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Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co.

September 15, 2010

GUARANTEE TRUST LIFE INSURANCE COMPANY, PLAINTIFF,
v.
AMERICAN MEDICAL AND LIFE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: George M. Marovich United States District Judge

Judge George M. Marovich

MEMORANDUM OPINION AND ORDER

Plaintiff Guarantee Trust Life Insurance Company ("Guarantee Life") filed a complaint against defendant American Medical and Life Insurance Company ("American Life"). Another suit between these parties is pending in the Circuit Court of Cook County. Based on the separate suit, defendant American Medical has filed a motion to dismiss this suit, in which motion American Medical asks this Court to abstain from hearing this case. For the reasons set forth below, the Court denies the motion.

I. Background

Plaintiff Guarantee Life is a mutual insurance company in Illinois, and defendant American Life is an insurance company in New York. The two were brought together by American Life's desire to do business in states where Guarantee Life, but not American Life, was licensed to sell policies.

The state-court action

In November 2009, Guarantee Life filed suit against American Medical in the Circuit Court of Cook County. The facts alleged in that case (which the Court takes as true) are as follows. In 2006, American Life approached Guarantee Life about an arrangement whereby American Life would sell insurance on Guarantee Life's policy forms in states where American Life could not otherwise sell policies. The two entered an agreement. In addition, the two began to negotiate (but plaintiff says they never executed) a reinsurance agreement (the "2006 Reinsurance Agreement"). Under the 2006 Reinsurance Agreement, Guarantee Life was to reinsure policies sold by American Life in 30 states. Before the 2006 Reinsurance Agreement was executed, however, Guarantee Life learned that American Life had violated state laws by using unlicensed agents and telemarketing firms to sell policies. For this, American Life had been fined $700,000 for violations of New York insurance laws and was under investigation by the states of Texas and Florida. When Guarantee Life found out about American Life's violations, it refused to execute the 2006 Reinsurance Agreement. Even though Guarantee Life never executed the 2006 Reinsurance Agreement, American Life tendered to Guarantee Life monies for premiums.

When Guarantee Life filed suit in the Circuit Court of Cook County, it alleged three counts. In Count I, Guarantee Life sought a declaration that the 2006 Reinsurance Agreement was null and void because Guarantee Life never executed it. In Count II, Guarantee Life sought a declaration that the 2006 Reinsurance Agreement was void as against public policy. In Count III, in the alternative, Guarantee Life sought rescission of the 2006 Reinsurance Agreement.

Despite these problems, 2006 was not the last time Guarantee Life did business with American Life. In 2008, the two entered another reinsurance agreement (the "2008 Reinsurance Agreement"). The 2008 Reinsurance Agreement is the subject of the instant federal case.

The Federal Case

In April 2010, Guarantee Life filed this second suit against American Life. The allegations in this suit (which the Court, again, takes as true) are as follows. In 2008, Guarantee Life and American Life entered the 2008 Reinsurance Agreement. Under that agreement, American Life sold policies using Guarantee Life's policy forms. American Life agreed to reinsure 40% of the liability under the policies it sold on Guarantee Life's forms, and Guarantee Life ceded premiums to American Life. Guarantee Life says it performed its obligations under the 2008 Reinsurance Agreement.

Things went awry due to an offset provision in the 2008 Reinsurance Agreement. The offset provision allowed each side to offset any amounts it owed the other based on amounts the other owed to it--even amounts owed under other agreements. Guarantee Life alleges that American Life refused to pay its share of claims and that American Life's justification was that Guarantee Life owed it money under a separate agreement. Guarantee Life alleges that "[t]here is no valid and enforceable agreement for which an offset would be available to American."

Guarantee Life filed this suit. In Count I, Guarantee Life alleges that American Life breached the 2008 Reinsurance Agreement. In Count II, Guarantee Life alleges that American Life violated Section 155 of ...


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