Two US courts refuse to find jurisdiction over Bermuda (re)insurers found not to be acting as an alter ego or agent of their related entity.

Hollander et al. v XL Insurance (Bermuda) Ltd1
US Court of Appeal of California, Second Appellate District, Division One, 5 October 2012

The California Court of Appeal affirmed the trial court's order dismissing the plaintiffs' complaint for lack of personal jurisdiction against XL Insurance (Bermuda) Ltd ("XLIB").

The plaintiffs made claims relating to two damaged paintings under two policies issued by XL Specialty under XL Capital Ltd's ("XL Capital") Fine Art & Specie Brand. XL Specialty did not contest jurisdiction and XL Capital waived jurisdiction. XLIB is a wholly owned subsidiary of EXCEL Holdings Limited which in turn is a wholly owned subsidiary of XL Capital. The plaintiffs asserted, inter alia, that XL Capital, as the parent company of related entities, was the alter ego of the other defendants and operated a "single enterprise".

The Court found that there was no general jurisdiction based on the conduct of XLIB's insurance business in California and the fact that there were 38 XLIB policies held by California insureds was not sufficient as more "extensive, wide-ranging and systematic" contact was required to confer such jurisdiction.

Further, the Court found that there was no general jurisdiction based upon a theory of alter-ego and that the plaintiffs had failed to establish that XLIB was the alter-ego of XL Capital or XL Specialty such that the corporate form should be disregarded. The Court commented that the plaintiffs presented no evidence other than the existence of a parent / subsidiary relationship. The plaintiffs only asserted other factors, such as commingling of funds and identical ownership, without sufficient evidence.

Similarly, the Court determined that there was no agency relationship that would confer jurisdiction. More than simple corporate ownership was required and that the plaintiffs needed to demonstrate that "XL Capital, Ltd. and XL Specialty and XLIB directed each other's activities such that they disregarded the entities' separate form or organization", which they failed to demonstrate.    

The Court also found no specific jurisdiction over XLIB.

Phyllis Schultz v Ability Insurance Company and Others2
US District Court for the Northern District of Iowa, Eastern Division, 9 October 2012

The US District Court of Iowa held that a Bermuda reinsurer was not acting as an alter ego or agent for its reinsured within the same corporate group.

The plaintiff held a long-term care insurance policy issued by the Ability Insurance Company ("Ability Insurance"). Ability Insurance issued policies to the policyholders and then bought reinsurance from Ability Reinsurance (Bermuda), an affiliated company. The plaintiff sued Ability Insurance in June 2011, arguing that it had breached its contract to pay for long-term care services, violated an obligation "to engage in good faith and fair dealing", and was guilty of fraud and misrepresentation. The plaintiff subsequently amended her complaint to add four additional members of the Ability Group as defendants to the proceedings – including Ability Reinsurance (Bermuda) Limited and Ability Reinsurance Holdings Limited – described by the Court as the "Non-Contracting Defendants". Three of the Non-Contracting Defendants then filed a Motion for Judgment on the Pleadings arguing that, inter alia, the Court lacked personal jurisdiction over them.

While the plaintiff conceded that three of the Non-Contracting Defendants were not active in Iowa, she asserted that personal jurisdiction could be conferred by piercing the corporate veil on the basis of their relationship with Ability Insurance.

The Court held that the three Non-Contracting Defendants were not subject to the jurisdiction of the courts of Iowa, either under general jurisdiction (which would require a continuous or systematic contact with Iowa) or specific jurisdiction (which would require a cause of action related to actions of the three entities within Iowa). The Court further noted that, despite their presumed separate corporate identities, a parent company could still be found liable for the acts of its subsidiaries (and, thus, the corporate veil being pierced) where otherwise the subsidiary company would enable wrongful conduct (most commonly fraud) on the parent company's behalf. However, the Court held3 that piercing the corporate veil and finding such jurisdiction would be "a drastic approach authorized only in the most extreme situations" and that such jurisdiction could not be established here because the plaintiff failed to demonstrate, on a prima facie basis, that the three Non-Contracting Defendants were acting as alter egos or agents for Ability Insurance. 

The Court commented that "[w]hile one can question the wisdom of regulators permitting Ability Insurance to purchase reinsurance from a member of the same corporate family, it does not render the contractual relationship a "sham" or otherwise make [the reinsurer] susceptible to suit in Iowa". 

The Court therefore granted the Motion for Judgment on the Pleadings and dismissed the Bermuda companies for lack of personal jurisdiction.

Footnotes

1 2012 Cal. App. Unpub. LEXIS 7304
2 2012 U.S. Dist. LEXIS 145607
3 Citing Lakota Girl Scout Council v Havey Fund-Raising Management, Inc., 519 F.2d 634, 637 (8th Cir. 1975)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.