Suter v. Munich Reinsurance Co.

• Decision Date: 07 August 2000
• Citation: 223 F.3d 150
• Parties: (3rd Cir. 2000) <A HREF="#fr1-*" name="fn1-*">* KAREN L. SUTER, the Commissioner of Banking and Insurance of the State of New Jersey, as Liquidator of Integrity Insurance Company v. MUNICH REINSURANCE COMPANY, Appellant NO. 99-5611
• Court: U.S. Court of Appeals — Third Circuit

Page 150

223 F.3d 150 (3rd Cir. 2000)

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KAREN L. SUTER, the Commissioner of Banking and Insurance of the State of New Jersey, as Liquidator of Integrity Insurance Company v. MUNICH REINSURANCE COMPANY, Appellant

NO. 99-5611

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued November 18, 1999

Filed August 7, 2000

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 99-cv-00757), District Judge: Honorable Joseph A. Greenaway, Jr. [Copyrighted Material Omitted] David M. Spector (Argued) Hopkins & Sutter Three First National Plaza, Suite 4200 Chicago, IL 60602 and Donald A. Klein Winne, Banta, Rizzi, Hetherington & Basralian Court Plaza North 25 Main Street P.O. Box 647 Hackensack, NJ 07602, Attorneys for Appellant

Thomas S. Novak (Argued) Sills, Cummis, Radin, Tischman, Epstein & Gross One Riverfront Plaza Newark, NJ 97102, Attorney for Appellee

Debra J. Hall Anthony J. Mormino Matthew T. Wulf Reinsurance Association of America 1301 Pennsylvania Avenue, N.W. # 900 Washington, D.C. 20007, Attorneys for Amicus Curiae Reinsurance Association of America

BEFORE: ALITO, BARRY and STAPLETON, Circuit Judges

OPINION FOR THE COURT

STAPLETON, Circuit Judge:

Appellee LaVecchia (hereinafter "the Liquidator"), the Liquidator of Integrity Insurance Co. (hereinafter "Integrity"), commenced this adversary proceeding in the Superior Court of New Jersey alleging that Appellant Munich Reinsurance Co. (hereinafter "Munich Re") breached certain reinsurance treaties. She sought damages and declaratory relief. Because the treaties include arbitration clauses governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter "the Convention"), Munich Re removed the action to the United States District Court for the District of New Jersey pursuant to 9 U.S.C. S 205.

Munich Re then moved in the District Court for an order compelling arbitration and staying the proceedings pending arbitration. The Liquidator moved to remand to the state court on three grounds: (1) that the "Service of Suit" clause contained in each of the reinsurance treaties waived Munich Re's right to remove; (2) that the Convention and the Federal Arbitration Act (FAA) are reverse preempted by the New Jersey Liquidation Act under the McCarran-Ferguson Act, 15 U.S.C. S 1012; and (3) that Munich Re's extensive involvement in litigation before the Liquidation Court precluded removal.

The motions were referred to a Magistrate Judge, who issued a Report and Recommendation advising that the Liquidator's motion to remand be granted on the ground that the service of suit clause operated as a waiver of Munich Re's removal rights. The Magistrate Judge did not reach the other arguments.

The District Court adopted the Report and Recommendation of the Magistrate Judge as the Opinion of the Court, and remanded the action to the Superior Court of New Jersey without ruling on the motions to compel arbitration and to stay proceedings pending arbitration. Munich Re filed timely notice of appeal. This Court has appellate jurisdiction because an order remanding on the grounds that a forum selection clause in the parties' contract has waived the defendant's removal rights is a collateral order that is treated as final for purposes of appeal. See Foster v. Chesapeake Ins. Co., 933 F.2d 1207, 1211 (3d Cir. 1991). We will reverse.

I.

Munich Re is a reinsurance company organized and existing under the laws of the Federal Republic of Germany. Integrity was a stock property and casualty insurance company organized under the laws of the State of New Jersey. During the period from 1978 through 1985, Munich Re entered into certain "quota share" and "excess of loss" reinsurance treaties with Integrity, whereby Munich Re agreed to reinsure Integrity's liability under certain policies of excess and umbrella liability insurance issued by Integrity (hereinafter "the Umbrella Policies"). Each reinsurance treaty contains a service of suit clause that substantially provides:

that in the event of the failure of the Reinsurers hereon to pay any amount claimed to be due hereunder, the Reinsurers hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

(A. 51, 66, 86, 113, 141, 164, 189). Each of the treaties also contains an arbitration clause that substantially provides that:

If any dispute or difference of opinion shall arise with reference to the interpretation of this Agreement or the rights with respect to any transaction involved, the dispute shall be referred to three arbitrators, one to be chosen by the Company, one to be chosen by the Reinsurer, and the third to be chosen by the two arbitrators so chosen within 30 days of their appointment.

(A. 52, 67, 87, 114, 142, 164, 190).

In 1986, delinquency proceedings were instituted against Integrity. In 1987, the Superior Court of New Jersey (hereinafter "the Liquidation Court") declared Integrity insolvent, placed it in liquidation pursuant to the New Jersey Liquidation Act, N.J. Stat. Ann. S 17:30C-1 et seq., and appointed the New Jersey Commissioner of Insurance and her successors in office as its Liquidator. Pursuant to the Liquidation Court's Order and the Liquidation Act, the Liquidator was directed to liquidate Integrity's liabilities, marshal its assets, and wind up its business and affairs. The Liquidation Court's Order requires the Liquidator to file a Notice of Determination (NOD) recommending allowance or disallowance for each Proof of Claim filed, and provides that absent timely objection, the recommended allowance or disallowance shall constitute a final judgment. The Liquidator asserts that she has issued various NODs that allow claims for indemnification of losses and payment of defense expenses incurred with respect to third-party claims filed by various policyholders under the Umbrella Policies, and that these NODs have become final judgments. She further asserts that numerous claims for indemnification and defense expenses filed by policyholders under the Umbrella Policies remain unresolved.

In June 1996, the Liquidator filed a motion with the Liquidation Court for court approval of her proposed Final Dividend Plan (FDP), which provides that contingent claims against Integrity would be estimated and allowed where appropriate, reinsurance on the claims would come due, and the Liquidator would pay a final dividend and close the Estate in three to five years instead of the ten to twenty years it would otherwise take for all of Integrity's liabilities to become liquidated. Munich Re was active in opposing the FDP. The Liquidator asserts that among other things, Munich Re contended that the Umbrella Policies do not provide coverage for defense expenses where the underlying coverage is exhausted.

Commencing December 1996, the Liquidator billed Munich Re $6.8 million on allowed claims, of which $2.8 million is on account of disputed defense expenses. The Liquidator asserts that Munich Re has refused to pay not only the $2.8 million dollars in disputed defense expenses, but also the $4 million on undisputed allowed claims, "apparently on the basis that this amount should be set off against prior payments it made on account of Disputed Defense Expenses which, in hindsight, Munich now concludes it should not have made." (A. 250). Therefore, the Liquidator filed this lawsuit against Munich Re in the Liquidation Court seeking a declaratory judgment that the Umbrella Policies include coverage for the disputed defense expenses and declaring that Munich Re's reinsurance obligation extends to disputed defense expenses allowed by the Liquidator under the reinsured Umbrella Policies. She also sought damages for Munich Re's refusal to pay.

II.

The initial issue for resolution is whether the District Court erred in holding that the service of suit clause operated as a waiver of Munich Re's right to remove under the Convention Act. This is an issue of first impression for us. We have on three prior occasions, however, considered whether similar service of suit clauses waived other rights: Patten Sec. Corp. v. Diamond Greyhound & Genetics, 819 F.2d 400 (3rd Cir. 1987), concerning waiver of the right to compel arbitration, Foster v. Chesapeake Ins. Co., 933 F.2d 1207 (3d Cir. 1991), concerning waiver of the right to remove on the basis of diversity of citizenship, and In re Texas Eastern Transmissions Corp., 15 F.3d 1230 (3d Cir. 1994), concerning waiver of the right to remove under the Foreign Sovereign Immunities Act (FSIA). In Patten and Texas Eastern, we held that the federal policy preference for arbitration and for assuring foreign sovereigns access to a federal forum mandated that no waiver be found in the absence of clear and unambiguous language requiring one. In both cases, we concluded that similar service of suit clauses were ambiguous with respect to the claimed waiver. In Foster, on the other hand, we found no presumption against waiver appropriate when the claimed waiver was of the right to remove on diversity grounds.

We will briefly discuss the Convention Act and then turn to a more detailed review of these cases. Our ultimate objective will be to determine whether waiver of the right to remove under the Convention Act more closely resembles the right to remove under the FSIA or the right to remove under 28 U.S.C. S 1441(a) on the basis of diversity.

A.

The removal provision of the Convention Act provides that:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or...