Seventh Circuit: Remember, Service-of-Suit Clauses Can Keep You Out of Federal Court

I know, I know. It’s been forever since I’ve posted, and I’m not even going to bother making excuses. So, here goes with the first case update…

Last month, the Seventh Circuit held that a reinsurance agreement’s service-of-suit clause barred removal to federal court.

Following the liquidation of an insurance company, some of its accounts receivable were assigned to Pine Top for collection. Transfercom, a UK insurer, had assumed certain obligations of Nissan Fire & Marine Insurance Company, another UK insurer that reinsured the liquidated insurer under two treaties from the early 1980s. Pine Top sued Transfercom in Illinois state court to collect on those obligations. Since there was complete diversity of the parties, Transfercom removed the case to federal court.

Pine Top moved to remand under the treaties’ service-of-suit clauses, which stated:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

The district court agreed with Pine Top that the service-of-suit clause waived the reinsurer’s right to remove the case to federal court because the clause expressly gave the insurer the exclusive authority to select both the jurisdiction and the venue. 

Transfercom appealed, arguing that the waiver of its statutory right of removal must be “clear and unequivocal” and, in any event, the service-of-suit clause was rendered ambiguous by the treaties’ arbitration clauses, which stated:

As a condition precedent to any right of action hereunder, any irreconcilable dispute between the parties to this Agreement will be submitted for decision to a board of arbitration.

The Seventh Circuit disagreed. First, an “overwhelming majority of federal courts” hold that similar service-of-suit clauses “foreclose a defendant’s right of removal.” Second, the court refused to adopt Transfercom’s heightened “clear and unequivocal” standard because that standard was normally applied to “litigation-based waivers,” where a party’s conduct in litigation can be considered to waive its right to remove or arbitrate. Instead, the waiver here was contractual, so courts should use the same standard of interpretation as they do with other contractual issues.

Finally, the court found that the service-of-suit clause was unambiguous and worked in conjunction with the arbitration clause:

Read as a whole, the reinsurance agreement requires Transfercom to submit to the jurisdiction of any court of competent jurisdiction chosen by PTRIL, whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or to resolve on the merits, a claim not subject to arbitration—including [Pine Top’s] breach of contract claim.

Pine Top stands as a reminder to insurers (one that can’t be said enough) that the language in the contract matters. If you want to preserve your right to have your case heard in federal court, make it clear that you have that right.

About Brian Jones

I represent clients in all aspects of business litigation, but focus my practice on complex litigation and arbitration matters concerning insurance and reinsurance, antitrust, class actions, securities, real estate disputes, and contract matters. I am the co-chair of the Bose McKinney & Evans Insurance Group. I was listed in the 2017 and 2016 "Best Lawyers in America" for Insurance Coverage and named a "Rising Star" in Insurance Coverage by Super Lawyers in Indiana in 2014. I was also named a "Rising Star" in Business Litigation by Super Lawyers in Indiana in 2013 and 2012, and a 2010 “Rising Star” in Business Litigation in Texas. I am a member of the State Bars of Indiana and Texas, the Defense Research Institute, a former member of the Pro Bono College of the State Bar of Texas, and I am licensed to practice before all state courts in Indiana and Texas, as well as all federal courts in Indiana, the Northern, Western, and Southern Districts of Texas, the Northern District of Illinois, and the United States Courts of Appeals for the Fifth, Seventh, and Eleventh Circuits. I received my bachelor’s degree, cum laude, in political science and my master’s degree in teaching from Trinity University, where I was elected to Phi Beta Kappa. I received my doctor of jurisprudence degree from the University of Texas School of Law, where I was the Director of Communications for the Legal Research Board and a member of the Phi Delta Phi Honor Society. Before attending law school, I taught high school geography, government and economics in San Antonio, Texas.
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