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Trustmark Insurance Co. v. Clarendon National Insurance Co.

February 1, 2010

TRUSTMARK INSURANCE COMPANY, PLAINTIFF,
v.
CLARENDON NATIONAL INSURANCE COMPANY AND CLARENDON AMERICA INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Before the Court is Defendants' Motion to Dismiss Plaintiff's Complaint, Defendants' Petition to Appoint an Umpire and Compel Arbitration, and Plaintiff's Motion for a Preliminary Injunction. For the following reasons, Defendants' motions are granted, and Plaintiff's motion is denied.

I. BACKGROUND

Plaintiff Trustmark Insurance Company (hereinafter, "Trustmark") and Defendants Clarendon National Insurance Company and Clarendon America Insurance Company (hereinafter, "Clarendon") engaged in a series of reinsurance contracts in 1997 and 1998. Clarendon reinsured Trustmark under a "Variable Quota Share Treaty" that was effective on June 1, 1997 (the "VQS I"). This original agreement was renewed the following year in a new contract effective on June 1, 1998 (the "VQS II"). Clarendon also reinsured Trustmark under excess-of-loss agreements known as the "1998 XOL Treaties." VQS I and II were both abbreviated contracts known in the industry as "placement slips," which are normally followed up by a fully worded contract known as a "wording." While a wording was created for VQS I, no such wording exists for VQS II. However, both parties have agreed on the record that the arbitration clause in VQS I was also an agreed upon term in VQS II and is therefore binding on the present dispute. (Compl. ¶ 8; Defs.' Pet. ¶ 7.) The relevant portion of the arbitration clause states:

Each party shall appoint an arbitrator within thirty days of being requested to do so and the two named shall select a third arbitrator before entering upon the arbitration. If either party refuses or neglects to appoint an arbitrator within the time specified, the other party may appoint the second arbitrator. If the two arbitrators fail to agree on a third arbitrator within thirty days of their appointment, each of them shall name three individuals, of whom the other shall decline two, and the choice shall be made by drawing lots. All arbitrators shall be active or retired disinterested officers of insurance or reinsurance companies or Underwriters at Lloyd's, London not under the control of either party to this Agreement. (Compl. Ex. 1 at 7.)

VQS II and the 1998 XOL Treaties were the basis of a dispute between the parties that culminated in Trustmark demanding, in writing, arbitration for the 1998 XOL Treaties on May 23, 2006. Clarendon responded in writing on July 7 by demanding arbitration of both VQS II and the 1998 XOL Treaties and appointing "Mary Ellen Burns ("Ms. Burns") as its arbitrator for these disputes." (Compl. Ex. 3 at 2.) Clarendon requested that the two agreements be considered in a single arbitration, but Trustmark opposed the idea, and the 1998 XOL Treaties arbitration panel denied the consolidation request. No arbitration panel was convened for the VQS II dispute at that time.

During the 1998 XOL Treaties arbitration, the Plaintiff, Defendants, and all three arbitrators executed the "Confidentiality Agreement." (Pl.'s Mot. for a Prelim. Injunc. Exs. 12-13; Defs.' Br. in Opp. to Pl.'s Mot. for a Prelim. Injunc. Ex. I.) The Confidentiality Agreement was based on a standard agreement by ARIAS-US, a reinsurance arbitration association. The agreement required that all "Arbitration Information," such as correspondence, oral discussions, and other information exchanged in the proceedings, be kept confidential even after the proceedings end. The 1998 XOL Treaties arbitration ended and the arbitration panel issued a Second Corrected Final Award on March 20, 2009.

Around August of 2009, Ms. Burns contacted Trustmark's arbitrator to select an umpire for the VQS II arbitration. Trustmark objected to Ms. Burns serving as Clarendon's appointed arbitrator for the VQS II dispute, citing concerns with her duties under the Confidentiality Agreement and whether she was "disinterested" as required by the arbitration clause. Trustmark then filed the instant action.

Plaintiff requests that this court disqualify Ms. Burns as arbitrator for the VQS II dispute, find Defendants in breach of the Confidentiality Agreement for appointing Ms. Burns, require Defendants to return to arbitration, and enjoin Defendants from participating in the VQS II arbitration if Ms. Burns is on the panel. Defendants moved to dismiss all these claims under Rule 12(b)(6), and petitioned the court to appoint an umpire and compel Plaintiff to return to arbitration. Plaintiff moved for a preliminary injunction enjoining Defendants from breaching the Confidentiality Agreement, appointing Ms. Burns as the VQS II arbitrator, and participating in the VQS II arbitration if Ms. Burns is on the arbitration panel.

II. LEGAL STANDARDS

In order to survive a Rule 12(b)(6) motion to dismiss, a complaint must "include sufficient facts to state a claim for relief that is plausible on its face." Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir., 2009). The Court accepts as true all well-pleaded facts alleged in the complaint and draws all reasonable inferences in a light favorable to the plaintiff. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). While the Court "must take all the factual allegations in the complaint as true, [it is] not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986).

"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. NRDC, Inc., 129 S.Ct. 365, 374 (2008).

III. DISCUSSION

The current motions center around two topics: the arbitration clause in VQS II and the Confidentiality Agreement from the 1998 XOL Treaties arbitration. Plaintiff seeks to disqualify Defendants' arbitrator based on these two distinct grounds, while Defendants seek ...


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