Repwest Ins. Co. v. Praetorian Ins. Co.

• Decision Date: 28 August 2012
• Docket Number: No. CV 12–0369–PHX–JAT.,CV 12–0369–PHX–JAT.
• Citation: 890 F.Supp.2d 1168
• Parties: REPWEST INSURANCE COMPANY, Plaintiff, v. PRAETORIAN INSURANCE COMPANY; QBE Insurance Group Ltd., and Aon Benfield, Inc., Defendants.
• Court: U.S. District Court — District of Arizona

890 F.Supp.2d 1168

REPWEST INSURANCE COMPANY, Plaintiff,

v.PRAETORIAN INSURANCE COMPANY; QBE Insurance Group Ltd., and Aon Benfield, Inc., Defendants.

No. CV 12–0369–PHX–JAT.

United States District Court,

D. Arizona.

Aug. 28, 2012.

Carlyle Washington Hall, III, Troy Blinn Froderman, Polsinelli Shughart PC, Daniel Jacob Steimel, Uhaul International Inc., Phoenix, AZ, for Plaintiff.

James Duane Burgess, John Christopher Gooch, Fennemore Craig PC, Phoenix, AZ, Robert Cary Leventhal, Foley & Lardner LLP, Los Angeles, CA, for Defendants.

ORDER

JAMES A. TEILBORG, District Judge.

Pending before the Court are: (1) Defendant Praetorian's Motion to Dismiss or Stay Proceedings and Compel Arbitration (Doc. 11); (2) Defendant QBE Insurance Group Ltd's Motion to Dismiss (Doc. 16); (3) Plaintiff's Motion to Stay Arbitration (Doc. 34); and (4) Defendant Aon Benfield, Inc.'s Motion to Dismiss, or in the Alternative Motion to Stay (Doc. 40). The Court now rules on the Motions.

I. BACKGROUND

On February 23, 2012, Plaintiff Repwest Insurance Company (“Plaintiff” or “Repwest”) filed its First Amended Complaint (the “Complaint”) against Defendants. In its Complaint, Plaintiff alleged claims of breach of contract and breach of the duty of good faith and fair dealing against Defendants Praetorian Insurance Company (“Praetorian”), QBE Insurance Group Ltd. (“QBE”), and Aon Benfield Inc. (“Aon”). As relief, Plaintiff seeks, among other things, declaratory judgments and punitive damages. All of the following facts are as alleged in the Complaint.

Plaintiff Repwest is a corporation that insures property, casualty, and excess workers' compensation risks in the United States. (Doc. 7 at ¶ 1). Defendant Praetorian is a corporation that is licensed to write admitted insurance business in all 50 states. ( Id. at ¶ 2). Defendant QBE is a foreign corporation with a principal place of business in Sydney, Australia, that, Plaintiff alleges upon information and belief, purchased the assets and liabilities of Defendant Praetorian in December 2006 for $800 million. ( Id. at ¶ 4). Defendant Aon is a corporation that, Plaintiff alleges upon information and belief, purchased the assets and liabilities of Benfield, Inc. ( Id. at ¶ 6).

Plaintiff Repwest issues excess workers' compensation insurance policies, and, beginning in 1988, Repwest entered into a series of reinsurance agreements with Defendant Praetorian designed to provide reinsurance coverage for losses incurred under workers' compensation insurance policies issued by Repwest. ( Id. at ¶¶ 11–12).

On May 1, 1991, Repwest entered into a Excess Workers' Compensation Quota Share Agreement (the “Quota Share Agreement”) with various companies, including Praetorian (previously known as the Insurance Company of Hanover) and Conestoga Casualty Insurance Company (“Conestoga”).¹ ( Id. at ¶¶ 13–15). The Quota Share Agreement provided, in part, that Repwest would be indemnified for an agreed percentage of any losses within the original risk under the workers' compensation policies it issued to its insureds. ( Id. at ¶ 14). Defendant Praetorian and Conestoga are named as Reinsurers in the Quota Share Agreement, which obligates each to individually indemnify Plaintiff for a certain percentage of Plaintiff's losses paid on workers' compensation insurance policies issued by Repwest. ( Id. at ¶ 15). In exchange for Plaintiff's right to indemnification from Defendant Praetorian and Conestoga, Plaintiff ceded a premium to Defendant Praetorian and Conestoga and that premium was accepted and never disputed. ( Id. at ¶ 17).

Article V of the Quota Share Agreement set forth six categories of reinsurance that Plaintiff was required to maintain, including Aggregate Excess of Loss reinsurance. ( Id. at ¶ 23). Pursuant to Article V of that Agreement, Plaintiff, on behalf of itself and Defendant Praetorian and Conestoga, entered into an Aggregate Loss Reinsurance Contract effective May 1, 1991 (the “Aggregate Contract”). ( Id. at ¶ 26).² Under the Aggregate Contract, Plaintiff, Defendant Praetorian, and Conestoga are the “ceding Company” and Defendant Praetorian is the sole reinsurer. ( Id. at ¶ 28). The Aggregate Contract provided that Repwest and Conestoga would be indemnified by Defendant Praetorian “for the amount by which the Company's losses incurred exceed[ed] its retention,” after the Company's losses equaled 70% of its net earned premium for the same contract year, not to exceed 170% of the Company's net earned premium for the contract year. ( Id. at ¶ 29).

Article XI of the Aggregate Contract provided that the Company could elect to commute the losses of “one or both” of Repwest's Reinsurers and, in the event of such commutation, the Reinsurer would pay the Company an amount equal to 65% of ceded premiums less paid losses plus interest, all for the period being commuted. ( Id. at ¶ 34). Plaintiff alleges that Article XI's use of the term “Company” requires assent of all three parties to effectively commute Praetorian or Conestoga's liability under the Aggregate Contract. ( Id. at ¶ 36). Under Article XI of the Aggregate Contract, Defendant Praetorian was required to establish and maintain a commutation fund to remit to the Company in the event of such commutation. ( Id. at ¶ 35).

The term of the Quota Share Agreement began as of 12:01 a.m. PST on May 1, 1991 and remained continuously effective until cancelled. ( Id. at ¶ 20). The Quota Share Agreement was terminated with respect to Conestoga through a Termination Agreement on November 15, 1996. ( Id. at ¶ 25). Likewise, the Quota Share Agreement was terminated with respect to Defendant Praetorian through a Termination Agreement on September 1, 1997. ( Id.).

During the drafting and execution of the Aggregate Contract and the Quota Share Agreement, Defendant Aon acted as Repwest's reinsurance intermediary broker and entered into a contract to that end (the “Broker Contract”).³ ( Id. at ¶ 41).

On November 6, 1998, Defendant Aon communicated Conestoga's wish to commute its interests and liabilities under the Aggregate Contract to both Repwest and Praetorian. ( Id. at ¶ 44). In that communication, Defendant Aon and/or Conestoga acknowledged that it needed the approval of all parties to the Aggregate Contract as a prerequisite for a valid commutation. ( Id. at ¶ 45). On June 21, 1999, Defendant Praetorian asked Defendant Aon if Plaintiff had agreed to the commutation and, the next day, Aon informed Defendant Praetorian that Plaintiff had not yet given its approval. ( Id. at ¶¶ 47–48). On July 8, 1999, Defendant Aon “erroneously stated that it had received ‘verbal approval’ from [Plaintiff], but would follow-up in writing by fax,” but no approval for commutation was ever received from Plaintiff. ( Id. at ¶ 49).

Plaintiff alleges that, despite acting as Plaintiff's reinsurance intermediary broker, Defendant Aon failed to obtain Plaintiff's approval for the proposed commutation, failed to inform Plaintiff of any risks associated with the proposed commutation, and facilitated and negotiated the proposed commutation between Conestoga and Defendant Praetorian. ( Id. at ¶¶ 50–52). Plaintiff further alleges that Defendant Aon unilaterally determined that Plaintiff's authorization of the proposed commutation was unnecessary. ( Id. at ¶ 53). Plaintiff alleges that, despite failing to obtain Plaintiff's written approval, Defendant Praetorian and Conestoga “intentionally and willfully violated the terms of the Aggregate Contract by proceeding to bi-laterally commute a portion of Defendant Praetorian's liability to ‘the Company’ in complete disregard” of Defendant Praetorian's duties to Plaintiff. ( Id. at ¶¶ 54–55).

Plaintiff alleges that, without Plaintiff's consent or knowledge, Defendant Praetorian and Conestoga entered into an agreement (the “Commutation Agreement”),⁴ which purported to commute Praetorian's liability to Conestoga as reinsurer under the Aggregate Contract. ( Id. at ¶ 60).

In the summer of 2008, Plaintiff sent Defendant Praetorian, through Defendant Aon, a billing related to amounts due and owing by Praetorian under the Aggregate Contract. ( Id. at ¶ 67). Thereafter, Defendant Praetorian denied that it owed such amount because of the Commutation Agreement. ( Id. at ¶¶ 68–71). Defendant Praetorian then sent a letter of credit demand to Plaintiff, as was provided for in a 2001 Reinsurance Contract. ( Id. at ¶¶ 63–66, 72). Plaintiff declined to post the letter of credit on the basis of its claim that Defendant Praetorian still owed past due amounts under the Aggregate Contract. ( Id. at ¶ 75).

As a result of these allegations, Plaintiff claims that Defendant Praetorian (and QBE) violated its duty of good faith and fair dealing (Count II), Defendant Praetorian(and QBE) have breached and continue to breach their obligations under the Aggregate Contract and Quota Share Agreement (Count III), and Defendant Aon breached its obligations under the Broker Contract, by soliciting and negotiating the Commutation Agreement between Defendant Praetorian and Conestoga (Count VI).

As relief, Plaintiff seeks: compensatory damages, a declaratory judgment as to Defendants Praetorian and QBE (Count I) that (1) the word “Company” in the Aggregate Contract includes Repwest, Praetorian (and QBE), and Conestoga collectively; (2) that Defendants breached the Aggregate Contract and, by inference, the Quota Share Agreement; (3) that Praetorian's (and QBE's) unjustifiable and bad faith conduct prejudiced Plaintiff, (4) that Praetorian (and QBE) violated its duty of good faith and fair dealing, punitive damages (Count IV), and a declaratory judgment (Count V) as to Defendant Aon that (1) Aon's conduct constituted a breach of contract that existed between Aon and Repwest pursuant to Arizona Revised Statutes section 20–486.02, reasonable attorneys' fees and costs, and prejudgment and post-judgment interest.

In response to the Complaint, Defendant Praetorian now moves to...