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NEWARK, N.J.-An Australian policyholder has successfully wrested its coverage case from its home courts by alleging its insurers-most of which also are foreign companies-violated U.S. antitrust law.
However, the recent Australian High Court decision permitting Sydney, Australia-based CSR Ltd. to pursue its coverage claims in the United States is unlikely to spark an international forum-shopping trend, legal experts say.
While jurisdictional disputes occasionally arise in coverage cases involving multinational companies, the portion of the insurance contract pertaining to U.S. risks usually includes a provision saying disputes involving those risks be litigated in the United States.
"It's called a service of suit clause," explained Robert Schiff, a coverage expert with the San Francisco-based law firm of Fisher & Hurst.
What's rarer in this case is the assertion of federal antitrust law violations in a lawsuit alleging breach of contract by an insurer, he said.
"The antitrust allegations make it an unusual insurance coverage case. In most cases, policyholders can't allege antitrust violations under federal law because McCarran-Ferguson gives the states responsibility for regulating insurance companies," Mr. Schiff said. "But in this case, they alleged a boycott by CIGNA and London," among others. Insurers that engage in such conduct lose their immunity from antitrust liability under the McCarran-Ferguson Act.
"I think you are not likely to see a flood of this type of case arising in the U.S. It was an unusual set of facts," agreed Dean Hansell, a partner in the Los Angeles office of LeBoeuf, Lamb, Greene & MacRae.
It took more than three years for CSR to win its day in New Jersey court, where it will try to prove CIGNA Australia Ltd. conspired with London underwriters to boycott the company to avoid paying claims for asbestos-related injuries.
The case had been tied up in Australian courts since 1994, when CSR's pre-1978 insurers, led by New Zealand Insurance Co. Ltd., won an injunction from Judge J. Rolfe in New South Wales, Australia, that stopped the policyholder from pursuing its coverage dispute in Middlesex County, N.J.
While the injunction was on appeal in Australia, CSR settled its case against NZI.
Meanwhile, CSR filed a second suit against its post-1978 insurers in New Jersey.
"We didn't have it completely served when the insurers went back to court in New South Wales and got another anti-suit injunction from the same judge," recounted Gita Rothschild, a partner with McCarter & English in Newark, N.J., who represented CSR in the U.S. coverage action.
Even after days of hearings in which the policyholder asserted that the suit belonged in the U.S. court system because it contained allegations of U.S. antitrust law violations, "the judge refused to allow the case to go forward," she said. "He said the plaintiffs were 'vexatious and harassing.' " She found this noteworthy because the Australian High Court said in its Aug. 4 opinion that it was the insurers-not the policyholders-that were "vexatious and harassing."
CSR appealed Judge Rolfe's decision to the intermediate Australian court, but it, too, sided with the insurers.
"Then we appealed it to the High Court, and the High Court stayed the proceedings with Justice Rolfe," Ms. Rothschild said. "The court found that the U.S. was the only appropriate jurisdiction for this case" because of the antitrust claims.
The court also awarded the policyholder court costs and legal fees, which by this time had reached "into the millions," according to Ms. Rothschild.
"But it took more than three years to get to this point," she said. "And we still haven't even begun the coverage case."
No date has been set for trial in New Jersey.
To prevent the insurers from diverting the case to Australia again, "the next day we went to court, and we got a restraining order to prevent the defendants from going anywhere else in the world to try to stop these proceedings."
Meanwhile, the insurers have filed a motion for reconsideration with the Australian High Court. No hearing date for that has been set, but if the insurers win, the case could be returned to Australia.
"It's an Australian insured in an Australian insurance program put together here-here being Sydney," asserted Kevin Coughlin, a partner with McElroy, Deutsch & Mulvaney in Morristown, N.J. Mr. Coughlin is leading the insurers' legal representation in the United States.
"We believe Australian law provides the remedy for the allegations-if they can be proved," he said, adding that "the witnesses, the documents, everything is in Sydney."
Mr. Coughlin said the insurers see CSR's attempt to seek hearing of the case in New Jersey as forum-shopping, because U.S. jurisdictions typically are more favorable for policyholders than other countries.
However, CSR sees its insurers' attempt to keep the case in Australia as a diversionary tactic.
"They tried to get it out of U.S. reach to avoid the Sherman Act claims," said Ms. Rothschild.
Indeed, the case is unique in that it contains antitrust violations-something rarely asserted in insurance coverage suits because of the McCarran-Ferguson Act, according Mr. Schiff of Fisher & Hurst. The 1945 law gives insurers some protection from antitrust action, with the exception of boycotts, coercive actions, or violation of the Sherman and Clayton acts.
In the suit, CSR vs. Federal Insurance Co., the policyholder alleges that CIGNA Australia threatened CSR with non-renewal of its liability coverage as long as the policyholder pressed for coverage of asbestos bodily injury claims.
To date, CSR has spent more than $20 million to settle about 2,000 U.S. claims. More than 40,000 asbestos bodily injury claims have been asserted in the United States against CSR and/or CSR America Inc., its U.S. subsidiary.
CSR, a diversified company engaged in the sugar and building materials businesses, sold raw asbestos fiber to U.S. companies-primarily Denver-based Johns-Manville Corp.-from approximately 1948 through 1966.
Prior to 1978, CSR was insured against general and product liability by predecessors to New Zealand Insurance Co.
CSR sought such coverage from Insurance Co. of North America in 1978, before the INA Group of Cos. became affiliated with the Connecticut General Group under the new CIGNA Corp., formed in 1982.
INA, now a CIGNA subsidiary, initially refused to issue any coverage without an asbestos exclusion. But when CSR balked, INA capitulated and confirmed to CSR that it would write the coverage on an occurrence basis without any asbestos exclusion.
On Nov. 29, 1991, CSR wrote to CIGNA Australia and its other insurers formally requesting coverage for asbestos-related claims asserted to that date.
At or about the same time, CSR was seeking to renew its general and product liability coverage for the year beginning March 1992.
But, according to court documents, "instead of investigating or acknowledging its coverage obligations, or entering into good faith settlement discussions with CSR. . .the CIGNA organization, acting on behalf of itself and other underwriters, informed CSR's insurance broker, Richard Oliver International Pty. Ltd: 'that CIGNA finds it inopportune to discuss any proposal to consider renewal or review of the existing liability program for C.S.R. Ltd. (because) the Legal Department of C.S.R. has lodged with us serious claims relating to compensation paid by C.S.R. and monies that may be payable in the future to persons suffering asbestos-related conditions as a result of the inhalation of asbestos fibers. "
After scouring the market for coverage from other sources, the broker found that "no other insurer was willing to consider coverage for CSR as long as CSR was asserting asbestos coverage claims against the policies," according to court papers.
In order to secure renewal of its liability coverages, CSR's deputy managing director executed "under duress and coercion" a letter provided by CIGNA's lawyers withdrawing the 1991 claims, the company argues in legal documents.
The temporary restraining order preventing the insurers from obtaining another foreign court injunction was issued Aug. 8 by U.S. District Court Judge Harold A. Ackerman.
CSR Ltd. and CSR America Inc. vs. Federal Insurance Co. et al., U.S. District Court, District of New Jersey; Civil Action No. 95-2947 (HAA)