The opinion of the court was delivered by: CHARLES NORGLE, District Judge
Before the court is Defendant's Motion to Dismiss, or in the
Alternative, to Stay Proceedings [4-1]. For the following reasons, the
Motion to Dismiss is granted.
Plaintiff Continental Casualty Corp. ("CCC") and Defendant American
National Insurance Co. ("ANICO") were members of a reinsurance pool,
collectively referred to as Associated Accident and Health Reinsurance
Underwriters ("AAHRU"). AAHRU was managed by IOA Re, Inc. ("IOA Re"),
pursuant to separate contracts (the "Participation Agreement[s]") entered
into between IOA Re and each individual AAHRU member. Each individual
AAHRU member's Participation Agreement was identical or substantially
identical to those of other AAHRU members. Under the Participation
Agreements, IOA Re was authorized to enter into reinsurance contracts on
behalf of members of the AAHRU pool.
On July 5, 2000, CCC sent a letter to IOA Re indicating that CCC was
terminating its Participation Agreement effective December 31, 2000.
Subsequent letters to the same effect were
also sent on July 21 and November 29, 2000. By another letter dated
August 22, 2000, CCC informed IOA Re that it was revoking the authority
of IOA Re to enter into multiple-year contracts, to extend policy
periods, or to back-date effective dates of reinsurance policies.
It is not disputed that there was a sophisticated and long-standing
relationship between the parties in the reinsurance pool, and that there
was routine commercial communication, CCC does not claim that it also
notified other members of the AAHRU pool of the attempted revocation of
IOA Re's authority. CCC does not allege that IOA Re acknowledged receipt
of such notice or that any other members of the AAHRU pool communicated
in any way about the revocation of an agency relationship.
On April 20, 2001, IOA Re and ANICO executed a Quota Share Accident
Retrocession Contract ("Quota Share Contract") pursuant to which AAHRU
members indemnified ANICO, according to varying shares per member, on
certain of ANICO's reinsurance business. ANICO's reinsurance concerned
certain risks covered in the World Trade Center attacks of September 11,
2001. CCC alleges that it learned of the Quota Share Contract in
mid-September 2001, in the wake of the September 11th terrorist
On September 17, 2002, CCC filed suit against ANICO. CCC's Complaint
seeks a declaratory judgment that it is not bound by, and owes no duty
under, the Quota Share Contract, based on the fact that IOA Re lacked
authority to enter into the Quota Share Contract on CCC's behalf.
ANICO has filed the instant Motion to Dismiss, or in the Alternative,
to Stay Proceedings. In that Motion, ANICO makes the following arguments:
(1) the Quota Share Contract contains an arbitration clause, thus
arbitration is required under the Federal Arbitration Act ("FAA"), and
Complaint should be dismissed; (2) the case should be dismissed pursuant
to Federal Rule of Civil Procedure 12(b)(3) based on improper venue; and
(3) the case should be dismissed pursuant to Federal Rule of Civil
Procedure 12(b)(7) based on failure to join IOA Re, an indispensable
CCC has responded arguing that under Sphere-Drake Ins. Ltd, v. All
Amer. Ins. Co., 256 F.3d 587 (7th Cir. 2001), the issue of whether an
agreement to arbitrate was formed whether IOA Re had authority to bind
CCC to the Quota Share Contract must be preliminarily determined by the
From this point ANICO's briefs take on a discordant quality, and have
resulted in a total of six briefs having been filed between the parties.
In order to simplify the confusion created by these pleadings, the court
will not address any arguments other than the issue of whether this
matter should be arbitrated.
ANICO filed a reply arguing that arbitration is required based on the
Participation Agreement executed by IOA Re and CCC, and has attached a
copy of that Participation Agreement to its Reply.*fn1 As an additional
argument, relying on Reinsurance Co. of Amer. v. Amer. Cent, Ins.
Co., 621 F. Supp. 516, 518 (C.D. Ill 1985), ANICO argues that IOA Re
had apparent authority to bind CCC to the Quota Share Contract, and thus
arbitration is required.
CCC was granted leave to file a sur-reply, and argues that the
Participation Agreement has nothing to do with its Complaint in this
matter. CCC gives short shrift to ANICO's apparent authority argument,
stating only that IOA Re's apparent authority is a fact ...