PB Life & Annuity Co. v. Universal Life Ins. Co.
| Decision Date | 30 July 2020 |
| Docket Number | 20-cv-2284 (LJL) |
| Parties | PB LIFE AND ANNUITY CO. LTD., Plaintiff, v. UNIVERSAL LIFE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff PB Life and Annuity Co. Ltd., formerly known as Private Bankers and Annuity Co., Ltd., ("PBLA") brought this action, pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. §§ 2201, 2202, seeking a declaratory judgment that a breach of contract dispute with Defendant Universal Life Insurance Company ("ULICO") was not subject to arbitration and must be litigated in federal or state courts in New York. Dkt. No. 5. Defendant ULICO filed a motion to compel arbitration, Dkt. No. 14, and PBLA filed a motion for a preliminary injunction which the parties later agreed would be converted into a motion for a permanent injunction, Dkt. Nos. 19, 26.
On May 12, 2020, the Court granted Defendant's motion to compel arbitration and denied Plaintiff's motion for a permanent injunction of the arbitration. Dkt. No. 33 (the "May 12, 2020 Opinion"). On June 2, 2020, the arbitral panel issued an interim award to ULICO. Dkt. No. 36-1 (the "Award"). Defendant now moves to confirm the arbitration award pursuant to 9 U.S.C. §§ 9, 207. Dkt. No. 34.
For the reasons discussed below, Defendant's motion to confirm is granted.
The Court presumes the parties' familiarity with the factual background of this case as set forth in its May 12, 2020 Opinion, and includes here only additional facts or those helpful in deciding the instant motion. See PB Life & Annuity Co. v. Universal Life Ins. Co., 2020 WL 2476170, at *1 .
ULICO is an insurance company organized under the laws of Puerto Rico with its principal place of business in Puerto Rico. PBLA is an insurance company organized under the laws of Bermuda with its principal place of business in Bermuda. PBLA is a member of the Global Growth family of companies that was founded by Greg Lindberg ("Lindberg"). See Dkt. No. 43 ("Knoezer Decl."), Ex. B at 2; Dkt. No. 41 ("Pace Decl."), Ex. 8 at 4-5.1 Lindberg was arrested in April 2019 and found guilty of financial crimes, including public corruption and bribery, in March 2020 by a federal jury sitting in the Western District of North Carolina. See Dkt. No. 15 at 8.
PBLA and ULICO are parties to a coinsurance reinsurance agreement ("Reinsurance Agreement") whereby PBLA agreed to reinsure liabilities with respect to certain insurance policies issued by ULICO. Under the Reinsurance Agreement, ULICO agreed to cede to PBLA and PBLA agreed to reinsure between 75% and 100% of ULICO's obligations under certain insurance policies or annuity contracts written by ULICO, with the percentage of reinsurance depending upon the particular type of policy sold. Section 4.2(a) of the Reinsurance Agreement requires that PBLA post collateral in respect of its reinsurance obligations "in accordance with Article 11 of Rule 98 of the Insurance Code of Puerto Rico." Article 11(D)(1)(b) of Rule 98, inturn, requires that "investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the [Trust Account] shall not exceed ten percent (10%) of total investments." Section 4.2(a) of the Reinsurance Agreement further contemplates that the parties will enter into a second agreement to establish the account that will hold these reserves ("Trust Account"). Section 10.1 of the Reinsurance Agreement contains an arbitration clause covering disputes arising under or relating to the Reinsurance Agreement.
As required by the Reinsurance Agreement, PBLA and ULICO are also parties to a reinsurance trust agreement effective February 16, 2018 ("Trust Agreement"). The Bank of New York Mellon is also a party to that agreement as trustee. The Trust Agreement does not have an arbitration clause, but instead, Section 6.5 requires that proceedings relating to the Trust Agreement be brought in courts located within the city and state of New York or elsewhere as the trustee may select.
The arbitration grows out of a January 16, 2020 written notice by ULICO to PBLA informing the latter that it had violated Section 4.2(a) of the Reinsurance Agreement, which required that collateral be in accordance with Article 11 of Rule 98 of the Insurance Code of Puerto Rico. ULICO claimed that over 65% of the assets held in the Trust Account were loan obligations of PBLA's affiliated entities and therefore violated this 10% rule under Puerto Rico law.2 The written notice was followed by a formal written demand for arbitration sent by ULICO to PBLA on January 27, 2020.
PBLA attempted to avoid arbitration, at first denying that the dispute was subject to arbitration under the Reinsurance Agreement and refusing to participate in the arbitration or to name an arbitrator. After ULICO requested that the American Arbitration Association ("AAA") appoint an arbitrator on PBLA's behalf and the AAA indicated it would do so, PBLA again attempted to avoid arbitration by filing this action to seek a declaratory judgment that the dispute between it and ULICO was not subject to arbitration. PBLA's attempts were unsuccessful. This Court denied PBLA's request for a temporary restraining order ("TRO") during a hearing on April 27, 2020. In its May 12, 2020 Opinion, the Court denied PBLA's motion for a permanent injunction restraining arbitration and granted ULICO's motion to compel arbitration.
The arbitration went forward. On April 29, 2020, after this Court had denied the TRO and while it was considering the motion for a permanent injunction, the parties had a telephonic preliminary hearing before the arbitral panel in which ULICO presented its position statement that set forth the basis for the dispute and argued that it was arbitrable. Knoezer Decl., Ex. B.3 The position statement also said that ULICO would be seeking interim relief in the form of security to rectify the deficiency in the collateral that PBLA had deposited in the Trust Account, and it proposed a schedule by which the parties would file motions on ULICO's request for pre-hearing security. PBLA also submitted a position statement but did not submit it to this Court. See Knoezer Decl., Ex. C ( ) at 21:23-25 ().
The following day, the panel issued a briefing schedule for the requested interim relief. Id., Ex. D. ULICO's motion would be due by May 6, 2020, PBLA's opposition by May 20, 2020, and ULICO's reply by May 27, 2020. See id. Ex. B at 14, Ex. D. The panel scheduled themotion for a hearing on May 29, 2020, after which time the panel would have received briefing from both parties.4
On May 29, 2020, the panel held a two-hour hearing on ULICO's motion for interim relief. During the hearing, ULICO highlighted evidence that PBLA's December 31, 2019 quarterly investment report identified 59 of the 65 securities in the Trust Account as related-party assets, equivalent to $524 million, and that the percentage of related-party assets in the Trust Account violated both Puerto Rico's insurance regulations and the terms of the Reinsurance Agreement. See Pace Decl., Ex. 10 ("Award Hr'g Tr.") at 11:16-12:7. These violations had led rating agency A.M. Best to downgrade ULICO twice, and A.M. Best indicated it would do so again if the situation were not remedied. See id. at 12:2-12, 53:19-54:3; see also 13:3-7 (downgrades "were expressly a result of concerns over the assets that PBLA has in its [Trust Account]"). ULICO further explained that as a company that sells policies to private individuals, its credit rating is "the most important thing," and that if it loses that credit rating, it will go out of business. Id. at 12:21-13:3. As a result, it requested as preliminary relief that the panel order PBLA to place a deposit of $524 million into a separate, segregated account under the supervision of the panel so that PBLA could not replace that deposit with other assets. See id. at 13:8-14:3.
PBLA responded that the "central dispute" was whether the assets were sufficiently valuable and argued that they were valuable, safe, and liquid. Id. at 16:23-2, 37:14-38:19. To support this point, PBLA stated that ULICO had previously represented that the assets in thepredecessor account to the Trust Account, and those which PBLA asserted were also in the Trust Account, were worth $500 million. Id. at 24:22-26:9. It further argued that ULICO had not met its burden of showing the value of the Trust Account assets. Id. at 33:20-37:13.
On June 2, 2020, the panel issued an order granting ULICO's motion for preliminary relief and requiring PBLA to deposit $524,009,051.26 in a separate bank account strictly for the purpose of securing PBLA's obligations under the Reinsurance Agreement and, if necessary, for ULICO's payment of any liabilities incurred pursuant to ULICO's obligations (the "Segregated Account"). See Award at 6 ¶¶ 1-3. The Award requires PBLA to deposit the funds within ten (10) business days of the Award, after which date interest will run at 6% per annum. Id. at 6 ¶ 1. The panel noted that the Award was preliminary to a determination on the merits and asked the parties to meet and confer in order to propose a pleading and discovery schedule and a hearing date for the merits portion of the arbitration. Id. at 7 ¶ 7.
In issuing the Award, the panel relied on the fact that the assets in the Trust Account did not conform to Puerto Rico's insurance regulations and the terms of the Reinsurance Agreement. The panel stated:
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