Stonegate Ins. Co. v. Fletcher Reinsurance Co.

• Court: U.S. District Court — Northern District of Illinois
• Writing for the Court: Virginia M. Kendall United States District Judge
• Decision Date: 06 December 2021
• Docket Number: 21 CV 3523
• Parties: STONEGATE INSURANCE COMPANY, Plaintiff, v. FLETCHER REINSURANCE COMPANY, f/k/a MAIDEN REINSURANCE NORTH AMERICA, INC., a Missouri corporation, ENSTAR U.S. INC., a Delaware corporation, and CRANMORE U.S. INC., a Delaware corporation, Defendants.

STONEGATE INSURANCE COMPANY, Plaintiff, v. FLETCHER REINSURANCE COMPANY, f/k/a MAIDEN REINSURANCE NORTH AMERICA, INC., a Missouri corporation, ENSTAR U.S. INC., a Delaware corporation, and CRANMORE U.S. INC., a Delaware corporation, Defendants.

No. 21 CV 3523

United States District Court, N.D. Illinois, Eastern Division

December 6, 2021

MEMORANDUM OPINION AND ORDER

Virginia M. Kendall United States District Judge

Plaintiff Stonegate Insurance Company (“Stonegate”) brings this tort and breach of contract action against Defendants Fletcher Reinsurance Company, f/k/a/ Maiden Reinsurance North America, Inc. (“Fletcher”), Enstar (US) Inc (“Enstar”), and Cranmore (US) Inc (“Cranmore”). (See Dkt. 1-2 at 8-26). The Complaint alleges various claims in connection with reinsurance agreements between Stonegate and Fletcher whereby Fletcher reinsured Stonegate's automobile and commercial insurance lines from 2012 through 2017. (Id. at 11-12). Specifically, Stonegate brings claims for: Breach of Contract as to Fletcher (Count I); Tortious Interference with Contract as to Enstar and Cranmore (Count II); and Bad Faith Refusal to Pay Claims Under 215 ILCS 5/155 as to all Defendants (Count III). (Id. at 20-25). Now before the Court are two motions: Fletcher's Motion to Compel Arbitration and Dismiss All Claims, (Dkt. 13), and Enstar and Cranmore's Motion to Dismiss, (Dkt. 9). For the reasons set forth below, the Defendants' motions [9, 13] are granted.

BACKGROUND

On a motion to dismiss under Rule 12(b)(6), the Court accepts the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in the non-moving party's favor, but not its legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The following factual allegations are taken from Stonegate's Complaint, (Dkt. 1-2 at 7- 26), and are assumed true for purposes of this motion. W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016).

Stonegate filed a Complaint against Defendants on May 25, 2021 in the Circuit Court of Cook County, Illinois, Law Division, in an action bearing Case No. 2021-L-005384. (Dkt. 1 at 1). On July 1, 2021, Defendants removed the case to this Court on the basis of diversity jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1441. (Dkt. 29 at 2 (further noting that removal was unopposed)). Stonegate is an insurance company authorized to issue policies of insurance in Illinois, including, but not limited to, commercial automobile, business liability, liquor liability, general liability, and private passenger automobile policies. (Dkt. 1-2 at 10 ¶ 2). Defendants Fletcher, Enstar, and Cranmore are separate corporations that are subsidiaries of Enstar Group Limited. (Id. at 10-11 ¶¶ 3-6; see also Id. at 9 (noting that the Complaint refers to each of the three Defendants together as “Enstar”)). Stonegate entered into a series of Multiple Line Excess of Loss Reinsurance Agreements (“Reinsurance Agreements”) with its reinsurer, Fletcher, from 2012 through 2017. (Id. at 11-12 ¶ 10; see also Id. at 27 (Reinsurance Agreement dated January 1, 2012), 69 (Reinsurance Agreement dated January 1, 2014)). In turn, Enstar and Cranmore entered into agreements with Fletcher to service its reinsurance treaties, including the Stonegate Reinsurance Agreements. (Id. at 10-11 ¶¶ 4-5, 7).

This suit concerns Fletcher's alleged non-performance of its contractual obligations to Stonegate. In particular, Stonegate brought claims against Fletcher alleging non-payment of balances under the Reinsurance Agreements. (E.g., id. at 21¶ 45 (“[Fletcher has not paid Stonegate its portion of losses and loss adjustment expenses on [a number of] claims.”), 13 ¶ 14 (“Many invoices presently remain outstanding and unpaid; those outstanding invoices were submitted to [Fletcher] on average almost six months prior to the filing of this Complaint.”); id. at 14, 16 ¶¶ 18, 29-30 (alleging that Fletcher wrongfully denied the “Clay Claim, ” which entailed an approximately $1 million settlement paid by Stonegate)).

Stonegate further alleges that Defendants Enstar and Cranmore wrongfully induced Fletcher to breach its contractual obligations to Stonegate in bad faith. (Id. at 11 ¶ 8, 20 ¶ 41, 22 ¶ 53, 24 ¶ 62). When Enstar acquired Fletcher in 2019, Stonegate's relationship with Fletcher became “adversarial, and at times combative, as delayed payments by [Fletcher] became the norm, Defendants fabricated coverage disputes, and Defendants made unreasonable demands for claim-related information.” (Id. at 12-13 ¶ 13; contra Id. at 12 ¶ 12 (“From 2011 until Enstar's acquisition of Maiden Re in late December 2018, Stonegate and Maiden Re operated harmoniously under a mutual understanding of the risk-sharing obligations imposed by the Treaties.”)). Stonegate alleges that the Defendants are withholding payments “with such frequency and duration” in an attempt to strong-arm Stonegate into settling its valid claims “in bulk at a discount.” (Id. at 13 ¶ 15). Moreover, Anthony D'Angelis - former Senior Vice President of Cranmore, and current U.S. Head of Claims for Enstar Group - has directed Fletcher to “deny and delay payment on valid claims in accordance with Enstar's bad-faith business model, thus causing [Fletcher] to breach its obligations to Stonegate under the [Reinsurance Agreements].” (Id. at 13 ¶ 16).

LEGAL STANDARD

When considering a motion to dismiss under Rule 12(b)(6), the Court must “accept as true all factual allegations in the amended complaint and draw all permissible inferences in [the plaintiff]'s favor.” Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 639 (7th Cir. 2015). To state a claim upon which relief may be granted, a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Detailed factual allegations are not required, but the plaintiff must allege facts that when “accepted as true . . . ‘state a claim to relief that is plausible on its face.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.' ” Iqbal, 556 U.S. at 678. In analyzing whether a complaint meets this standard, the “reviewing court [must] draw on its judicial experience and common sense.” Id. at 679. When there are well-pleaded factual allegations, the Court assumes their veracity and then determines whether they plausibly give rise to an entitlement to relief. Id.

DISCUSSION

I. Fletcher's Motion to Dismiss

Fletcher filed a Motion to Compel Arbitration and Dismiss All Claims. (Dkt. 13). Stonegate did not oppose arbitration of its claims against Fletcher; accordingly, the parties report that they are proceeding to arbitration. (Dkt. 29 at 2). However, they dispute whether Stonegate's claims as to Fletcher should be dismissed pending arbitration, as opposed to being stayed. The parties filed supplemental briefing on this issue. (See Dkts. 32-33).

The FAA provides that once the Court determines that arbitration should be compelled, the Court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. Fletcher argues that notwithstanding the language of § 3, the Court should dismiss Stonegate's complaint because all claims asserted therein are subject to arbitration. (Dkt. 32 at 4). Fletcher asserts that courts routinely dismiss, rather than stay, lawsuits in such circumstances. (Id. at 4-5). Stonegate counters that a stay is the appropriate action to take on its Complaint - citing the statutory language, certain Seventh Circuit law, and judicial economy. (Dkt. 33 at 4-7).

The Seventh Circuit has instructed that, generally, “the proper course of action when a party seeks to invoke an arbitration clause is to stay the proceedings rather than to dismiss outright.” Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 561 (7th Cir. 2008). However, several circuits have found that there is “a judicially-created exception to [this] general rule which indicates district courts may, in their discretion dismiss an action rather than stay it where it is clear the entire controversy between the parties will be resolved by arbitration.” Green v. SuperShuttle Int'l Inc., 653 F.3d 766, 769-70 (8th Cir. 2011); see also Soto-Fonalledas v. Ritz-Carlton San Juan Hotel Spa & Casino, 640 F.3d 471, 473 (1st Cir. 2011); Ozormoor v. T-Mobile USA, Inc., 354 Fed.Appx. 972, 975 (6th Cir. 2009); Poteat v. Rich Prods. Corp., 91 Fed.Appx. 832, 835 (4th Cir. 2004); Fedmet Corp. v. M/V BUYALYK, 194 F.3d 674, 678 (5th Cir. 1999). While the Seventh Circuit has not expressly approved this approach, a number of courts within this district have embraced this judicially-created exception. See, e.g., Williams v. Planet Fitness, Inc., No. 20-cv-3335, 2021 WL 1165101, at *5-6 (N.D. Ill. Mar. 26, 2021); Hauptman v. Midland Credit Mgmt., Inc., No. 1:18-cv-976, 2019 WL 8436961, at *2 (N.D. Ill. Jan. 31, 2019); Taylor v. Samsung Elecs. Am., No. 16-cv-50313, 2018 WL 3921145, at *7 (N.D. Ill. Aug. 16, 2018); Hudgins v. Total Quality Logistics, LLC, No. 16-cv-7331, 2017 WL 514191, at *3 (N.D. Ill. Feb. 8, 2017); HTG Cap. Partners, LLC v. Doe, No. 15-cv-02129, 2016 WL 612861, at *8 (N.D. Ill. Feb. 16, 2016); Soucy v. Cap. Mgmt. Servs., L.P., No. 14-cv-5935, 2015 WL 404632, at *6 (N.D. Ill. Jan. 29, 2015); Bryant v. Fulgham, No. 12-cv-823, 2012 WL 1802150, at *3 (N.D. Ill. May 17, 2012); Denari v. Rist, No. 10-cv-2704, 2011 WL 332543, at *11...