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UTICA MUTUAL INS. CO. v. AMERICAN MUTUAL REINSURANCE CO.

May 7, 2003

UTICA MUTUAL INSURANCE CO., PETITIONER,
v.
AMERICAN MUTUAL REINSURANCE COMPANY, AND NATHANIEL S. SHAPO, DIRECTOR OF INSURANCE, STATE OF ILLINOIS RESPONDENTS.



The opinion of the court was delivered by: Charles Ronald Norgle, Sr., District Judge

OPINION AND ORDER

Before the court is Respondents' motion to stay the petition to compel arbitration. For the following reasons, Respondents' motion is denied.

I. BACKGROUND

The Petitioner, Utica Mutual Insurance Co. ("Utica"), contracted with Respondent, American Mutual Reinsurance Co. ("AMERCO"), for reinsurance from 1953 through 1975. In February 1988, AMERCO was placed in rehabilitation proceedings in the Chancery Court of Cook County, Illinois. The Director of Insurance for the State of Illinois became its Rehabilitator. On September 8, 1988, the Rehabilitator approved an Amended Plan of Rehabilitation for AMERCO. On December 21, 2001, the Rehabilitator approved a Second Amended Plan of Rehabilitation for AMERCO.

On January 22 and 23, 2003, Utica notified the Rehabilitator and AMERCO of several asbestos claims involving Burnham Boilers and Goulds Pumps. The Rehabilitator and AMERCO denied Utica's claims on the ground that the actual paid claims were not reported within 90 days, in accordance with the terms of the Second Amended Plan. Utica claims that it did not receive notice of the Second Amended Plan until January 22, 2002, and therefore the First Amended Plan should apply to its claims. Since the Rehabilitator's initial denial of claims, Utica has submitted several more claims to the Rehabilitator, all of which have been denied.

On June 3, 2002, Utica received a "Notice of Determination" from the Rehabilitator again denying Utica's claims. The letter stated that Utica could file a motion to reconsider the Rehabilitator's decision within 60 days. After receiving the Rehabilitator's decision regarding Utica's motion to reconsider, Utica could "object to the recommendation either by commencing arbitration or petitioning . . . for a hearing," within 60 days.

On August 8, 2002, the Rehabilitator denied Utica's motion for reconsideration. On October 8, 2002, Utica requested that this court compel arbitration, Utica also filed in the Rehabilitation Court the "Objection of Utica Mutual Insurance Company to the Rehabilitator's Rejection of Claims."

AMERCO was granted several extensions in filing its response to Utica's Motion to Compel Arbitration. Rather than responding directly to the motion to compel, AMERCO chose to file a motion to stay based on the Burford Doctrine. AMERCO's motion to stay is now fully briefed and ripe for ruling.

II. DISCUSSION

The Supreme Court has stated that federal courts have a strict duty to exercise the jurisdiction conferred upon them by Congress. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). For this reason, the doctrine of abstention is "an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it" and may be invoked only in those "exceptional circumstances" in which surrendering jurisdiction "would clearly serve an important countervailing interest." International College of Surgeons v. City of Chicago, 153 F.3d 356, 360 (7th Cir. 1998). The party requesting abstention bears the heavy burden of showing that abstention is warranted. Morton College Board of Trustees of Illinois Community College District No. 527 v. Town of Cicero, 18 F. Supp.2d 921, 924 (N.D. Ill. 1998). The decision of whether to abstain is committed to the sound discretion of the district court. Int'l College of Surgeons, 153 F.3d at 359.

The Seventh Circuit has noted that abstention under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) is appropriate in two situations. First, federal courts should abstain from deciding "`difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar.'" Int'l College of Surgeons, 153 F.3d at 361-62 (quoting Quackenbush, 517 U.S. at 726-27 (quoting New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361 (1989))). Second, federal courts should also abstain from the exercise of federal review that "`would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.'" Int'l College of Surgeons, 153 F.3d at 362 (quoting Quackenbush, 517 U.S. at 727). AMERCO asserts that the second type of Burford abstention applies to this matter.

The Seventh Circuit has held that we must find the existence of two essential elements to justify abstention under the second prong of the Burford doctrine, namely:

First, and most obvious, the state must offer some forum in which claims may be litigated. . . . Second, that forum must be special — it must stand in a special relationship of technical oversight or concentrated review to the evaluation of those claims. The ability to point to a specialized proceeding is a prerequisite of not a factor in, the second type of Burford abstention.
Int'l College of Surgeons, 153 F.3d at 363 (quoting Property & Cas. Ins. Ltd. v. Central Nat. Ins. Co. of Omaha, 936 F.2d 319, 323 (7th Cir. 1991)).

Ultimately, the court should consider: (1) whether the suit is based on a claim for relief that is exclusively federal; (2) whether difficult or unusual state laws are at issue; (3) whether there is a need for a coherent state doctrine in the area; and (4) whether state procedures indicate a desire to create special state forums to adjudicate the issues presented. Morton College Bd. of Trustees of Ill. Cmty. Coll. Dist. No. 527 v. Town of Cicero, 18 F. Supp.2d 921, 925 (N.D. Ill. 1998) (also citing White & Brewer Trucking, Inc. v. Donley, 952 F. Supp. 1306, 1311 (C.D. Ill. 1997). Determining whether to abstain under Burford ...


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