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Certain London Market Company Reinsurers v. Lamorak Insurance Co.

United States District Court, D. Massachusetts

February 20, 2019



          M. Page Kelley, United States Magistrate Judge.

         I. Introduction.

         This is a reinsurance case in which plaintiffs, Certain London Market Company Reinsurers (LMR), [1] sued defendant Lamorak Insurance Company in Massachusetts state court. Lamorak removed the matter to this court. LMR has moved to remand, arguing that a related case presently pending in state court involving another reinsurer, Certain Underwriters of Lloyd's, London (Lloyd's), is parallel to this case, and thus this court should abstain from hearing this case under the rule of Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 821 (1976), or Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), as later affirmed in Wilton v. Seven Falls Co., 515 U.S. 277 (1995). (#6.) Lamorak opposed the motion, and LMR replied. (##11, 20.) The parties filed supplemental briefs, and the court held an oral argument on November 26, 2018. (##33, 34, 43, (transcript of hearing).) For the reasons set out below, this court recommends that the motion to remand be denied.

         II. Facts and Procedural History.

         This dispute concerns three umbrella insurance policies Lamorak issued to its insured, Olin Corporation (the Olin Policies), in the 1970s.[2] Reinsurers operating in London, England, including LMR and Lloyd's, reinsured Lamorak for its liability under the Olin Policies under three facultative reinsurance contracts[3] issued to Lamorak (the Reinsurance Contracts).

         A. The Olin Litigation.

         Since the 1970s, Olin, a chemical manufacturing company, has become liable for the costs of remediating pollution at several sites. Beginning in 1983, Olin sued Lamorak under the Olin Policies (the Olin Litigation), seeking indemnification for environmental liability. (#29 ¶ 15.) See generally Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017). The litigation proceeded, on a site-by-site basis, for approximately thirty-five years in the United States District Court for the Southern District of New York. (#29 ¶ 15.)

         In 2013, Olin and Lamorak went to trial in the Southern District of New York with respect to five Olin remediation sites. 864 F.3d at 140-41. In 2015, after a jury trial, the district court entered judgment in favor of Olin against Lamorak in the amount of $87, 187, 173.63. Id. at 142. On appeal, the Second Circuit affirmed as to Lamorak's liability, but vacated the judgment and remanded for recalculation of damages. Id. at 135 n.1.

         In August 2018, after trial began on the remaining pollution sites, Lamorak reached a comprehensive settlement of the Olin Litigation, “resolving essentially all environmental claims.” (#29 ¶ 54.) See Olin Corp. v. Ins. Company of N.A., et. al., A.C. No. 1:84-cv-01968-JSR, #2376. In September 2018, Lamorak billed LMR for their share of the settlement payment, seeking payment under the simultaneous payments clause in the Reinsurance Contracts. (#29 ¶ 57.)

         Lamorak also previously billed reinsurers, including LMR, for a claim concerning a site in Huntsville, Alabama. Id. ¶ 44. Lamorak asserts that LMR executed a settlement agreement with Olin pertaining to this site some time prior to the billing, which Lamorak refers to as “the Huntsville Settlement Agreement.” Id. ¶ 17. Lamorak alleges that although LMR paid Olin directly under the Huntsville Settlement Agreement for years, they eventually stopped making payments. Id. ¶¶ 41-42. In this suit, Lamorak claims that LMR failed to fulfill its obligations concerning payment for the Huntsville remediation site, in addition to failing to pay the amounts billed in September 2018 for the Olin Litigation settlement. Id. ¶¶ 17-20, 38-45, 72.

         While the state case involving Lloyd's (the State Court Action) and this case involving LMR are described in detail below, it bears noting at the outset that although both LMR and Lloyd's dispute their obligation to pay Lamorak under the Reinsurance Contracts, Lloyd's has in fact paid under a full reservation of rights, while seeking to recoup payment in the State Court Action. (#33-1 ¶ 38.) Lamorak asserts that LMR has not paid any of the billing, and, as a result, Lamorak's amended counterclaim in this court claims damages for breach of contract and asserts that LMR violated Mass. Gen. Laws ch. 93A, § 11 (unfair and deceptive conduct). (#29 ¶¶ 64-76.)

         B. Lamorak's Suit Against Lloyd's in Massachusetts State Court.

         In January 2018, Lamorak sued Lloyd's in Suffolk County Superior Court, seeking a declaratory judgment pursuant to Mass. Gen. Laws ch. 231A, § 1 (the Massachusetts Declaratory Judgment Act, or MDJA), that Lloyd's was obligated to pay its share under the Reinsurance Contracts to Lamorak.[4] (#8-1 (complaint).) LMR is not a party to the State Court Action.[5]

         Discovery has been ongoing in the State Court Action since July 2018, but after Lamorak and Olin reached settlement in the Olin Litigation, Lamorak and Lloyd's filed amended pleadings in November 2018. (#33-1 at 11; #33-2 at 13.) See Lamorak Ins. Co. v. Certain Underwriters at Lloyd's, London, No. 1884CV00200 (Mass. Sup. Ct). Lamorak's amended complaint in the State Court Action alleges two claims against Lloyd's: (a) breach of contract for Lloyd's alleged failure to pay Lamorak for the December 2016 billing regarding Olin's Huntsville remediation site; and (b) an MDJA claim, seeking a declaration to what extent Lloyd's is entitled to a refund of payments it made to Lamorak for the September 2018 billing related to the Olin Litigation settlement, and generally seeking a declaration as to the parties' rights and obligations under the Reinsurance Contracts. (#33-1 ¶¶ 43-50.)

         In addition, the amended complaint states that Lamorak and Lloyd's agreed to submit their dispute over whether Lloyd's was obligated to pay prejudgment interest and amounts alleged to be over the policy limits to final and binding arbitration. Id. ¶ 41. The amended complaint states:

The arbitrator ruled in favor of Lamorak on these issues, finding in pertinent part as follows: ‘Under the reinsurance contracts, [Lloyd's] agreed to follow [Lamorak's] policy obligation, which by law would include prejudgment interest. Had the prejudgment interest been for obligations owed by the insured to a third party, these obligations would have stopped at the policy limits. However, because these obligations are owed by the insurer to the insured, they are in addition to the policy limits. [Lloyd's], therefore, owe[s] [Lamorak] for its reinsurance share of prejudgment interest, even if above policy limits.'

Id. Lamorak's amended complaint alleges Lloyd's is bound by the arbitration decision and may not again litigate the issues of coverage for prejudgment interest, or the existence of any limits, in the Reinsurance Contracts. Id. ¶ 42.

         Lloyd's disputes that it is bound by the arbitration decision. Its amended and supplemental counterclaim seeks declarations under the MDJA that it was not obligated to pay Lamorak prejudgment interest, declaratory judgment expenses, or any amount in excess of the limits in the Reinsurance Contracts. (#33-2 ¶¶ 33-44.) In addition, Lloyd's alleges that Lamorak breached the Reinsurance Contracts by billing Lloyd's for amounts not covered by the Reinsurance Contracts, including amounts paid for prejudgment interest; billing Lloyd's in excess of the limits; and improperly allocating the settlement amount with Olin in billing Lloyd's. Id. ¶¶ 45-57. Finally, Lloyd's alleges Lamorak was unjustly enriched by receiving payment from Lloyd's that was not required by the Reinsurance Contracts, including prejudgment interest and amounts in excess of the limits, and that Lamorak allocated the settlement amount in bad faith. Id. ¶¶ 58-64.

         C. This Action.

         On March 15, 2018, LMR sued Lamorak in Suffolk County Superior Court under the MDJA, seeking a declaration of its rights and obligations under the Reinsurance Contracts. (#1-1 ¶ 1.) On March 20, 2018, Lamorak removed LMR's complaint to federal court, asserting diversity jurisdiction. (#1.) After removal, Lamorak filed its Answer, which contained a counterclaim seeking declaratory relief under the federal Declaratory Judgment Act (FDJA), 28 U.S.C. § 2201(a), specifically, a “declaration of the parties' rights and obligations under the Reinsurance Contracts.” (#10 at 15-18.) LMR filed its Answer to the original counterclaim on April 26, 2018. (#15.)

         After the Olin Litigation was settled, Lamorak filed an amended counterclaim in November 2018, alleging that (a) LMR breached the Reinsurance Contracts by failing to pay amounts billed in December 2016 (related to the Huntsville remediation site) and September 2018 (related to the Olin Litigation settlement) (#29 ¶ 66); (b) LMR breached the simultaneous payments clause in the Reinsurance Contracts by failing to pay Lamorak's September 2018 billing, id. ¶ 67; (c) LMR engaged in unfair and deceptive conduct in violation of Mass. Gen. Laws ch. 93A, § 11 by, among other things, changing position concerning its obligations under the Reinsurance Contracts, failing to pay under the Huntsville Settlement Agreement even though it had previously paid under the agreement, engaging in unreasonable and unfair claims-handling and settlement practices, failing to comply with the simultaneous payments clause in the Reinsurance Contracts, and by prematurely filing this action, id. ¶ 72.

         In defense to the amended counterclaim, LMR asserts, inter alia, that: (a) the terms and conditions of the Reinsurance Contracts bar Lamorak's counterclaims; (b) Lamorak's post-settlement allocation for the September 2018 billing was improper, unreasonable, and done in bad faith; (c) Lamorak breached its duty of utmost good faith by improperly handling the Olin claims and failing to cooperate with LMR; (d) Lamorak is not entitled to prejudgment interest under the Reinsurance Contracts; (e) Lamorak is not entitled to recover expenses incurred in litigating the coverage dispute with Olin or other defense expenses under the Reinsurance Contracts; (f) Lamorak's claims are barred by its failure to support its reinsurance presentation, or make its records available for LMR's inspection; and (g) LMR's liability is capped by the limits in the Reinsurance Contracts. (#32 at 21-22.)

         III. Applicable Law.

         A. The Law Pertaining to Removal.

         A defendant may remove a civil action from state court where the federal district court has original jurisdiction. 28 U.S.C. §§ 1441(a), 1446. Here, Lamorak timely removed the state court complaint, asserting this court's original diversity jurisdiction under 28 U.S.C. § 1332(a). (#1 at 2-3.) A motion to remand is the proper procedure for challenging an opposing party's removal, and remand to state court may be ordered sua sponte or on a party's motion, for either lack of subject matter jurisdiction or for any defect in the removal procedure. See 28 U.S.C. § 1447(c). A defendant invoking the federal court's removal jurisdiction bears the burden of establishing diversity exists, and that removal was proper. See generally Wilson v. Rep. Iron & Steel Co., 257 U.S. 92, 97 (1921); Ortiz-Bonilla v. Federacion de Ajedrez de Puerto Rico, Inc., 734 F.3d 28, 34 (1st Cir. 2013).

         LMR does not challenge Lamorak's removal on procedural grounds, nor does it seriously challenge the court's diversity jurisdiction.[6] Rather, as stated above, LMR argues that the court should abstain from hearing this action under the Supreme Court's precedent in Colorado River, 424 U.S. at 821, or under the rule of Brillhart, 316 U.S. 491, as later affirmed in Wilton, 515 U.S. 277.

         B. The Abstention Doctrines of Colorado River ...

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