]uthority to him" to enter into reinsurance contracts on Odyssey's behalf. Id. ¶ 37. Whitcombe and Henton presented Odyssey with a "Background Report," a "Business Plan," and various other representations to entice Odyssey into conferring Whitcombe and Henton with the binding authority. Id. ¶¶ 38-43. Accepting the allegations of the Amended Complaint as true, Whitcombe and Henton apparently started Euro as a vehicle to solicit reinsurance on behalf of Odyssey.
The second group of defendants are Stirling Cooke Brown Holdings Limited ("SCB Holdings"), Stirling Cooke Brown Insurance Brokers Limited, Stirling Cooke Brown Reinsurance Brokers Limited, Stirling Cooke Brown North American Holdings Limited, Stirling Cooke Brown North American Reinsurance Intermediaries, Inc., and Raydon Underwriting Management Company Limited, collectively the "SCB Defendants." SCB Holdings, the parent company, is a Bermudan company whose securities are traded publicly in the United States on the NASDAQ exchange market. Comp. ¶ 8. The other SCB defendants are some of SCB Holdings' subsidiaries throughout Britain, Bermuda, and the United States, all engaged in the business of selling insurance and reinsurance. Id. ¶¶ 9-11, 13. Additionally, the Amended Complaint names as a defendant Nicholas Brown, the "principal shareholder and controlling person of SCB Holdings" who "resides in England and Bermuda." Id. ¶ 12. According to the Amended Complaint, the SCB defendants agreed to "direct substantial volumes of [worker's compensation reinsurance] business" to the Euro defendants. Id. ¶ 37. Plaintiff alleges that this business took the form of "guaranteed loss contracts" that the Euro defendants would in turn pass on to Odyssey through the mechanism of the binding authority. Id. ¶ 36.
The third group of defendants is JEH Re Underwriting Management (Bermuda) Limited ("JEH") and its principal, Reginald Billyard ("Billyard"), collectively the "JEH defendants." Billyard is a resident of Bermuda and JEH maintains its offices there. Comp. ¶¶ 14-15. The Amended Complaint alleges that Billyard, a long-time business associate of SCB Holdings' Brown, served as "managing general underwriter" for John Hancock Mutual Life Insurance Company of America ("John Hancock"), and agreed to pass on John Hancock's worker's compensation liability, ultimately to Odyssey through the SCB defendants and Euro's binding authority. Id. ¶¶ 23-27.
The final defendant is Web Management, L.L.C., a Connecticut-based company partly owned by SCB Holdings. Comp. ¶ 16. According to the Amended Complaint, Chuck Bastan, one of the principals of Web, was a former colleague of Billyard's when they were both in the employ of yet another company, Duncanson & Holt. Id. ¶ 24. Web's other principals, Robin Ekwall and Steven Wright, were involved with transactions involving SCB entities when they were employed by Phoenix Home Life and Phoenix American Life. Id. ¶¶ 23-24. Web served as managing general underwriter for All American Life Insurance Company, U.S. Life Insurance Company, and Trustmark Insurance Company. Id. The Amended Complaint alleges that Web was able to reinsure those companies' liability almost exclusively through other unspecified defendants, and that much of this liability was eventually ceded to Odyssey through Euro's binding authority. Id. ¶¶ 23-25, 33-38.
Defendant's have moved to dismiss as follows: the Euro defendants, SCB Holdings, Raydon, and the JEH defendants based on the ground of lack of personal jurisdiction (Fed.R.Civ.P.12(b)(2)); the Euro defendants, SCB Holdings, and Raydon based on insufficient service of process (Fed.R.Civ.P.12(b)(5)); and all defendants based on the grounds of lack of subject matter jurisdiction (Fed.R.Civ. P.12(b)(1)) and insufficient pleading of the RICO and fraud counts (both Fed.R.Civ.P. 9(b) and 12(b)(6)). Additionally, the Euro and SCB defendants have moved to dismiss based on the doctrine of forum non conveniens.3 Defendant Nicholas Brown has not responded to plaintiff's Amended Complaint in any way.4 Plaintiff, of course, disputes each of these grounds.5
Reinsurance is a contractual arrangement whereby one insurer (the "ceding insurer" or "reinsured") transfers, or "cedes" all or part of the risk it underwrites pursuant to a policy or group of policies to another insurer. See Colonial American Life Insurance Co. v. Commissioner, 491 U.S. 244, 246-248, 109 S.Ct. 2408, 105 L.Ed.2d 199 (1989); Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049, 1053 (2d Cir.1993). Unigard Security, 4 F.3d at 1053 (internal citations omitted). "Reinsurance is simply an insurance policy issued to an insurer." Employers Insurance of Wausau v. American Centennial Insurance Co., No. 86 Civ. 8576, 1989 WL 6631, at *1 (S.D.N.Y. Jan. 24, 1989). "Pursuant to the reinsurance contract, the reinsurer agrees to indemnify the ceding insurer in return for a portion of the premium on the risk transferred." Barry R. Ostrager and Thomas R. Newman, Handbook on Insurance Coverage Disputes, § 13.01[a] (1990) (citing, inter alia, Transcontinental Underwriters Agency, S.R.L. v. American Agency Underwriters, 680 F.2d 298, 299 n. 2 (3d Cir.1982); Delta Holdings, Inc. v. National Distillers and Chemical Corp., No. 85 Civ. 3439, 1988 WL 36330, at *1-3 (S.D.N.Y. Apr.11, 1988)).
According to the Amended Complaint, "[i]n or about mid-1996, Whitcombe and Henton [the principal Euro defendants] agreed with Brown and the "Stirling Cooke entities"6 that if Whitcombe and Henton would identify and secure [binding] authority to act on behalf of a financially sound, U.S. qualified [target] reinsurer,7 the [other defendants] would direct substantial volumes of business to Whitcombe and Henton, from which they would derive tremendous personal income." Comp. ¶ 37.
The plan worked as follows: First, the managing general underwriters ("MGU's") who were part of the enterprise (JEH, Web, and several of the SCB subsidiaries) would seek out and reinsure "materially under priced reinsurance" from U.S. workers' compensation insurers. Id. ¶ 35. Then, Whitcombe and Henton would "retrocede," or pass that liability from the MGU's to the unknowing target reinsurer through the binding authority in such a way that "was structured to guarantee the purchaser [and the underwriter] a profit." Id. Finally, the target reinsurer would be left beholden to the original insurer for a "guaranteed loss contract" for which "massive losses are inevitable." Id. ¶ 36. It was key to the plan that the deals be structured in such a way that "created the illusion of profitability," "delayed the inevitable presentation of these vast losses to the true risk bearers," and "provided a further source for generation of risk-free income for the defendants." Id.
Plaintiff alleges that in mid-1996, Whitcombe approached Odyssey in England, through Holman, a London-based intermediary, to convince Odyssey to extend it binding authority. Id. ¶ 37. Later that fall, Whitcombe and Henton presented Odyssey with a "Background Report,"...
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