7th Circuit: Service of Suit Clause Resulted In Reinsurer’s Waiver Of The Right To Removal And Granted Cedent The Right To Choose Forum
September 9, 2016

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a district court’s decision remanding a reinsurance dispute to state court because the language of the service of suit provision in the reinsurance treaties waived the right of removal to federal court. By way of background, a dispute arose between the assignee of the accounts receivable of the original cedent (“cedent”) and the assignee of the obligations of the original reinsurer (“reinsurer”). The cedent filed suit in Illinois state court asserting that the reinsurer breached two reinsurance contracts and the reinsurer removed the matter to federal court. The service of suit provision in the reinsurance treaties provided in relevant part:

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 remanded the case to state court finding that the plain and ordinary meaning of the service of suit clause resulted in waiver of removal. On appeal, the reinsurer argued that waiver of the right to removal must be “clear and unequivocal” and the existence of an arbitration clause in the reinsurance treaty rendered the service of suit provision ambiguous and unenforceable. The Seventh Circuit rejected these arguments. First, the court found that the presence of the arbitration provision “in no way muddies the water” as to the meaning of the service of suit clause. Second, the court rejected the heightened “clear and unequivocal” standard and found that courts should utilize the same standards of interpretation employed in resolving all preliminary contractual questions when called upon to interpret a contractual waiver of the right to remove. The court concluded that the service of suit clause “unambiguously grants [the cedent] the absolute right to choose the forum for litigating this matter” and the court affirmed the district court’s determination that removal would ignore the plain and ordinary meaning of the service of suit clause. A copy of the Seventh Circuit’s opinion in Pine Top Receivables of Ill., LLC v. Transfercom, Ltd., No. 16-1073, 2016 WL 4555651 (7th Cir. Sept. 1, 2016) can be found here.


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