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Eagle Star Insurance Co. Limited v. Highland Insurance Co.

July 22, 2010

EAGLE STAR INSURANCE COMPANY LIMITED, PLAINTIFF,
v.
HIGHLAND INSURANCE COMPANY, DEFENDANT.
HIGHLAND INSURANCE COMPANY, THIRD-PARTY PLAINTIFF,
v.
ACE USA, AS SUCCESSOR TO AETNA INSURANCE COMPANY, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Hayes, Judge

ORDER

The matters before the Court are the Motion to Dismiss Highlands's Third-Party Complaint Without Prejudice filed by Highlands Insurance Company (Doc. # 171) and the Motion to Dismiss Third-Party Complaint With Prejudice filed by ACE USA (Doc. # 172).

BACKGROUND

On November 2, 2002, Defendant Highlands Insurance Company ("Highlands") filed its Notice of Removal which removed the suit filed by Plaintiff Eagle Star Insurance Company from the Superior Court of the State of California for the County of San Diego. (Doc. # 1).

On August 7, 2003, the Court granted Highlands leave to file a Third-Party Complaint as a Third-Party Plaintiff. (Doc. # 24). On August 15, 2003, Highlands filed its Third-Party Complaint against ACE USA ("ACE") as a successor in interest to Aetna Insurance Company. (Doc. # 28). On February 26, 2004, the Court denied ACE's motion to stay or dismiss the case in favor of arbitration and granted ACE's motion to dismiss the third claim for breach of contract. (Doc. # 56). On January 26, 2006, the United States Court of Appeals for the Ninth Circuit issued a memorandum disposition reversing this Court's ruling that the dispute between Highlands and Ace was not arbitrable. See Doc. 171-2, Ex. C. On October 26, 2007, the Court stayed the case pending resolution of ACE's appeal of a settlement agreement between Eagle Star Insurance Company Limited ("Eagle Star") and Highlands in Texas state court. (Doc. # 137). On August 26, 2009, the Texas Court of Appeals issued a memorandum opinion resolving the action pertaining to the settlement between Eagle Star and Highlands. See Doc. # 137. On November 23, 2009, the Court lifted the stay and ordered the parties to "proceed forthwith with the resolution of this action." (Doc. # 161). The parties appeared before the Magistrate Judge for a status conference on March 19, 2010. (Doc. # 170). Eagle Star and Highlands "represented [to the Magistrate Judge] that the dispute between Eagle Star and Highlands has been resolved, and the parties are prepared to dismiss the complaint with prejudice." Id. at 1. Although Eagle Star and Highlands reached a settlement agreement, Highlands and ACE did not. Id. Highlands and ACE disagreed as to whether the Third-Party Complaint should be dismissed with prejudice or without prejudice. Id. The Magistrate Judge ordered Highlands and ACE to "file and serve cross-motions for dismissal . . . no later than April 26, 2010." Id. at 1-2. On April 26, 2010, the Highlands and ACE filed their cross-motions to dismiss. (Docs. # 171, 172).

ALLEGATIONS OF THE THIRD PARTY COMPLAINT

Highlands entered into a business agreement with Cravens Dargan & Company ("Cravens") on June 1, 1964 which appointed Cravens as Highlands's underwriting manager for insurance policies written in California and the Pacific Coast. (Doc. # 28 at 3). The agreement was modified during the course of the business relationship with Cravens and a subsidiary, Cravens Dargan & Company, Pacific Coast. Id. at 4. Highlands "became dissatisfied" with some of the reinsurers selected by Cravens and replaced the reinsurers with Aetna. Id. Under the terms of an addendum to the 1964 agreement, Highlands, Cravens, and Aetna agreed that Aetna assumed liability for losses as of January 7, 1975. Id. at 5. ACE is Aetna's "corporate successor." Id. To the extent that Highlands is liable to Eagle Star, ACE is obligated to indemnify Highlands pursuant to the 1975 agreement. Id. at 6.

In support of Highlands's first claim for declaratory judgment, Highlands alleges ACE disputes "the nature and extent of its obligation to reinsure Highlands with respect to losses arising from assumed reinsurance risks . . . ." Id. "An actual case or controversy exists between Highlands and ACE regarding their respective rights and obligations under the Management Agreements, including but not limited to ACE's obligation to pay reinsurance proceeds to Highlands." Id. Highlands seeks a declaratory judgment which "resolve[s] the parties' dispute . . . . [as to] pending and future claims submitted to Highlands by Eagle Star." Id.

In support of Highlands's second claim for indemnification, Highlands alleges ACE is obligated to indemnify Highlands for "losses it is required to pay in connection with assumed reinsurance risks underwritten by" Cravens' subsidiary. Id. at 7. Highlands seeks "indemnification from ACE for any amounts Highlands may be required to pay Eagle Star pursuant to the terms of the Management Agreement." Id. at 7.

Highlands's third claim for breach of contract was previously dismissed by the Court.

(Doc. # 56).

In support of Highlands's fourth claim for unjust enrichment, Highlands alleges ACE will be unjustly enriched if it fails to honor its obligation to reimburse Highlands for losses pursuant to the reinsurance agreement. Id. at 8.

CONTENTIONS OF THE PARTIES

Highlands contends that its claims against ACE are "broader than the claims asserted by Eagle Star" and "were never addressed or resolved at any stage of the proceedings in this matter." (Doc. # 171-1 at 13). Highlands contends that its claims against ACE should therefore be dismissed without prejudice, which will allow arbitration of claims which remain between Highlands and ACE. Id. at 13-14. Highlands contends a dismissal with prejudice would prevent it from ever adjudicating "subsequent claims against ACE in connection with the disputed Cravens pool liabilities" before an arbitrator. Id. Highlands contends that there are additional members of the Cravens insurance pool which may assert claims against Highlands which ACE must indemnify and that a dismissal with prejudice will prevent Highlands from seeking such indemnification from ACE. Id. at 15. Highlands contends that it is arbitrating claims against ACE for "indemnification under the Umbrella Program reinsurance agreements" and that the arbitration would be impaired by a dismissal with prejudice in this case. Id. at 17. Highlands contends that "ACE may attempt . . . to offset from any amounts it owes to Highlands those sums that ACE alleges are owed to it by Highlands, under any contracts between them" which Highlands could not effectively challenge if its Third-Party Complaint is dismissed with prejudice. Id. Highlands contends the Federal ...


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