iIn December 2015, an Illinois federal court held that the language of a service-of-suit clause in a reinsurance contract was a voluntary removal waiver and sent a case removed to federal court back to state court. That case went up to the Seventh Circuit Court of Appeals for review. The Seventh Circuit has now affirmed.
In Pine Top Receivables of Ill., LLC. v. Transfercom, Ltd., No. 16-1073, 2016 U.S. App. LEXIS 16225 (7th Cir. Sept. 1, 2016), the circuit court affirmed the district court’s remand of a reinsurance contract dispute back to state court based on the waiver of the right of removal. The dispute was between two assignees of the accounts of the original cedent and reinsurer. The cedent sued in state court claiming a breach of two reinsurance treaties based on the failure of the reinsurer to pay under the reinsurance agreements. The reinsurer removed the case to federal court and the cedent moved to remand based on the theory that the reinsurer waived the right to remove based on the language of the service-of-suit clause in the reinsurance agreements.
The service-of-suit clause provided that if the reinsurer failed to pay any amount claimed to be due under the reinsurance agreements, the reinsurer, at the request of the cedent, “will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all maters arising here-under shall be determined in accordance with the law and practice of such Court.” Both the district court and the circuit court found that language to constitute a waiver of the right to remove the case to federal court.
The reinsurer argued that the existence of an arbitration clause in the reinsurance contracts rendered the service-of-suit clause ambiguous and unenforceable. The Seventh Circuit rejected the reinsurer’s argument, holding that the language of the arbitration clause “in no way muddies the water with respect to the meaning of the service of suit clause.” The arbitration clause had the typical preamble: “As a condition precedent to any right of action hereunder, any irreconcilable dispute between the parties to this Agreement will be submitted for decision to a board of arbitration.” The court rejected the reinsurer’s request for the court to adopt a heightened clear and unequivocal interpretation standard.
As the court put it, “[r]ead as a whole, the reinsurance agreement requires [the reinsurer] to submit to the jurisdiction of any court of competent jurisdiction chosen by [the cedent], whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or to resolve on the merits, a claim not subject to arbitration–including [the cedent’s] breach of contract claim.” This analysis directly addresses the often confusing juxtaposition of an arbitration clause and a service-of-suit clause in the same reinsurance contract, which has caused problems in the past. Here, the court is not addressing an arbitrability issue, but uses arbitrability and other claims to explain how the service-of-suit clause has a purpose and stands as an unequivocal waiver of the right of removal. Essentially, what the Seventh Circuit concluded, which affirmed the district court’s rationale, is that this service-of-suit language binds the reinsurer to the cedent’s choice of court and that the reinsurer is bound to do what it can to make sure that choice of jurisdiction is sustained.
The court concluded that the service-of-suit clause unambiguously granted the cedent the absolute right to chose the forum for litigating this dispute and that to allow removal would be to ignore the contractual terms and the plain and ordinary meaning of the reinsurance agreements.
