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International Ins. Agency Services, LLC v. Revios Reinsurance U.S., Inc.

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Eric A. Haab, Jeannine D. Sims

Date Promulgated: March 27, 2007

Issue Decided: Can a plaintiff who is a non-signatory to a contract containing an arbitration agreement be forced to arbitrate its claims?

In International Ins. Agency Services, LLC v. Revios Reinsurance U.S., Inc., the United States District Court for the Northern District of Illinois granted a motion made by Revios Reinsurance U.S., Inc. (“Revios”) to compel International Insurance Agency Services, LLC (“IIS”) to arbitrate its claims and to stay the suit against Revios and the other defendants in its entirety. The Court held that IIS was required to arbitrate because, although IIS was a nonsignatory to the contracts containing the relevant arbitration clauses, it sought to obtain benefits from the contracts.

IIS provides various services in support of employee-sponsored insurance programs throughout the United States. One such program was the “Lifetime Companion,” which was a group term life insurance product that IIS developed, marketed, administered, and underwrote. As part of the program, Companion Life Insurance Group (“CLIC”) offered the Lifetime Companion product to various employees and employers. Revios, formerly Gerling Global Reinsurance Corporation of America, reinsured the program and retroceded a portion of the risk to Harbour Life and Reinsurance Company, Ltd. (“Harbour”) which was an affiliate of IIS. IIS brought all the parties together and orchestrated the “Lifetime Companion” program.

In its lawsuit, IIS alleged that Revios interfered with business relationships that were critical to IIS’ success by attempting to terminate Revios’ reinsurance agreement with CLIC and by declaring its retrocession agreement with Harbour “null and void ab initio.” Revios argued that IIS’ claims must be submitted to arbitration pursuant to the arbitration clauses contained in both the retrocession and reinsurance contracts; IIS asserted that due to its status as a nonsignatory to either of the contracts containing arbitration clauses, those arbitration agreements were inapplicable.

The Court first stated that for arbitration to be compelled under the Federal Arbitration Act, three elements must be shown: 1) a written agreement to arbitrate, 2) a dispute within the scope of the arbitration agreement, and 3) a refusal to arbitrate. Zurich Am. Ins. Co. v. Watts Indus.,, Inc., 417 F.3d 682, 687 (7th Cir. 2005). After noting that IIS never argued that it claims were outside the scope of the arbitration clauses, the Court reiterated the principle that a party cannot be required to submit to arbitration any dispute which it has not agreed to submit. Thomson-CSF, S.A. v. American Arbitration Assoc., 64 F.3d 773 (7th Cir. 1995). The Court, however, also stated that a nonsignatory may in fact agree to submit a dispute to arbitration through means other than signing a contract which contains an arbitration clause. In particular, a nonsignatory is estopped from avoiding arbitration if it knowingly seeks the benefits of the contract which contains the arbitration clause.

Relying on cases regarding third-party beneficiaries of contracts, the Court stated that a nonsignatory can be compelled to arbitrate a claim if it receives a direct benefit from the contract which contains the arbitration provision. In accordance with the principle that a party cannot use its relationship with a contract to allege liability, but then disavow that contract’s arbitration provisions, the Court determined that IIS was estopped from refusing to arbitrate its dispute with Revios. Although IIS was not seeking to enforce any provisions of the agreements, its entire liability claim was based on the allegation that Revios breached both agreements. Given the nature of IIS’ claims against Revios, the Court concluded that it would be impossible for IIS to litigate its claims without proving that Revios either breached or attempted to breach the agreements containing the arbitration clause. Based upon IIS’ complaint, the Court also found that IIS received and expected to continue receiving a direct benefit from the reinsurance and retrocession agreements.

IIS also argued that Revios could not seek to enforce a provision of a contract it insisted was “void ab initio.” The Court rejected this argument and concluded that the analysis that applies to the question of whether a dispute is subject to arbitration is separate from the merits of either party’s claims or defenses. Hawkins v. Aid Ass’n for Lutherans, 330 F.3d 801, 807 (7th Cir. 2003). Thus, the Court granted Revios’ motion to compel arbitration and stayed the litigation in its entirety.

*Eric Haab is a partner in Lovells Reinsurance Dispute Resolution Practice. Jeannine Sims is an associate in that practice. Both lawyers represent ceding companies and reinsurers in a wide array of case.