Opposition Brief — Clarkson Puckle Group, Ltd. v. International Insurance

‘Sate

Muprema Cour, Ug, |

FILED

No. 92-1124

—wlAN 2-9-1993

In THE OFFICE O& THE CLERK

Supreme Court of the United States

OCTOBER TERM, 1992

CLARKSON PUCKLE GROUP, LTD., ERAS (INTERNATIONAL),

LTD., CLARKSON PUCKLE INTERNATIONAL REINSURANCE, LTD.,

and BAIN CLARKSON, LTD., —e

Petitioners,

V.

INTERNATIONAL INSURANCE COMPANY; CERTAIN UNDER-

WRITERS AT LLOYD’S, LONDON; DOMINION INSURANCE

COMPANY, LTD.; HANOVER REINSURANCE COMPANY, LTD.;

ALPINA INSURANCE COMPANY, LTD.; BRITISH NATIONAL

INSURANCE COMPANY, LTD.; CNA REINSURANCE OF LONDON,

LTD.; ANCON INSURANCE COMPANY (U.K.), LTD.; PEOPLE’S

INSURANCE COMPANY OF CHINA; ST. KATHERINE’S INSURANCE

COMPANY, P.L.C.; INSURANCE CORPORATION OF IRELAND,

P.L.C.; YASUDA FIRE AND MARINE INSURANCE COMPANY (U.K.),

LTD.; SCAN RE INSURANCE COMPANY, LTD.; BAVARIAN

REINSURANCE COMPANY; AND, SOCIETE COMMERCIALE DE

REASSURANCE, S.A., Respondents.

Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

RESPONDENT INTERNATIONAL INSURANCE

COMPANY’S BRIEF IN OPPOSITION

FRANCIS D. MORRISSEY

Counsel of Record

PAUL B. O’FLAHERTY, JR.

WILLIAM M. SNEED

BARRIE L. BREJCHA

BAKER & McKENZIE

130 East Randolph Drive

Chicago, Illinois 60601

(312) 861-2800

Attorneys for Respondent,

International Insurance Company

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

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i

QUESTION PRESENTED FOR REVIEW

Whether this Court should exercise its discretion under

Supreme Court Rule 10 and issue a writ of certiorari

where the Court of Appeals’s two-line unpublished order

declining to consider petitioners’ appeal for lack of appel-

late jurisdiction was manifestly correct, where no other

Court of Appeals has yet considered the same question,

and where the petition fails to present special and im-

portant reasons for review.

il

SUPREME COURT RULE 29.1 LISTING

The parent companies of International Insurance Com-

pany are Crum & Forster, Inc., Xerox Financial Services,

Inc. and Xerox Corp. There are no subsidiaries or affili-

ates of International Insurance Company that are not

wholly owned.

iil

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW ....

SUPREME COURT RULE 29.1 LISTING ....

TABLE OF CONTENTS .....................

SUPPLEMENTAL STATEMENT

GA OM MAIMED As cea pevicccnscccssvevereces

I.

THE PETITION FAILS TO DEMONSTRATE A

GENUINE CONFLICT AMONG THE COURTS

EE SAG dds Sb veneesasddakubewcecs sa

A. The Questions Presented Are Premature

For Review By Means Of Certiorari ....

B. The Questions Presented Are Of Little Dif.

ficulty Or Public Importance ............

C. Unable To Demons »«:e A Conflict Among

the Circuit Courts Of Appeals On The Juris-

dictional Issue, Petitioners Unsuccessfully

Attempt To Raise A Conflict On The Merits

Of The District Courts’ Orders .........

IT.

THE COURT OF APPEALS’S ORDER WAS MANI-

oy 660 6.N 6c caceccuncaces

or

iv

A. Interlocutory Orders Staying Trial of An

Action Pending Arbitration Are Not Appeal-

PTO eT Tee Te eT Tye Te Te TT ere ee 13

B. The District Court’s Orders Were Not Ap-

pealable Under The Collateral Order Doc-

RE Nico cede rea nnse usec eud ee eeewese 16

Vv

TABLE OF AUTHORITIES

SS

Cases PAGE

Adickes v. Kress & Co., 398 U.S. 144 (1970) .... 5

Bergen Shipping Co. v. Japan Marine Serv., Ltd.,

386 F. Supp. 480 (S.D.N.Y. 1974) .......... 12

Berkemer v. McCarty, 468 U.S. 420 (1984) ..... 5

Bigge Crane & Rigging Co. v. Docutel Corp., 371

F’. Supp. 240 (E.D.N.Y. 1973) .............. 12

Burns v. Reed, ___ U.S. ___, 111 S. Ct. 1934

reer rene: SRR ANNe Eo ORES ty 7

Cohen v. Beneficial, Indus. Loan Corp., 337 U.S.

a hc COROT CPE OPE. er ee 16

Corpman v. Prudential-Bache Securities, Inc., 907

me OP GRR i. BOD ok oasis vache vince 9

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213

SPM A CHENG SOP och Oc oo ded oe Ge 11

Firestone Tire & Rubber Co. v. Risjord, 449 U.S.

oth na ES Page ee i ad ie on 18

Harlow v. Fitzgerald, 457 U.S. 800 (1982)..... 9

In re Moens, 800 F.2d 173 (7th Cir. i. 16, 17

Knorr Brake Corp. v. Harbill, Inc., 556 F. Supp.

ede Ene ae 12

Lauro Lines S.R.L. v. Chasser, 490 U.S. 495 (1988) . 18

Marcune v. Coker, 678 F. Supp. 121 (E.D. Pa.

WOO Kshs Sure uel dae yncekanbes Tee Rune ee. 12

McCray v. New York, 461 U.S. 961 (1988) .... 6

Miller Brewing Co. v. Fort Worth Dstributing Co.,

781 F.2d 494 (5th Cir. 1986) ............... 10

vi

Mitchell v. Forsyth, 472 U.S. 511 (1984)...... 7,9, 16

Perera v. Siegel Trading Co., Inc., 951 F.2d 780

a St A PO PPerTT eT e Te ore Tree 14

Powers v. Chicago Transit Auth., 846 F.2d 1139

o> |) Ferrer yer reer irre 19

Richardson-Merrell Inc. v. Koller, 472 U.S. 423

4 FP errr rrr errs ype 16, 17

Sedlock by Sedlock v. Bic Corp., 926 F.2d 757 (8th

Sa RG US sck bik ons Cae cee eh eeneee 19

Stringfellow v. Concerned Neighbors in Action, 480

te 8 PEPER CUT eee eee T rere 16

Suarez-Valdez v. Shearson Lehman/American Ex-

press, Inc., 858 F.2d 648 (11th Cir. 1988).... 9, 11

Van Cauwenberghe v. Biard, 486 U.S. 517 (1988) . 18

Miscellaneous

Federal Arbitration Act, 9 U.S.C §§1 et seg. ... passim

Racketeer Influenced and Corrupt Organizations

Act, 18 U.S.C. §$1962(a)-(d) ................. 2

POS CUE. TE Ue kk os oho acco a pcotecunsn i

Supreme Court Rule 14.1(a) ..............006. 5

No. 92-1124

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

CLARKSON PUCKLE GROUP, LTD., ERAS (INTERNATIONAL),

LTD., CLARKSON PUCKLE INTERNATIONAL REINSURANCE, LTD.,

and BAIN CLARKSON, LTD., me

Petitioners,

V.

INTERNATIONAL INSURANCE COMPANY; CERTAIN UNDER-

WRITERS AT LLOYD’S, LONDON; DOMINION INSURANCE

COMPANY, LTD.; HANOVER REINSURANCE COMPANY, LTD.;

ALPINA INSURANCE COMPANY, LTD.; BRITISH NATIONAL

INSURANCE COMPANY, LTD.; CNA REINSURANCE OF LONDON,

LTD.; ANCON INSURANCE COMPANY (U.K.), LTD.; PEOPLE’S

INSURANCE COMPANY OF CHINA; ST. KATHERINE’S INSURANCE

COMPANY, P.L.C.; INSURANCE CORPORATION OF IRELAND,

P.L.C.; YASUDA FIRE AND MARINE INSURANCE COMPANY (U.K.),

LTD.; SCAN RE INSURANCE COMPANY, LTD.; BAVARIAN

REINSURANCE COMPANY; AND, SOCIETE COMMERCIALE DE

REASSURANCE, S.A., Res ar

Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

RESPONDENT INTERNATIONAL INSURANCE

COMPANY’S BRIEF IN OPPOSITION

wien

SUPPLEMENTAL STATEMENT OF THE CASE

Respondent, International Insurance Company (“IIC”),

is an Illinois insurance company that acted as a nominal

“fronting” insurer for an international pool of reinsurers

on a series of Environmental Impairment Liability (“EIL’’)

policies from 1981 through 1983. Respondents, Underwriters

at Lloyd’s, London et al. (“excess reinsurers”), are the

insurance syndicates and reinsurance companies that re-

insured IIC on these EIL policies. The EIL policies IIC

issued were 100% reinsured by the reinsurance pool in 1981

and 1982, and over 98% reinsured by the pool in 1983.

Petitioners Clarkson Puckle Group, Ltd., ERAS (Inter-

national), Ltd., Clarkson Puckle International Reinsur-

ances, Ltd. and Bain Clarkson, Ltd. (collectively, “Clark-

son” or “petitioners”) are four English companies that

organized and managed the EIL reinsurance pool. Spe-

cifically, Clarkson sought out and organized reinsurance

capacity for writing EIL risks, and arranged for the place-

ment of reinsurance with particular carriers. Clarkson also

sought out and arranged for nominal insurers, including

IIC, to “front” EIL policies in the United States. With

respect to the selection of risks and issuance of policies,

Clarkson performed or supervised the underwriting proc-

ess. Finally, when insureds made claims under the policies,

Clarkson performed the claims handling function in the

initial stages of the program. In proceedings below, Dis-

trict Judge George Lindberg rightly characterized Clark-

son’s role in the EIL program as being the “eye of the

hurricane.” (App. Resp. 60a.)

Approximately one year before the pool ceased under-

writing, two of the Clarkson entities, Clarkson Puckle

Group, Ltd. and ERAS (International), Ltd., entered into

= =

written contracts with IIC with respect to IIC’s participa-

tion in the EIL program. These contracts both contained

arbitration clauses. The remaining two Clarkson peti-

tioners, Clarkson Puckle International Reinsurance, Ltd.

and Bain Clarkson, Ltd., are not parties to the contracts.

(App. Resp. la.)

In November, 1988, I[C commenced the underlying ac-

tion against the excess reinsurers seeking reimbursement

for the $19 million settlement of an EIL claim with Smith-

kline Beckman Corporation. In 1990, the excess reinsurers

filed an amended counterclaim against IIC that contained

claims of common law fraud, conspiracy and breach of con-

tract, as well as claims under the Racketeer Influenced

and Corrupt Organizations Act, 18 U.S.C. §1962(a}(d). The

excess reinsurers alleged that Clarkson acted as IIC’s

agent for underwriting and claims handling with respect

to the EIL program. In February, 1991, IIC added Clark-

son as a defendant/third-party defendant to this lawsuit,

alleging that Clarkson acted as an agent of the reinsurers,

including the defendant excess reinsurers, in underwriting

and claims-handling under the EIL program.

On June 7, 1991, petitioners moved to stay IIC’s claims

against them under Section 3 of the Federal Arbitration

Act, 9 U.S.C. §3, invoking the arbitration clauses con-

tained in the written agreements between IIC and Clark-

son Puckle Group, Ltd. and ERAS (International), Ltd.

All four Clarkson entities moved for the stay, although

Clarkson Puckle International Reinsurance, Ltd. and Bain

Clarkson. Ltd. are not signatories to the written agree-

ments and have never acknowledged that they are subject

to them. Petitioners simultaneously moved for the entry

of a protective order staying all discovery until the district

court ruled on petitioners’ motion to stay further proceed-

ings pending arbitration. IIC opposed Clarkson’s motions,

——————— an

em ee

ee

=

principally arguing that Clarkson had waived its right to

arbitration by previously suing IIC in multiple lawsuits

in England arising out of the EIL program.

On December 20, 1991, the magistrate judge recom-

mended that petitioners’ motion to stay pending arbitra-

tion be granted. (App. Resp. 3la.) On January 15, 1992,

the magistrate judge recommended that Clarkson’s motion

for a protective order be denied and that Clarkson should

be subject to discovery. (App. Resp. 49a.) Clarkson’s ob-

jections to the January 15, 1992 ruling were overruled

and subsequent attempts to stay discovery were denied

by the district court. In orders issued on February 12

and 27, 1992, the district court adopted the magistrate

judge’s report and recommendation denying Clarkson’s

motion for a protective order. (App. Resp. 69a-70a.) On

June 12, 1992, the district court adopted the magistrate

judge’s report and recommendation that the trial of the

issues between Clarkson and IIC be stayed pending ar-

bitration. (App. Resp. 71a.)

On February 27, 1992, petitioners filed a petition for

writ of mandamus with the United States Court of Ap-

peals for the Seventh Circuit. The Seventh Circuit denied

the petition without a written opirion on March 13, 1992.

(App. Resp. 73a.) Petitioners filea a petition for rehear-

ing en banc which was denied without dissenting opinion

on April 21, 1992. (App. Resp. 75a.)

On June 26, 1992, petitioners appealed the district

court’s June 12, 1992 order, contending that by being re-

quired to respond to discovery initiated by the remain-

ing parties as to issues not encompassed by any arbitra-

tion agreement, petitioners had been denied the stay to

which they were entitled under Section 3. On July 16,

1992, IIC moved to dismiss the appeal for lack of jurisdic-

tion. On September 30, 1992, the Seventh Circuit granted

ai

IIC’s motion to dismiss and dismissed petitioners appeal

without a published opinion. (App. Resp. 77a.)

Contemporaneously with Clarkson’s attempts to secure

appellate relief, it provided substantial responses to dis-

covery in the underlying action. The Clarkson defendants

made substantial document production during the spring

and summer of 1992. Moreover, it has produced three cor-

porate employees for deposition: Mr. Don Whittle in July,

1992 and Messrs. Martin Pearson and Derek Coultham in

January, 1993.

SUMMARY OF THE ARGUMENT

This case involves the fundamental rule that this Court’s

review of an issue on writ of certiorari is warranted only

where the petition establishes special and important rea-

sons for such consideration. See Supreme Court Rule 10.

The Seventh Circuit’s dismissal of the appeal for want

of jurisdiction, because petitioners had been granted a

stay pending arbitration under Section 3 of the Federal

Arbitration Act, 9 U.S.C. §16(bX1), does not warrant this

Court’s review for several reasons. First, the two ques-

tions presented raise issues that no Court of Appeals—in-

cluding the Seventh Circuit here—has yet addressed in

a published opinion. They arise from a two-line unpub-

lished order dismissing petitioners’ appeal for lack of ap-

pellate jurisdiction. No Court of Appeals has addressed

the questions presented in any published opinion. Certain-

ly, in this embryonic stage of development, no conflict

exists between the rulinp below and the decisions of either

this Court or any Circuit Courts of Appeals. Second, peti-

tioners have failed to present any other special and im-

=—

portant reason for this Court’s_review of this matter.

Third, the Seventh Circuit’s dismissal of the petitioners’

appeal was manifestly correct. Fourth, the district court’s

orders staying the trial but ordering petitioners to partici-

pate in discovery were well justified under existing prece-

dent and not an abuse of the district court’s discretion.

REASONS FOR DENYING THE WRIT

THE PETITION FAILS TO DEMONSTRATE A GENUINE

CONFLICT AMONG THE COURTS OF APPEALS

A. The Questions Presented Are Premature For Review By

Means Of Certiorari

Review by this Court on writ of certiorari is generally

limited to the questions presented or those fairly compre-

hended within it. Supreme Court Rule 14.1(a); Adickes v.

Kress & Co., 398 U.S. 144, 147 n.2 (1970); Berkemer v.

McCarty, 468 U.S. 420, 443 n.38 (1984). Accordingly, the

instant petition is limited to the narrow issue of whether

the Courts of Appeals have jurisdiction to entertain im-

mediate appeal from district court orders granting a par-

ty’s request for stay pending arbitration, but nonetheless

ordering the party to respond to discovery, where other

parties and non arbitrable issues remain. This question

arises only from the Seventh Circuit’s dismissal of peti-

tioners’ appeal in a two-line unpublished order. No other

Court of Appeals has addressed the question in a pub-

lished opinion. On this minimal record, and at this embry-

onic stage of development, the questions presented should

not be reviewed by means of certiorari.

-

It is not the function of certiorari to decide issues that

no Court of Appeals has discussed. Rather, the writ of

certiorari is properly reserved for the final resolution of

issues that have received mature analysis and develop-

ment--with conflicting results—in the Courts of Appeals.

The language of Supreme Court Rule 10 states that the

principal purpose of certiorari is the resolution of fully

developed conflicts among the Courts of Appeals or courts

of last resort in the states. This Court’s opinions have

also so characterized the remedy. McCray v. New York,

461 U.S. 961, 962-63 (1983).

Two important policies are served by insisting that

issues ripen through repeated treatment in the lower

courts. The first is a matter of economy. This Court has

not the resources to examine every interesting question

of first impression arising in the federal courts. Given suf-

ficient opportunity to percolate, an issue frequently will

receive consistent treatment in the Courts of Appeals, ob-

viating any need for review by this Court. The second

concern is the quality of this Court’s decision making. By

addressing only those issues that have matured into a gen-

uine conflict among Courts of Appeals, this Court has the

benefit of previous analysis of competing legal authorities,

competing considerations of public policy, and the applica-

tion of rules to differing sets of facts.

No published opinion of any Court of Appeals has ad-

dressed the propriety of an order such as the District

Court’s order below, granting a party’s request for stay

pending arbitration, but nonetheless requiring that par-

ty’s compliance with discovery. Indeed, the Court of Ap-

peals for the Seventh Circuit issued no written opinion

addressing the issue in this case, disposing of the mat-

ter in an unpublished, two-line order. Section 16 of the

Federal Arbitration Act, upon which petitioners predicate

= =

their claim of appellate jurisdiction, was added to the Act

by means of a 1988 amendment. In the few intervening

years, the parameters of the amendment have not been

discussed in any published opinion in any federal court.

The absence of such reported opinions suggests that the

issue presented by the petition is not a frequent or im-

portant problem in the lower federal courts. At this early

stage of the issue’s development, there is no demonstrated

necessity for review by this Court and no developed bodies

of competing doctrine for this Court to evaluate.

By way of contrast, petitioners’ authorities from the

field of qualified immunity demonstrate the level of discus-

sion and refinement in the Courts of Appeals, desirable

before an issue warrants consideration by this Court on

writ of certiorari. For example, in Mitchell v. Forsyth, 472

U.S. 511 (1984), this Court granted a petition for certiorari

to review the appealability of orders regarding absolute

and qualified immunity entered before final judgment.

This Court expressly acknowledged that the issue was one

that has divided the Courts of Appeals, noting that three

circuits had held such orders appealable, three had held

them non-appealable, and still another had ruled that a

district court’s denial of qualified immunity was not ap-

pealable when claims for injunctive relief would have to

be adjudicated regardless of the resolution of damages

claims. Similarly, in Burns v. Reed, ___ U.S. ___, 111

S. Ct. 1934, 1938 n.2 (1991), this Court granted certiorari

because “the courts are split on the issue of whether ab-

solute immunity extends to the act of giving legal advice

to the police,” comparing a Tenth Circuit case with deci-

sions in the Seventh, Eighth and Eleventh Circuits. In

contrast, the issue of appellate jurisdiction over a district

court’s order granting a stay under § 16 of the Federal

Arbitration Act has not been addressed in a published opin-

—8— i

ion by any Circuit Court of Appeals. This Court should

not be the first Court to address it.

In its current posture, it is difficult to imagine issues

less ripe for mature consideration by means of certiorari.

Effectively, the petition invites this Court to address an

issue of first impression. It is far from clear that any in-

consistent treatment of the questions presented will de-

velop in the lower courts, requiring resolution by this

Court. If a conflict develops, this Court’s ultimate resolu-

tion will profit from further experimentation, analysis, and

experience with competing rules in the lower courts. At

present, however, the questions presented are premature

for the granting of certiorari.

B. The Questions. Presented Are Of Little Difficulty Or

Public Importance

In proceedings below, the courts have been uniform and

unanimous in their treatment of the questions presented.

An able magistrate judge made the initial recommenda-

tion to grant petitioners’ request for stay pending arbitra-

tion, while requiring their participation in discovery. His

recommendations were adopted without qualification by

the district judge. Petitioners first sought appellate relief

from the Court of Appeals for the Seventh Circuit through

a petition for mandamus. The petition was denied. Subse-

quently, the Seventh Circuit also denied petitioners’ peti-

tion for rehearing and suggestion for rehearing en banc.

Finally, the Seventh Circuit dismissed the appeal from

which the instant petition arises. From the magistrate

judge through the Court of Appeals, not a single dissent

appears of record. The uniform treatment of the questions

presented in proceedings below does not suggest an issue

of great legal difficulty. In particular, the Seventh Cir-

cuit’s view that the issue did not merit a written opin-

ailbins

ion—notwithstanding three requests for appellate review—

s’ggests neither a difficult issue, nor one of any public

.« precedential importance.

C. Unable To Demonstrate A Conflict Among The Courts

Of Appeal On The Jurisdictional Issue, Petitioners Un-

successfully Attempt To Raise A Conflict On The Merits

Of The District Courts’ Orders

Although this Court has consistently enforced orders to

stay trial proceedings as to issues deemed arbitrable un-

der an arbitration agreement, this Court has never ar-

ticulated a broad rule immunizing a party to an arbitra-

tion agreement from ordinary civil discovery pertaining

to non-arbitrable issues that remain in the case. None of

the cases cited by petitioners encompassed the stay of

pretrial discovery along with the stay of a “trial” or stay

of the “proceedings” under § 3 of the Federal Arbitra-

tion Act. Instead, relief from discovery obligations has

been narrowly tailored to the factual circumstances of each

particular case. Both Mitchell v. Forsyth, 472 U.S. 511, 526

(1985), and Harlow v. Fitzgerald, 457 U.S. 800 (1982), cited

by petitioners, noted that the qualified immunity doctrine

entitled government officials to “immunity from suit,” in-

cluding dismissal before the commencement of discovery.

Mitchell, 472 U.S. 511, 526, citing Harlow, 457 U.S. 800,

817-18. Neither case involved the proper construction or

application of a stay under Section 3 of the Federal Arbi-

tration Act.

Petitioners erroneously contend that there is a conflict

among the circuits created by the Seventh Circuit’s dis-

missal of the appeal and the decisions of other Courts of

Appeals in Corpman v. Prudential-Bache Securities, Inc.,

907 F.2d 29 (8d Cir. 1990), Swarez-Valdez v. Shearson

Lehman/American Express, Inc., 858 F.2d 648 (11th Cir.

lites

1988), and Miller Brewing Co. v. Fort Worth Distributing

Co., 781 F.2d 494 (5th Cir. 1986). The existence of such

a conflict is a matter of considerable speculation in the

absence of an opinion on this subject from the Seventh

Circuit in this case. Moreover, petitioners’ cases are en-

tirely distinguishable and incapable of creating the pur-

ported conflict.

Petitioners rely, exclusively and simplistically, on prece-

dents arising from basic, unadorned, two-party (one plain-

tiff-one defendant) disputes. If parties to such a dispute

have an agreement to arbitrate the issue in question, the

agreement completely subsumes their lawsuit. In such cir-

cumstances, it is easy, as petitioners suggest, to move the

parties out of court. However, matters are not always so

simple. Even as between two parties, an arbitration agree-

ment may not embrace all issues. When multiple parties

are introduced—some signatories to arbitration agreements

and others not—matters become more complex still. In

the real world, in which the federal courts operate daily,

the management of concurrent litigation and arbitration

is a recurring problem for which the courts require flexi-

ble tools. Simplistic reliance on the “plaintiff versus defen-

dant”’ model provides limited assistance in administering

commercial litigation in the federal courts today.

The district court expressly distinguished the facts of

this case from cases in which all of the parties and all

of the issues are encompassed within the parameters of

an arbitration agreement. First, it noted that “at least

three of the Clarkson defendants are parties to this ac-

tion whether or not arbitration is ordered.” (App. Resp.

51a.) Second, the testimony of the Clarkson’s employees

and production of Clarkson’s records were determined to

be “essential to the adjudication of the [excess reinsurers’]

counterclaim, which has not, of course, been referred to

= =

arbitration.” (App. Resp. 52a.) Third, even if they were not

parties to this case, Clarkson would be subject to third

party discovery and even their dismissal from this action

would not justify a complete stay of discovery as to them.

(App. Resp. 52a.) The district court concluded that “(s)ince

at least some of the Clarkson defendants were key players

in the EIL program, to limit IIC’s discovery against the

Clarkson defendants to what the arbitrators might allow

would be fundamentally unfair... .” (App. Resp. 53a.)

Opinions of this Court and other federal courts, including

authorities advanced by petitioners, recognize the com-

plexities of concurrent litigation and arbitration, and the

federal court’s authority to order discovery from arbitrat-

ing parties in appropriate circumstances. In Dean Witter

Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985), this Court

held that the Arbitration Act requires the arbitration of

pendent arbitrable claims when one of the parties files a

motion to compel, even where it would result in inefficient

maintenance of separate proceedings and separate forums.

Id. at 217. Arbitration agreements are to be enforced

even where, as in the proceedings below, such a course

would result in bifurcated proceedings. Id. at 218. While

Dean Witter clearly mandates the arbitration of arbitrable

claims, the decision does not preclude and, indeed, tends

to suggest that litigation of non-arbitrable claims in the

district court—including discovery—must proceed regard-

less of inefficiency or “piecemeal” litigation. Jd. at 221.

(“The preeminent concern of Congress in passing the Act

was to enforce private agreements . . . and that concern

requires that we rigorously enforce agreements to arbi-

trate, even if the result is “piecemeal’’ litigation . . . . ).

In Suarez-Valdez v. Shearson Lehman/American Express,

Inc., 858 F.2d 648 (11th Cir. 1988), the Eleventh Circuit

expressly distinguished that case from actions in which

—12—

a district court has ordered discovery to proceed notwith-

standing entry of a stay, because the district court found

some “special need” for the discovery. Id. at 649, citing

Bigge Crane & Rigging Co. v. Docutel Corporation, 371

F. Supp. 240 (E.D.N.Y. 1978).

Courts have construed the language of Section 3 to au-

thorize the entry of orders that “stay the trial,” but not

the entire action. In Knorr Brake Corp. v. Harbill, Inc.,

556 F. Supp. 489 (N.D. Ill. 1983), the trial court distin-

guished ‘“‘stay[ing] the trial” of “issues” referable to arbi-

tration, from staying the entire “case.”’ Finding that the

granting of a stay pending arbiti ation of issues did not

divest the court of equitable jurisdiction, the court rea-

soned as follows:

As is often the case, the truth lies between the con-

tending positions: Stay pending arbitration of the

issues “referable to arbitration” does not divest this

Court of its equitable jurisdiction. Section 3’s very

language confirms this conclusion, for it speaks of

“stayling] the trial’’ of an action until the arbitration

of “any issue referable to arbitration under an agree-

ment.”

556 F. Supp. 489, 494. The granting of discovery during

a Section 3 stay lies within the trial court’s discretion.

See, e.g., Bigge Crane & Rigging Co. v. Docutel Corp.,

371 F. Supp. 240 (E.D.N.Y. 1973) (permitting discovery

to proceed). Courts have expressly allowed discovery to

be conducted in disputes to be arbitrated where “extra-

ordinary circumstances” are shown. See also Marcune v.

Coker, 678 F. Supp. 121 (E.D. Pa. 1988); Bergen Ship-

ping Co. v. Japan Marine Serv., Ltd., 386 F. Supp. 430

(S.D.N.Y. 1974).

Moreover, Sectior 16(b)’s express reference to Section

1292(b) of Title 28 makes clear the interlocutory—and hence

= =

not appealable—nature of an order granting the stay of a

trial. Title 28 U.S.C. § 1292(b) allows an order “not other-

wise appealable”’ to be presented to the Court of Appeals

for acceptance only where a district court finds that the

order “involves a controlling question of law as to which

there is substantial ground for difference of opinion and

that an immediate appeal from the order may materially

advance the ultimate termination of the litigator.” 28

U.S.C. § 1292(b). Here, the district court made no such

finding. Whether to grant discovery pending arbitration

in a particular case is, as set forth above, a question com-

mitted to the discretion of the district court.

Petitioners’ simplistic reliance on decisions of this Court

and various circuit courts arising from elemental one plain-

tiff-one defendant disputes is wholly misplaced. Those au-

thorities create no conflict on the issue of appellate

jurisdiction and evade the weight of authority recognizing

a district court’s authority to order discovery concurrently

with arbitration, in more complex cases. Until this Court

is presented with a genuine conflict, arising from cases

with analogous facts, there is no issue ripe for review.

Il.

THE COURT OF APPEALS’S ORDER WAS MANIFESTLY

CORRECT

A. Interlocutory Orders Staying Triai Of An Action Pend-

ing Arbitration Are Not Appealable

The district court’s order of June 12, 1992 accepted the

magistrate judge’s December 20, 1991 recommendation

that petitioners’ motion for a stay under 9 U.S.C. § 3 pend-

ing arbitration be granted. (App. Resp. 71a.) The grant-

ing of a stay is an interlocutory order from which an ap-

peal may not be taken under Section 16 of the Federal

Arbitration Act. 9 U.S.C. § 16(bX1). The recommendation

of the magistrate judge, adopted by the district judge,

stated: “that the motion of the Clarkson defendants to

stay proceedings pending arbitration is granted, and that

the parties be ordered to proceed to arbitration in accord-

ance with the arbitration provisions of the Agreement.”’

(App. Resp. 48a.)

The Seventh Circuit appropriately dismissed petitioners’

appeal from this interlocutory order. Although interlocu-

tory orders denying arbitration are appealable (9 U.S.C.

§ 16(aX1XA-C)), interlocutory orders granting motions to

stay pending arbitration are not (9 U.S.C. § 16(bX2)). Sec-

tion 16(b) provides in relevant part:

(b) Except as otherwise provided in Section 1292(b)

of title 28, an appeal may not be taken from an inter-

locutory order—

(1) granting a stay of an action under section

3 of this title;

~ 9 U.S.C. § 16(bX1). The Sever. Circuit has noted that

“the statute codifies the @s’_action that .. . final deci-

sions denying arbitration ar2 appealable and interlocutory

decisions granting arbitration are not.” Perera v. Siegel

Trading Co., Inc., 951 F.2d 780, 783 (7th Cir. 1992).

Section 16(b)’s reference to Title 9 U.S.C. §3 makes

clear that no appeal should lie from the district court’s

order because Section 3 speaks in terms of orders “‘stay-

ing the trial.’’ Section 3 of the Federal Arbitration Act

authorizes federal courts to “stay the trial’ of an action

where the issue involved is referable to arbitration under

a written arbitration agreement. 9 U.S.C. § 3. Section 3

provides in relevant part as follows:

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable

—15—

to arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under

such an agreement, shall on application of one of the

parties stay the trial of the action until such arbitra-

tion has been had in accordance with the terms of

the agreement, providing the applicant for the stay

is not in default in proceeding with such arbitration.

9 U.S.C. §3 (emphasis added). Thus, the order staying

the trial in this case did not vest the Court of Appeals

for the Seventh Circuit with appellate jurisdiction over

an admittedly interlocutory order pertaining to discovery.

in proceedings below, petitioners received the stay of

trial to which they were entitled by the arbitration agree-

ment—plainly a non-appealable order. The petition’s asser-

tion of appellate jurisdiction rests upon two further prem-

ises. In substance, petitioners assert both that in addition

to an arbitral forum, their arbitration agreement confers

an immunity from civil discovery and that any impairment

of that entitlement is likewise subject to immediate ap-

pellate review. Neither premise bears scrutiny. The dis-

trict court correctly observed below that petitioners are

subject to the ordinary burdens of civil discovery, at least

to the same extent as any third party. (App. Resp. 52a.)

Moreover, even if some contractual immunity from discov-

ery could be inferred, the plain language of Section 16

does not authorize immediate appeal from an order affect-

ing that right. Such an interpretation would vastly compli-

cate the simple, limited scheme for appellate review em-

bodied in Section 16 and flood the Courts of Appeals with

review of interlocutory discovery orders. Dismissal of the

appeal below was manifestly correct.

—16—

B. The District Court’s Orders Were Not Appealable Under

The Collateral Order Doctrine

Title 28 U.S.C. § 1291 vests courts of appeals with juris-

diction over appeals only from “final decisions” of the dis-

trict courts. The “collateral order” exception to the final

judgment rule recognizes a “small class” of prejudgment

orders which “finally determine claims of right separable

from, and collateral to, rights asserted in the action, [and

are] too important to be denied review and too indepen-

dent of the cause itself to require that appellate considera-

tion be deferred until the whole case is adjudicated.” See

Richardson-Merrell Inc. v. Koller, 472 U.S. 423, 430

(1985), citeng Cohen v. Beneficial Indus. Loan Corp., 337

U.S. 541, 546 (1949). This limited class of prejudgment

orders is deemed sufficiently important and sufficiently

separate from the underlying dispute that immediate ap-

peal should be available. See Stringfellow v. Concerned

Neighbors in Action, 480 U.S. 370, 375 (1987).

This Court has stressed that the “‘narrow exception”’

of the “collateral order’’ doctrine is limited to interlocu-

tory orders “affecting rights that will be irretrievably lost

in the absence of an immediate appeal.” See Richardson-

Merrell, Inc. v Koller, 472 U.S. 424, 480-31; Mitchell v.

Forsyth, 472 U.S. 511, 525 (1984) (a major characteristic

of a claim appealable under [the] “collateral order’’ doc-

trine is that “unless it can be reviewed before the pro-

ceedings [terminate], it never can be reviewed at all’’).

Consistent with this Court’s opinions, the Seventh Cir-

cuit has recognized that an interlocutory order at a

minimum must satisfy three conditions to be considered

“final” within the meaning of the “collateral order’’ doc-

trine:

It must “conclusively determine the disputed ques-

tion,” “‘resolve an important issue completely sepa-

= =

rate from the merits of the action,” and “be effec-

tively unreviewable on appeal from a final judgment.”

In re Moens, 800 F.2d 173, 176, (7th Cir. 1986), citing

Richardson Merrell, Inc. v. Koller, 472 U.S. 424, 431.

The interlocutory orders entered by the district court,

staying the proceedings on arbitrable issues but requiring

petitioners to participate in discovery, do not satisfy all

three conditions of the collateral order doctrine.

Petitioners attempt to establish that there has been a

“conclusive determination” of an “important issue” by

mischaracterizing the nature of both the district court’s

orders and petitioners’ rights under the arbitration agree-

ments. Although the district court’s June 12, 1992 order

granted petitioners’ motion for a stay of proceedings with

regard to issues subject to arbitration, the district court’s

orders of February 12 and 27, 1992 require petitioners

to submit to discovery from those parties that remain in

the case. The orders do not, as petitioners contend, re-

quire them “to participate as parties in all the pending

and future pretrial proceedings” (Pet. for Cert. at 14).

Petitioners’ argument that the Section 3 stay of the

trial on the arbitrable issues immunizes them from or-

dinary civil discovery issued by remaining parties to the

suit is meritless. The district court correctly ruled that

the arbitration agreements “did not entitle petitioners to

reasonably expect to be shielded from discovery of evi-

dence which is important to resolution of the dispute that

remains between IIC and the reinsurers,” which is not sub-

ject to arbitration. (App. Resp. 54a.) Even if petitioners

were not parties to this case, they would_be subject to

third party discovery, and even their dismissal would not

justify a complete stay of discovery as to them. (App. Resp.

52a.) The district court accurately characterized petitioners

_— =

alternatively as “‘the eye of the hurricane” (App. Resp.

60a) and “key players in the EIL program” (App. Resp.

o3a), concluding that it would be “fundamentally unfair”

to limit IIC’s discovery against petitioners to what the

arbitrators might allow. (App. Resp. 53a.) The orders do

not conclusively deprive petitioners of any “right” to im-

munity from discovery.

The arbitration clauses function as little more than forum

selection clauses, enabling petitioners to demand that their

claims be adjudicated in the arbitral forum rather than the

district court. Similar to the forum selection clause at issue

in Lauro Lines S.R. L. v. Chasser, 490 U.S. 495 (1988),

the arbitration clauses give petitioners the right to be

“free from trial’ or to “have the binding adjudication of

claims occur in a certain forum’’, but do not entitle them

to avoid being sued or being subject to suit in a different

forum. Jd. at 501. In Van Cauwenberghe v. Biard, 486

U.S. 517 (1988), this Court held that although a party may

be immune from service of process in connection with ex-

tradition proceedings, the “‘right not to be burdened with

a civil trial itself is not an essential aspect of this pro-

tection,” even if service of process is necessary for the

exercise of jurisdiction. Jd. at 525. Similarly, although arbi-

tration agreements entitle petitioners to adjudicate their

claims in a different forum, they do not immunize them

from all proceedings that continue in the case after their

claims are stayed pending arbitration.

As to the third requirement of the collateral order doc-

trine, petitioners’ claim that the district court’s orders are

“unreviewable on appeal’ is specious. An order is “ef-

fectively unreviewable” on appeal from final judgment

only if it “implicates rights [that] could be lost or ir-

reparably harmed if immediate review were denied.” Fire-

stone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 376

=

(1981). Pretrial discovery orders generally are not immedi-

ately appealable because they may be effectively reviewed

after final judgment. Sedlock by Sedlock v. Bic Corp., 926

F.2d 757, 758 (8th Cir. 1991). As the Seventh Circuit has

noted:

The adjudication of contempt is no more final than

the discovery order it enforces. The party may com-

ply and on appeal from the final judgment assign the

need to do so as error; or the party may refuse to

comply, let the fine mount up, and on appeal from

the final judgment assign the citation as error,

recouping or avoiding the sanction. The mounting

fines put the party to a hard choice, for if he guesses

wrong the sum due at the end of the case may be

large, but discovery may be expensive for other

reasons too. /t is not unusual in commercial litiga-

tion for compliance with discovery requests to cost

more than a million dollars, yet discovery orders are

not on that account reviewable.

Powers v. Chicago Transit Auth., 846 F.2d 1139, 1141 (7th

Cir. 1988) (emphasis added) (civil contempt order for fail-

ure to comply with discovery not appealable as a “final

decision” and not a usurpation of power required for is-

suance of mandamus).

The district court’s June 12, 1992 order adopting the

magistrate judge’s recommendation and granting peti-

tioners’ motion to stay the trial pending arbitration was

not a final judgment immediately appealable under 28

U.S.C. § 1291 or under the Federal Arbitration Act. To

the extent the district court’s earlier orders (February

12 and 27, 1992) adopting the magistrate judge’s recom

mendation and denying petitioners’ motion for a protec

tive order direct petitioners—two of whom are not parties

to any arbitration agreement—to provide discovery in the

federal court proceedings, they constitute interlocutory

—20—

pretrial discovery orders that may be effectively reviewed

after final judgment.

Petitioners’ contention that, as parties subject to arbitra-

tion, no trial judgment will be entered against them in

the district court does not render the discovery orders

unreviewable. As the district court noted, petitioners may

demonstrate that compliance with discovery requests will

cause “annoyance, embarrassment, oppression, or undue

burden or expense”’ and seek a protective order under

Fed. R. Civ. P. 26(c). (App. Resp. 54a.) The district court

concluded that petitioners had not made the showing neces-

sary to justify an order limiting discovery against them.

Id. This ruling does not preclude petitioners from seek-

ing protection under Rule 26(c) in the future.

The interlocutory orders at issue do not fall within the

narrow class of collateral orders reviewable prior to final

judgment. Petitioners’ argument is predicated on an illusory

“right”? to immunity from civil discovery. The ordinary

burdens of civil discovery do not fall within the narrow

class of “important issues” contemplated by the collateral

order exception, nor are discovery rulings unreviewable

after judgment. Petitioners would turn the “‘narrow ex-

ception” of the collateral order doctrine into a flood of

appeals from interlocutory discovery orders. The Seventh

Circuit Court of Appeals was correct to dismiss the ap-

peal below.

I

_

CONCLUSION

For the reasons set forth above. Respondent Interna-

tional Insurance Company respectfully requests that the

Court deny the Petition.

Respectfully submitted,

FRANCIS D. MORRISSEY

Counsel of Record

PAUL B. O’FLAHERTY, JR.

WILLIAM M. SNEED

BARRIE L. BREJCHA

BAKER & McKENZIE

130 East Randolph Drive

Chicago, Illinois 60601

(312) 861-2800

Attorneys for Respondent,

International Insurance Com pany

RESPONDENT’S APPENDIX

a

AGENCY-COMPANY AGREEMENT

This Agency-Company agreement is made by and between

Clarkson Puckle Group Limited through its wholly-owned

subsidiary, ERAS (International), Limited (Agent), and

International Insurance Company, Chicago, Illinois (Com-

pany).

It is agreed between the Company and the Agent that:

I. AUTHORITY OF THE AGENT

The Agent is an independent contractor, not an

employee of the Company and, subject to the

terms of this Agreement and the requirements im-

posed by law, is authorized to (a) solicit, quote,

bind with the approval of the company and proc-

ess policies of Environmental Impairment Liabil-

ity, (b) settle claims arising out of such policies and

(c) provide such other services as required by this

Agreement.

Il. SOLICITATION OF BUSINESS AND POLICY

QUOTATIONS

All coverage bound under this Agreement shall be

submitted to the Agent through registered Lloyd’s

brokers. The Agent shall-have sole responsibility

for determining rates and premiums and for the

preparation of quotations.

III. POLICY ISSUANCE

The Agent shall process policies on forms mutually

agreed by Agent and Company. Policies shall be

processed in accordance with the provisions of at-

tachment A of this Agreement.

IV.

VI.

REINSURANCE

Agent will provide 100% reinsurance of each policy

issued under this Agreement through companies ac-

ceptable to the Company. Such reinsurance will

allow an 8% overrider to the Company calculated

on gross written premium and will be process in

accordance with provisions of Attachment A of this

Agreement. Agent shall obtain the Agreement of

each reinsurer to comply with the Indemnification

and letter of Credit provisions as stated in Attach-

ment B of this Agreement.

PREMIUM COLLECTION AND ACCOUNTING

Agent shall be solely responsible for the collection

of all premiums and payment of return premiums.

Except as specifically agreed on an individual ac-

count basis commissions paid by Agent to Pro-

ducers shall not exceed 15% if no U.S. Wholesale

Agent is involved or 172% if a U.S. Wholesale

Agent is involved. Accounting of all premiums shall

comply with the provisions of Attachment C of this

Agreement.

POLICY TERM AND TERRITORIAL

LIMITATIONS

Polices shall be issued for a period of either 12

months plus odd time (not to exceed 18 months in

all) or on a continuous basis including annual

review and cancellation provisions. All Insured

shall be domiciled in the U.S.A. or have substan-

tial operations in the U.S.A. and a U.S.A. address

of record.

VII.

VIII.

IX.

XI.

=

LIMITS OF LIABILITY

No policy shall be issued for limits greater than—

$20,000,000. any on claim

$40,000,000. annual aggregate

or as otherwise be from time to time agreed

in writing between the Company and the

Agent.

CLAIMS

Agent shall have sole responsibility for the proper

handling and payment of all claims. Claim account-

ing shall be in accordance with the provisions of

Attachment D of this Agreement.

INDEMNIFICATION

Agent shall indemnify and hold harmless the Com-

pany against any claims or liabilities the Company

may become obligated to pay based on any actual

or alleged error of the Agent in the processing or

handling of business or alleged error of the Agent

in the processing or handling of business placed

under this Agreement or any actual or alleged fail-

ure of the Agent to comply with the terms and

conditions of this Agreement.

ASSIGNMENT

The Agent may, subject to prior written approval

by the Company, assign to others such rights and

duties as accrue to the Agents under this Agree-

ment.

CHANGES AND CANCELLATION

This Agreement may be revised at any time by

mutual agreement of the Agent and the Company.

This Agreement may be terminated by either the

—

Agent of the Company by giving at least 90 days

written notice in advance of each annual anniver-

sary date, or immediately upon either party giv-

ing written notice to the other in the event of

abandonment, fraud insolvency or gross or wilful

misconduct on the part of such other party. Ter-

mination of this Agreement shall not relieve Agent

of responsibility for those policies place under this

Agreement prior to its termination.

Any controversy or disagreement arising out of or

relating to this Agency-Company Agreement or

transactions contemplated hereby shall be settled

by arbitration in the state and county in which the

Company’s headquarters are located. Any such con-

troversy or disagreement shall be submitted to a

panel of three arbitrators chosen from a list pro-

vided by The Defense Research Institute, Inc.,

1100 West Wells Street, Suite 702, Milwaukee,

Wisconsin 53233. Commencing with the party first

requesting arbitration, the parties to the dispute

shall take turns striking names from the list pro-

vided by the Defense Research Institute, (after

first eliminating the names of any persons on the

list who are unable or unwilling to serve) until only

three remain, and those three shall constitute the

panel of arbitrators.

Each party shall submit its case to the arbitrators

within thirty days after their appointment or with-

in such period as may be agreed by the arbitrators.

All arbitrators shall interpret this Agency-Company

Agreement as an honorable engagement rather

than as merely a legal obligation they are relieved

of all judicial formalities and may be made as soon

as practicable, but no later than sixty days follow-

EN Te le

a

ing termination of the hearings unless all parties

to the dispute consent to an extension.

The decision in writing of any two arbitrators,

when filed with the parties, shall be final and bind-

ing on the parties to the dispute. Judgement on

the award may be entered in any Court having

jurisdiction thereof. The costs of the arbitrators

shall be borne equally by all parties to the dispute.

If for any reason a dispute cannot be resolved by ‘

the preceding arbitration procedure, then all par-

ties hereto agree that such a dispute may be re-

solved only by an appropriate state or federal

Court in the jurisdiction where the headquarters

of the Company are located. All objections of per-

sonal jurisdiction and venue in such Courts are

hereby waived. Clarkson Puckle Group and ERAS

(International), Limited hereby appoint R.S. Faron,

Lane & Mittendorf whose address is 215 Connec-

ticut Avenue, N.W. Washington D.C. 20006, as

their agent for Service of Process.

IN WITNESS WHEREOF the Agent and the Company

have caused this Agreement to be executed this Fourth

day of November, 1982.

FOR THE AGENT FOR THE COMPANY

1. BY Charles Mueller BY Frank Kinnett

ERAS (International),

Limited

TITLE Managing Director TITLE Vice President

WITNESS R.M. Aickin WITNESS Jeannette

Shelton

2. BY lan Crawford Smith

Clarkson Puckle Group

TITLE rector WITNESS not legible

—6ba—

The Agent shall advise the Company of its wish to

bind a policy. The Company shall advise the Agent

within one working day of receipt of such advise

whether or not it is willing to bind such a policy.

Within 10 days of the binding date of each policy

bound under this Agreement Agent will advise the

Company by telex the following information:

1) Name and address of Insured

2) Effective date of coverage

3) Limits of liability

4) Premium

5) Producing Agent (including location)

6) Wholesaler (if any, including location)

Within 20 days of the binding date of each policy

Agent will forward two copies of each policy to the

Company along with supporting reinsurance docu-

mentation.

Upon receipt of the binding telex, the Company shall

advise Agent whether or not the Producer can pro-

vide his own countersignature. If not, the following

countersignature procedures must apply:

1. The original and two copies of each policy will

be sent to the London Agency, Atlanta, an affili-

ate of International Insurance company. The

name and address of the producing Agent, and

the commission payable must be included. Upon

completion of the countersignature procedure the

original policy will be mailed to the Agent.

2. The producer must be either a licensed resident

or nonresident agent in the Insured’s home state

(the address shown in the Declarations). If a

nonresident, the nonresident license number

must be furnished with the original policy.

—Ta—

3. In the majority of states countersignature can

be provided free of cost. Some states require a

fee (usually 5% of the premium of 50% of com-

mission, whichever is less) be paid to the counter-

signing Agent. These fees, if applicable, will be

paid by the Company to the countersigning Agent

and must be reimbursed by ERAS. (i.e.—a re-

duction in commission to the producing Agent

will apply.)

Note: If the producer is a wholesale broker

either he or his producing agent can be the

holder of the resident or nonresident license. In

this case, The London Agency, Inc., must know

the name and address of both the Wholesaler

and his Producer. The following or similar for-

mate to be used in presenting the needed infor-

mation:

Attachment A—Processing Procedures

Insured:

Address:

Producer:

Address:

Wholesaler: (If applicable)

Address:

Percent commission paid by Underwriters to

Producer:

Nonresident License No.:

____. (If applicable)

License is _ Producer’s _______ Whaolesaler’s

V. In States, other than Illinois and New York, where

International Insurance Company is prohibited from

providing Environmental Impairment Liability, the

facilities of International Surplus Lines Insurance

—

Company may be utilized. In such cases, the follow-

ing provisions will apply in lieu of Item IV above:

1. ISLIC must be used in any state:

a) which has not approved International Insur-

ance Company’s policy filing, or

b) Where the producer does not meet the li-

censing requirement of IV (2).

bo

The provision of IV (1) must be followed since

the company must sign the original policy as the

authorized representative. (Refer London Agency

telex dated February 2, 1982—also agreed with

Charles Muller, Clarksons on February 10, 1982)

3. These policies are subject to surplus lines filings.

Therefore the name, address and surplus line li-

cense number of the Agent responsible for mak-

ing the filing must also be included.

I. INDEMNITY AGREEMENT

Within 30 days of the inception of this Agreement

Agent will secure from each reinsurer and Indem-

nity Agreement in favor of the Company in the fol-

lowing form:

In the event the Company pays or is held liabie

to pay an amount of loss in excess of policy limit

because of alleged or actual bad faith or neglli-

gence on its part in rejecting a settlement within

the applicable limits of its policy, or in discharg-

ing its duty to defend or prepare the defense in

the trial of an action against its policyholder (in-

cluding its duty to prepare or prosecute an ap-

peal consequent upon such an action), the amount

of loss in excess of the Company’s policy limit

shall be added to the amount of the Company’s

II.

ITI.

=o

policy limit and the sum thereof shall be subject

to the terms of the contract.

Should any reinsurers be added during the currency

of this Agreement, the above Indemnity Agreement

will be secured in advance of the binding of any In-

sured.

LETTERS OF CREDIT

Within 30 days of the end of each calendar year

Agent will secure for the Company clean irrevocable

Letters of Credit from each reinsurer not authorized

in the United States or not approved by the Com-

pany for general business. Such Letters of Credit

will be from financial institutions acceptable tot he

Company and in amount equivalent to the reinsurer’s

share of:

a) reinsurance premiums ceded during the preced-

ing year but not earned by December 31 of that

year

and

b) reserves for claims reported but not paid by

December 31 of that year

INTERMEDIARY CLAUSE

The Agent, Clarkson-Puckle Group through its wholly-

owned subsidiary, ERAS (International), Limited, is

hereby recognized as the Intermediary negotiating

this Agreement for all business hereunder. All com-

munications (including, but not limited to notices,

Statements, premiums, return premiums, commis-

sions, taxes, losses, loss adjustment expense, sal-

vages and loss settlements) relating hereto shall be

transmitted to the Company or the reinsurers through

the Agent, Clarkson-Puckle Group through its wholly-

—10a—

owned subsidiary, ERAS (International), Limited,

located at Ibex House, Minorities, London EC3N 1H0,

England. Payments of premium by the Company or

by others to the Intermediary shall be deemed to

constitute payment to the reinsurers. Payments by

the reinsurers to the Intermediary shall be deemed

only to constitute payment to the Company to the

extent that such payments are actually received by

the Company.

—lla—

ATTACHMENT C—PREMIUM_ACCOUNTING

Within 20 days following the end of each month

Agent will provide a bordereau to the Company to

include name and policy number of each risk bound

during the previous month, limits of liability, gross

premium, reinsurance premium and any special

charges applicable (e.g. countersignature fees).

Bordereau will identify whether each transaction

was a new policy, a renewal policy, premium en-

dorsement or cancellation.

The net difference between total gross premium and

total reinsurance premium plus all special charges

shall be paid to the Company within 120 days of

the close of the month of the bordereau.

bo

—1Z2a—

ATTACHMENT D—CLAIMS PROCEDURE

Each policy shall contain instructions to report all

claims or incidents to

Mr. Richard Power

6 Commerce Drive

Cranford, NJ 07016

Telephone: (201) 272-2500

Telex: 13-8234

Agent shall provide such loss and expense funds as

shall become necessary for the handling of such

claims and shall secure recovery of such funds

directly from reinsurer(s). Company shall not be

called upon to contribute to any claim or expense

payment.

Mr. Richard Power shall, within 10 days, advise the

Company of (1) the receipt of each claim or incident

report, (2) the establishment or amendment of any

claim reserve (3) the payment of any claim, costs

or expenses.

Agent shall provide to the company of January 15

of each year a claims summary for the prior calen-

dar year to include (1) total number of open claims,

(2) total number of closed claims, (3) total open re-

served amounts (4) total amount of paid claims and

(5) total expense and cost amounts.

—13a—

The London Agency, Inc.

AGENCY-COMPANY AGREEMENT

This Agency-Company Agreement is made by and be-

tween Clarkson-Puckle Group Limited through its wholly-

owned subsidiary, ERA (International), Limited (Agent),

and International Insurance Company, Chicago, Illinois

(Company), and replaces the Agency-Company Agreement

executed November 4, 1982.

It is agreed between the Company and the Agent that:

a

IT.

ITI.

AUTHORITY OF THE AGENT

The Agent is an independent contractor, not an

employee of the Company and, subject to the

terms of this Agreement and the requirements im-

posed by law, is authorized to (a) solicit, quote bind

with the approval of the Company and process

policies of Environmental Impairment Liability, (b)

settle claims arising out of such policies and (c) pro-

vide such other services as required by this Agree-

ment.

SOLICITATION OF BUSINESS AND POLICY

QUOTATIONS

All coverage bound under this Agreement shall be

submitted to the Agent through registered Lloyd’s

brokers. The Agent shall have sole responsibility

for underwriting, quoting and policy issuance,

which shall be in accordance with Attachment of

this Agreement.

REINSURANCE

The Agent via Clarkson Puckle International Rein-

surance Limited small secure reinsurance accept-

able to the Company in treaties approved by the

—l4a—

Company to apply to each policy issued under this

Agreement.

IV. PREMIUM COLLECTION AND ACCOUNTING

Agent shall be solely responsible for the collection

of all premiums and payment of return premiums.

Except as specifically agreed on an individual ac-

count basis commissions paid by the Agent to Pro-

ducers shall not exceed 15% if no U.S. Wholesale

Agent is involved or 1742% if a U.S. Wholesale

Agent is involved, the Company will pay to the

Agent 26% or 28% respectively. Accounting of all

premiums shall comply with the provisions of At-

tachment B of this Agreement.

V. POLICY TERM AND TERRITORIAL

LIMITATIONS

Policies shall be issued for a period of either 12

months plus odd time (not to exceed 18 months in

all). All insurers shall be domiciled in the U.S.A.

or have substantial operations in the U.S.A. and

a U.S.A. address of record.

VI. LIMITS OF LIABILITY

No policy shall be issued for limits greater than—

$20,000,000. any one claim

$40,000,000. annual aggregate

or as otherwise be from time to time agreed in

writing between the Company and the Agent.

VII. CLAIMS

Agent shall have sole responsibility for the handling

and payment of all claims, in accordance with At-

tachment C of this Agreement.

—1l5a—

Vill. INDEMNIFICATION

Agent shall defend, indemnify and hold harmless

the Company against and any all claims or liabil-

ities based on any actual or alleged bad faith or

negligence of the Agent when such bad faith or

negligence arises out of or is alleged to have arisen

out of the processing or handling of business under

this Agreement or any actual or any alleged failure

of the Agent to comply with the terms and condi-

tions of this Agreement.

If requested, and practicable, the Company will af-

ford the Agent an opportunity to be associated

with the Company, to the extent permitted by law,

and at the expense of the Agent, in the defense

of any claim or proceeding involving this Agree-

ment and the Company will cooperate in ever re-

spect in the defense or control of such claim, suit

or proceeding.

IX. ASSIGNMENT

The Agent may, subject to prior written approval

by the Company, assign to others such rights and

duties as accrue to the Agents under this Agree-

ment.

X. CHANGES AND CANCELLATION

This Agreement may be revised at any time by

mutual agreement of the Agent and the Company.

This Agreement may be terminated by either the

Agent or the Company by giving at least 90 days

written notice in advance of each annual anniver-

sary date, or immediately upon either party giv-

ing written notice to the other in the event of

abandonment, fraud, insolvency or gross or willful

mn —— nae

—16a—

misconduct on the part of such other party. Ter-

mination of this Agreement shall not relieve the

Agent of responsibility for those policies placed

under this Agreement prior to its termination.

XI. ARBITRATION

A.

All disagreements which.may arise under this

Agreement between the parties hereto shall

be referred to the decision of a Board of Ar-

bitration, consisting (except as hereinafter pro-

vided) of two Arbitrators, one to be nominated

by the Company and one by the Agent and

an Umpire to be chosen by the Arbitrators

before entering into the arbitration. Should the

Arbitrators be unable to agree as to the Um-

pire within thirty days of their appointment,

each of them will forthwith name one and the

decision will be made by drawing lots. NO one

will be nominated or appointed an Arbitrator

or Umpire under this Agreement unless he is

a disinterested party.

Arbitration will be commenced by a written

request from one party to the other to nomi-

nate an Arbitrator, and should either party fail

to do so within thirty days of the receipt of

such a request, then the nominee or the other

party will constitute the Board of Arbitration

without any Umpire.

The hearing of the Arbitration will take place,

in such place as agreed upon, within one

month after the constitution of the Board of

Arbitration, and pursuant to the laws of state

in which the Company’s Headquarters are lo-

cated which govern such arbitration. The Ar-

bitrators will act at the earliest convenient

—17a— ‘

date and will submit to the Umpire only such

questions upon which they disagree. A deci-

sion in writing of any two Arbitrators, when

filed with the Company and the Agent, will

be final and binding on the parties.

D. All Arbitrators shall interpret this Agreement

as an honorable engagement rather than as

merely a legal obligation; they are relieved of

all judicial formalities and may abstain from

following the strict rules of law. Their deci-

sion shall be made as soon as practicable, but

no later than sixty days following termination

of the hearings unless all parties to the dispute

consent to an extension.

Cl

The Arbitrators will have power to call for

any documents or other evidence and to exam-

ine witnesses on oath or otherwise and are

relieved from any judicial formalities and may

abstain from following the strict rules of evi-

dence or procedure.

F’. Each party will pay the fee of its own Ar-

bitrator and half the fee of the Umpire or of

the sole Arbitrator if there be not more than

one, and the remaining cost of the Arbitration

will be paid as the award shall direct.

XII. SERVICE OF SUIT CLAUSE

In the event that any dispute cannot be resolved

to the satisfaction of either party by the forego-

ing arbitration procedure, the Agent, at the re-

quest of the Company, will submit to the jurisdic-

tion of any Court of competent jurisdiction within

the United States and will comply with all re-

quirements necessary to give such Court jurisdic-

tion and all matters arising hereunder shall be

—18a—

determined in accordance with law and practice of

such Court.

Agency-Company Agreement

Service of process in such suit may be made upon

Mr. R.S. Faron of Lane and Mittendorf whose ad-

dress is Suite 1200, 1750 K Street, N.W., Wash-

ington, D.C. 20006. In any suit instituted against

the Agent upon this Agreement the Agent will

abide by the final decision of such Court or of any

Appellate Court in the event of an appeal.

The above-named are authorized and directed to

accept service of process on behalf of the Agent

in any such suit and/or upon the request of the

company to give a written undertaking to the Com-

pany that they will enter a general appearance

upon the Agent’s behalf in the event such a suit

shall be instituted.

IN WITNESS WHEREOF the Agent and the Company

have caused this Agreement to be executed this 1st day

of January, 1983.

FOR THE AGENT FOR THE COMPANY

1. BY CA. Mueller BY Frank Kinnett

ERAS (International),

Limited

TITLE Managing Director TITLE Vice-President

WITNESS Malcolm Aickin WITNESS James M.

Rogers

DATE 26 May 83 DATE January 1, 1983

2. BY lan Crawford Smith

Clarkson-Puckle Group

TITLE Mrector

WITNESS Malcolm Aickin

DATE 26 May 83

—19a—

ATTACHMENT A—UNDERWRITING,

QUOTATIONS AND POLICY ISSUANCE

I. SUBMISSION

A. A submission is constituted by providing to the

Agent enough information to prepare the pre-

mium indication requested.

B. All submissions will receive premium indications

based upon the individual details of each sub-

mission.

C. In the event of multiple submissions, each sub-

mitting party will be advised of the existence

of another submission. The nature of the sub-

mission and the terms and conditions indicated,

or subsequent revisions, will not, however, be

divulged.

D. Notwithstanding the above, on submission for

premium indicators for accounts currently writ-

ten in the ERAS facility, premium indicators

will only be given to the holding broker or

broker appointed as exclusive Agent or Record

as respects Environmental Impairment Liabil-

ity coverage including specific reference, with

policy number, to the existing EIL policy.

II. UNDERWRITING

A. An Environmental Impairment intelligence sys-

tem will be coordinated by ERAS, U.S.A. and

checked by the Agent prior to quoting an ac-

count. This system will be contributed to and

available to the Agent, the Company, ERAS,

U.S.A., Environmental Resources Ltd., assign-

ees under this agreement, and insurers and re-

insurers who are involved with this coverage.

This intelligence system wi!l consist of:

B.

—20a—

1. A news clipping service for articles naming

specific companies which have environmental

impairment problems.

2. <A subscription to the Environmental Re-

porter, maintained by ERAS U.S.A.

3. Input from Environmental Resources Ltd.

on the worldwide perspective of environ-

mental impairment.

4. Input from the parties involved regarding

Federal and State regulatory activities.

5. Reports from the sales and engineering

staffs of the parties involved, particularly

for existing insureds or specific companies

that have problems.

In addition to the check of the intelligence sys-

tem above, discussions with ERAS, U.S.A. will

include:

l. The cost of the survey.

2. The time required to complete the survey.

3. The advisability of binding prior to survey,

and what terms to require if bound prior to

survey.

Premium indications may be offered and willing-

ness to bind prior to survey will be stated, de-

pending on the outcome of the preceding discus-

sions. Premium indications are the sum of the

risk bearing premium, developed using the

rating method, and the survey cost, grossed up

to allow 27.5% deductions. The survey element

need not be separated, unless binding prior to

survey. If bound prior to survey the survey

D.

—2la—

costs plus 25% of the annual risk bearing pre-

mium must be designated as a minimum earned

premium.

Prior to offering terms in a quotation any depar-

ture from standard policy or endorsement word-

ing must be approved by the Company. The re-

quirement of a signed EIL 881 proposal form

dated not more than 30 days prior to the effec-

tive date, and the premium payment require-

ments should be part of the quotation. The

name of the Company to be offered as security

should be determined in accordance with this

Attachment’s section on binding and policy is-

suance.

Premium indications will be stated as valid for

not more than 90 days.

ENGINEERING SURVEY

1. A contract letter will be issued by ERAS,

U.S.A. and signed by the insured giving

ownership of the survey to the insured.

2. When a survey is being done prior to bind-

ing ERAS, U.S.A. will charge the prospec-

tive insured 50% of the total fee in advance

with the balance being collected by ERAS,

U.S.A. after the completion of the survey.

3. Reimbursement of the engineering survey

fee to the insured when coverage is pur-

chased will be accomplished by including

100% of the engineering survey fee plus

27.5% deductions as a party of the total

premium. Alternatively, the total premium

may be reduced by excluding the engineer-

—22a—

ing element from the premium and allow-

ing no reimbursement.

E. BINDING PRIOR TO ENGINEERING SURVEY

1. Binding prior to the engineering survey will

only be permitted if the terms of Endorse-

ment EIL-881-10 are imposed.

bo

In these cases a minimum earned premium

must be specified and must be equal to

100% of the engineering survey fee grossed

up to allow for 27.5% deductions, plus 25%

of the annual risk bearing premium.

3. A Warranty of Premium payment in ad-

vance of binding is required.

4. The premium and terms offered in these

cases should be conservative, with lower de-

ductibles or improved terms being offered

only when the survey is completed, reviewed

and favorable.

5. Changes in coverage as a result of the

survey must be signed and accepted by the

insured.

F. RESOURCE CONSERVATION AND RECOVERY

ACT—CERTIFICATES OF INSURANCE

These certificates will not be issued unless and

until:

1. The premium has been paid.

2. The engineering survey has been completed.

3. The RCRA Certificate Endorsement (EIL-

881-40) has been signed as accepted by the

insured.

—23a—

4. Full information is furnished on the sites to

be certified (EPA numbers, etc.) including

the EPA regions to receive the certificates.

5. Limits of $2,000,000 each claim and $4,000,000

aggregated in excess of the limits to be cer-

tified must be carried.

Notice of cancellation will be sent to the EPA

regions 75 days in advance of the renewal date

unless a renewa! order and premium payment

has been received.

G. RENEWAL

A restatement of the answer to question four

on the application is required, dated not more

than 30 days prior to the date the renewal cov-

erage is ordered. In addition to the underwriting

considerations in II A, II B, and II C of this

attachment, consideration will be given to re-

quiring surveys prior to offering renewal terms.

Survey element costs will be included in the re-

newal premium per II C.

Ill. BINDING AND POLICY ISSUANCE

A. The Agent shall secure the approval of the lead

reinsurer(s) in all situations not included in the

mutually approved underwriting procedures,

other than incidental working amendments re-

quired for an individual risk, which shall be ap-

proved by the Company.

B. The Agent shall confirm the terms of each

binder in writing or by telex/cable to the pro-

ducing broker. This confirmation shall contain

the following minimum information:

D.

F.

—24a—

Name of the insured

Locations covered

Limits of liability

Deductibles

Effective date

Coverage form number

Premium payment warranties

Endorsements applicable, including wordings

if not standard.

Noo fF Whe

90

The Agent shall advise the Company of its wish

to bind a policy. The Company shall advise the

Agent within one working day of receipt of such

advice whether or not it is willing to bind such

a policy.

Within 10 days of the binding date of each

policy bound under this Agreement the Agent

will advise the Company by telex the following

information:

) Name and address of Insured

2) Effective date of coverage

3) Limits of liability

4) Premium

5) USA Producing Agent (including location)

6) USA Wholesaler (if any, including location)

Within 20 days of the binding date of each

policy the Agent will forward two copies of each

policy to the Company.

Upon receipt of the binding telex, the Company

shall advise the Agent whether or not the USA

Producer can provide his own countersignature.

If not, the following countersignature procedures

must apply:

—25a—

1. The original and two copies of each policy

will be sent to The London Agency, Atlanta,

an affiliate of International Insurance Com-

pany. The name and address of the USA

producing agent, and the commission pay-

able must be included. Upon completion of

the countersignature procedure the original

policy will be mailed to the USA agent.

2. The USA producer must be either a licensed

resident or nonresident agent in the Insured’s

home stat (the address shown in the Declar-

ations). If a nonresident, the nonresident

license number must be furnished with the

original policy.

3. In the majority of states countersignature

can be provided free of cost. Some states

require a fee (usually 5% of premium or 50%

of commission, whichever is less) be paid to

the countersigning Agent. These fees, if ap-

plicable, will be paid by the Company to the

countersigning Agent and must be reimbursed

by the Agent (i.e.—a reduction in commis-

sion to the producing agent will apply).

Note: If the USA producer is a wholesale broker either

he or his producing agent can be the holder of the resi-

dent or nonresident license. In this case, The London

Agency, Inc. must know the name and address of both

the Wholesaler and his Producer. The following or similar

format to be used in presenting the needed information:

G.

—26a—

Insured:

Address:

USA Producer:

Address:

USA Wholesaler: (If applicable)

Address:

Nonresident License No.: ___ (If applicable)

License is ____ Producer’s Wholesaler’s

In states where International Insurance Com-

pany is prohibited from providing Environmen-

tal Impairment Liability, the facilities of Inter-

national Surplus Lines Insurance Company may

be utilized. This does not apply to New York

which has not yet authorized International In-

surance Company or International Surplus Lines

Insurance Company to issue coverage. In such

cases, the following provisions will apply in lieu

of Item E.3. above:

1. ISLIC must be used in any state:

a. Which has not approved International

Insurance Company’s policy filing, or

b. where the USA producer does not meet

the licensing requirement of E.2.

2. The provision of E.1. must be followed since

the Company must sign the original policy

as the authorized representative.

3. These policies are subject to surplus lines

filings. Therefore, the name, address and

surplus line license number of the USA

Agent responsible for making the filing

must also be included.

—27a—

H. The Agent may cancel coverage by receiving a

lost policy release or the original of the policy

from the insured. Notification to the Company

of such cancellation will be by telex within 10

days of the effective date of such cancellation.

If the Agent wishes to originate cancellation, the

Agent must ask the Company to send Direct

Notice of Cancellation to the insured.

tho

— PRS ame

ATTACHMENT B—PREMIUM ACCOUNTING

Within 20 days following the end of each month the

Agent will provide a bordereau to the Company to

include name and policy number of each risk bound

during the previous month, limits of liability, gross

premium, reinsurance premium and any special charges

applicable (e.g. engineering fees, countersignature fees,

etc.). The bordereau will identify whether each trans-

action was a new policy, a renewal policy, premium

endorsement or cancellation.

The net premium plus all special charges shall be paid

to the Company within 120 days of the close of the

month of the bordereau.

—29a—

The London Agency, Inc.

ATTACHMENT C—CLAIMS PROCEDURE

I. Each policy shall contain instructions to report all

claims or incidents to:

A. Mr. Richard Power

ERAS Claims Division

6 Commerce Drive

Cranford, NJ 07016

Telephone: (201) 272-2500

Telex: 46-9009

B. Mr. Reuel Buitram

International Insurance Company

c/o The London Agency, Inc.

P.O. Box 4985

Atlanta, GA 30302

Telephone: (404) 875-9641

Telex: 54-2445

II. ERAS Claims Division will notify the Company and

the Agent within 10 days of the receipt of each claim

or incident. The Company or Agent will likewise

notify ERAS Claims Division of any claim_or inci-

dent reported to the Company or Agent.

III. The Agent via ERAS Claims Division will be re-

sponsible for:

A. Opening and maintaining a complete ciaim file,

including a copy of the policy, proposal form, en-

gineering survey and underwriting file, as neces-

sary.

B. Acknowledge notifications of claims or incidents

to the insured or broker from whom notice was

received and giving appropriate instructions to

thera for handling the claim or incident.

D.

G.

—30a—

Negotiation and settlement of claims including

payment of expenses and costs incurred on be

half of the Company, including obtaining appro-

priate releases.

A quarterly review of each outstanding claim or

incident file to establish the adequacy of re

serves and future action to be taken.

Keeping the Company advised of all important

developments on all claims.

Payments of claims from funds held, with sup

porting documentation for each payment to be

maintained. ~

In the event of settlements exceeding $100,000,

to make a special call for funds from the Com-

pany and reinsurers, in accordance with the

terms of the reinsurance treaties.

NOTE: The Company retains the right in all cases,

upon notifying the Agent in writing, to as-

sume charge of the defense and/or settle-

ment of any claim. In such event the Agent

shall assist and cooperate with the Com-

pany. The Agent is encouraged to consult

with the Company for advice and recom-

mendations on any claim.

IV. Claims Bordereau

The Agent will prepare a bordereau for

A.

B.

Claims advised and outstanding and

Claims Paid

on a quarterly basis, on the agreed format, and

will send them to the Company on a quarterly

basis, within 20 days of the end of each quarter.

x necseesee ect CLC LL LLL LLL LL LL.

—3la—

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

INTERNATIONAL INSURANCE COMPANY, )

Plaintiff,

Vv

CERTAIN UNDERWRITERS AT LLOYD’S No. 88 C 9838

LONDON, et al., )

Defendants

w nen ann nn nnn nn nnn nnn nn nnn nnnn nn -nnn nanan ee Judge Lindberg

KEITH KERR, et al.,

Counter-plaintiffs, )

) Magistrate Judge Weisberg

v

INTERNATIONAL INSURANCE COMPANY,

Counter-defendant

INTERNATIONAL INSURANCE COMPANY,

Counter-defendant/Third- )

party plaintiff, )

; .

SOCIETE COMMERCIALE DE )

REASSURANCES §.A., et al. )

Third-party defendants. )

Magistrate Judge’s Report and Recommendation

on Clarkson Defendants’

Motion to Stay Pending Arbitration

This suit arose from the attempt of an insurer, Inter-

national Insurance Company (IIC), to compel certain rein-

surers to reimburse it for payments made in settlement

of an insurance claim brought by SmithKline Beckman

(SKB) under an environmental impairment liability (EIL)

policy issued by IIC. The defendant reinsurers have counter-

claimed against IIC, claiming it breached implied covenants

in its reinsurance treaties with them, induced them to par-

—32a—

ticipate in the reinsurance program through fraudulent

misrepresentations, and mishandled the SKB claim. The

counterclaim also alleges that IIC and other committed

acts of racketeering subjecting IIC to liability under

the Racketeer Influenced and Corrupt Organizations Act

(RICO).

IIC insists that it was only the nominal insurer, “front-

ing’ for an international pool of reinsurers who sought

to compete in the U.S. EIL market and were to assume

virtually the entire risk. IIC has filed a third-party com-

plaint against the alleged organizer of the pool, Societe

Commerciale de Reassurance S.A. (SCOR), a French cor-

poration, and the alleged pool manager, four U.K. cor-

porations which the third-party complaint refers to

without differentiation as “Clarkson.” The corporations

are The Clarkson Puckle Group, Ltd. (CPG), ERAS (Inter-

national), Ltd. [standing for Environmental Risk Assess-

ment Service] (ERAS), Clarkson Puckle International Re-

insurances, Ltd. (CPIR) and Bain Clarkson, Ltd, (BC). IIC

alleges that they “‘acted without respecting their separate

corporate identities.”’ Third-Party Complaint 48. IIC also

filed a Second Amended and Supplemental Complaint

(Complaint) in which it makes direct claims against Clark-

son and SCOR.

IIC’s relationship with the EIL pool is reflected in two

agreements with CPG (the Agency-Company Agreements

or A-C Agreements) which appointed CPT as IIC’s agent -

with respect to soliciting business, collecting premiums,

processing claims and procuring reinsurance. The first A-C

Agreement was dated November 4, 1982 and the second

was dated January 1, 1983. Third-Party Complaint Exhs.

A, B. The heading of the second A-C Agreement states

that it ‘‘replaces” the first. We understand this to mean

that the second A-C Agreement was to govern the par-

—33a—

ties’ relationship after January 1, 1983. Thus the provi-

sions regarding indemnification and dispute resolution

found in the second A-C Agreement are to contro! in

disputes arising after January 1, 1983 even if based on

transactions originally governed by the first A-C Agree-

ment. Since these are the provisions in question here, we

will use “Agreement” to mean the second A-C Agreement

unless otherwise indicated.

In Art. VIII of the Agreement, CPG agreed to defend

and indemnify IIC against any “claims or liabilities based

on any actual or alleged bad faith or negligence of the

Agent [CPG] when such bad faith or negligence arises our

of or is alleged to have arisen out of the processing or

handling of business under this Agreement or any actual

or any alleged failure of the Agent to comply with the

terms and conditions of this Agreement.”! Both A-C

Agreements have provisions requiring arbitration of dis-

putes.

In Count I of the Third-Party Complaint IIC seeks in-

demnification from Clarkson under the A-C Agreements

for any judgment against it on the counterclaim for con-

duct attributable to Clarkson’s negligence, bad faith or

errors in the processing or handling of business under the

A-C Agreements. Count II alleges that Clarkson was act-

ing as an agent of SCOR, rendering SCOR also liable for

1 In the first A-C Agreement CPG agreed to indemnify IIC

against “any claims or liabilities the Company [IIC] may become

obligated to pay based on any actual or alleged error of the Agent

[CPG] in the processing or handling of business placed under this

Agreement or on any actual or alleged failure of the Agent to com-

ply with the terms and conditions of this Agreement.” While the

first Agreement only requires CPG to indemnify IIC after [IC

becomes obligated to a third person, the second requires CPG to

defend IIC prior to a finding of liability.

—34a—

the foregoing. In Count III IIC seeks indemnification from

SCOR under a March 11, 1988 claims handling agreement

in which SCOR agreed to hold IIC harmless with respect

to SCOR’s handling of claims thereunder. IIC also seeks

reimbursement of defense costs from Clarkson and SCOR.

In its direct claims against Clarkson in the Complaint,

[IC seeks indemnification under the Agreement (Count

XI). IIC alleges that Clarkson breached its promise in the

Agreement to provide reinsurance for [IC on certain terms

and conditions (Count XII) and that it breaches its fidu-

ciary duty as IIC’s agent in failing to disclose material

information regarding the EIL program (Count XIII)

The Clarkson defendants have moved the court to stay

proceedings against them, invoking the arbitration pro-

visions in the A-C Agreements.? In briefing this motion

the parties have not distinguished among the Clarkson

entities named as defendants, and for the purposes of this

motion we will not do so either. The motion has been re-

ferred to the undersigned for report and recommendation

pursuant to 28 U.S.C. § 636(bX1Xb).§

2 CPIR and BC moved for a stay in the alternative in the event

their Rule 12(bX2) motion to dismiss for lack of personal jurisdic-

tion is denied. Their Rule 12(bX2) motion was subsequently with-

drawn as to BC and has been stayed pending discovery as to

CPIR.

3’ Because a stay pending arbitration is considered final for pur-

poses of appeal, Moses H. Cone Memorial Hospital v. Mercury

Construction Corp., 460 U.S. 1, 8-13 (1983), this is a dispositive

motion even though it does not correspond to any of the excep-

tions listed in 28 U.S.C. § 636(bX1XA).

—35a—

The Federal and Illinois Arbitration Acts

The Federal Arbitration Act (FAA) was originally en-

acted in 1925 and now constitutes Title 9 of the United

States Code. Its purpose was to reverse the longstanding

judicial hostility to arbitration agreements at English com-

mon law and in American courts, and to place arbitra-

tion agreements upon the same footing as other contracts.

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 218, 219-220

(1985). Its primary substantive provision stated that “{a]

written provision in any . . . contract evidencing a trans-

action involving commerce to settle by arbitration a con-

troversy thereafter arising out of such contract or trans-

action . . . shall be valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity for the

revocation of any contract.”’ 9 U.S.C. § 2. The FAA also

provides for stays of proceedings in federal district courts

when an issue in the proceeding is referable to arbitra-

tion, § 3, and for orders compelling arbitration when one

perty has failed, neglected, or refused to comply with an

arbitration agreement, § 4. These provisions manifest a

“liberal federal policy favoring arbitration agreements.”

Moses H. Cone, 460 U.S. at 24. Clarkson invokes § 3 of

the FAA:

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable

to arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under

such an agreement, shall on application of one of the

parties stay the trial of the action until such arbitra-

tion has been had in accordance with the terms of

the agreement, providing the applicant for the stay

is not in default in proceeding with such arbitration.

—36a—

This language is unequivocal and “unless it may be said

with positive assurance that the arbitration clause is not

susceptible of an interpretation that covers the asserted

dispute” a court has no discretion and must refer the mat-

ter to arbitration. Morrie Mages and Shirlee Mages Foun-

dation v. Thrifty Corp., 916 F.2d 402, 406 (7th Cir. 1990).

The FAA requires a stay and a referral to arbitration

when there are issues subject to arbitration, whether or

not all parties to the pending suit are obliged to arbitrate.

Id. at 406-07.

Illinois law is also applicable because the Agreement

calls for the application of the law of the state in which

IIC’s headquarters is located, 7.e., Illinois. Where the

agreement to arbitrate calls for the application of state

law, a federal court should apply it unless it is inconsis-

tent with the goals and policies of the FAA. Volt Infor-

mation Sciences v. Stanford University, 489 U.S. 468, 478:

79 (1989). The Illinois Uniform Arbitration Act, Ill. Rev.

Stat. ch. 10 4101 et seg., (1989) is similar to the FAA,

and Illinois cases interpreting it have also followed a

policy of favoring arbitration. For the purposes of the

present motion, we see no significant difference between

federal and Illinois law.

Is Arbitration Optional?

IIC does not contest the validity or the enforceability

of the agreement to arbitrate, not does it attempt to sepa-

rate the issues in this case into those that are properly

referable to arbitration and those that are not. IIC argues

that the unique arbitration provisions in the Agreement

make arbitration optional rather than mandatory and that

Clarkson has waived its right to arbitration by instituting

litigation against IIC in London.

—

—37a—

If arbitration is optional the court should not order

it. As the Supreme Court has put it, “(the FAA] does

not confer a right to compel arbitration of any dispute

at any time; it confers only the right to obtain an or-

der directing that ‘arbitration proceed in the manner pro-

vided for in [the parties’) agreement’.” Volt Information

Sciences, 489 U.S. at 474-75 (emphasis in original). The

arbitration provisions of the Agreement read in pertinent

part:

XI.

A.

B.

ARBITRATION

All disagreements which may arise under this Agree-

ment between the parties hereto shall be referred

to the decision of a Board of Arbitration, consist-

ing (except as hereinafter provided) of two Arbi-

trators, one to be nominated by the Company and

one by the Agent and an Umpire to be chosen by

the Arbitrators... .

Arbitration will be commenced by a written re-

quest from one party to the other to nominate an

Arbitrator, and should either party fail to do so

within thirty days of the receipt of such a request,

then the nominee or [sic; probably should be of]

the other party will constitute the Board of Arbi-

tration without any Umpire.

The hearing of the Arbitration will take place, in

such place as agreed upon , . . . pursuant to the

laws of the state [sic] in which the Company’s

Headquarters are located which govern such arbi-

tration. The arbitrators will act at the earliest con-

venient date and will submit to the Umpire only

such questions upon which they disagree. A deci-

sion in writing of any two Arbitrators, when filed

with the Company and the Agent, will be final and

binding on the parties.

* * * *

—38a—

XII. SERVICE OF SUIT CLAUSE

In the event that any dispute cannot be resolved

to the satisfaction of either party by the forego-

ing arbitration procedure, the Agent, at the re-

quest of the Company, will submit to the jurisdic-

tion of any Court of competent jurisdiction within

the United States and will comply with all require-

ments necessary to give such Court jurisdiction

and all matters arising hereunder shall be deter-

mined in accordance with the law and practice of

such Court.

Third Party Complaint Exh. B at 2-3.

IIC contends that Art. XII renders arbitration optional.

The language is unusual, but a court should proceed on

the assumption that the contracting parties intended a

consistent agreement and give effect to all of its terms

if possible.

The Agreement states that disputes “shall’’ be arbi-

trated. It also states that a decision of the arbitrators will

be final and binding on the parties. It further states that

if one party declines to nominate an arbitrator, the other

party’s nominee may proceed to decide the case. These

are all inconsistent with a construction holding that either

party has the right to decline arbitration.

But what are we to make of Art. XII? In the vent that

any dispute cannot be resolved to the satisfaction of either

party by arbitration, Clarkson agrees to submit to the

jurisdiction of a United States court and “and all mat-

ters arising hereunder shall be determined in accordance

with the law and practice of such Court.”’ Does this mean

that if one of the parties is dissatisfied, the court shall

try the issues de novo? Even if this were the case, it

would not be grounds for denying Clarkson’s motion, since

the Agreement at least requires the parties to attempt

arbitration first.

—39a—

We reject IIC’s interpretation since it would be con-

trary to the concept of arbitration itself. The parties

agreed on arbitration; arbitration is a familiar concept and

we may presume the parties knew what it means. Unlike

+nediation, arbitration is a private adjudication, a binding

determination by a third person; an arbitration in which

either party is free to reject the award is not an arbitra-

tion.

It is more reasonable to suppose that in agreeing that

“all matters arising hereunder shall be determined in ac-

cordance with the law and practice of such Court” the

parties meant that if either party was dissatisfied it could

petition the court for review, and the court would then

confirm, modify or set aside the award in accordance with

applicable law. Art. XII merely established that IIC could

choose which court. The heading of this paragraph, “‘Ser-

vice of Suit Clause,” supports this interpretation of the

provision as essentially a consent to jurisdiction. We con-

clude that arbitration is not optional and this objection

to Clarkson’s motion must fall.

Has Clarkson Waived its Right to Arbitration?

Like other contractual rights, the right to demand arbi-

tration of disputes can be waived. Given the strong state

and federal policy favoring arbitration, waiver will not

lightly be inferred. Mages, 916 F.2d at 405; Edward Elec-

tric Co. v. Automation, Inc., 164 Ill. App. 3d 547, 115

Ill. Dec. 647, 652, 518 N.E.2d 172, 177 (ist Dist. 1988).

In TDE Ltd. v. Israel, 185 Ill. App. 3d 1059, 133 Ill. Dec.

848, 848, 541 N.E.2d 1281, 1286 (1st Dist. 1989), the court

stated that “(wlaiver of a contractual right to arbitration

occurs when a party’s conduct is so inconsistent with the

arbitration clause as to demonstrate abandonment of that

—40a—

right.” See also Mages, 916 F.2d at 405 (the crucial ques-

tion is whether under the circumstances the defendant

acted inconsistently with the arbitration right; prejudice

suffered by the objecting party should be considered).

IIC says that Clarkson waived its right to insist on

arbitration by naming it and its agent and affiliate The

London Agency, Inc. (TLA) as third-party defendants in

certain suits pending in London relating to the EIL rein-

surance program. Clarkson replies that these suits (a) did

not involve claims based on the A-C Agreements and thus

were not waivers of their arbitration provisions; (b) were

filed only to protect Clarkson against the running of the

status of limitations; and (c) have caused IIC no prejudice.

Both parties have submitted documents filed in the Lon-

don litigation. Since waiver is, in effect, an affirmative ~

defense to a prima facie obligation to arbitrate, the

arguments and affidavits offered on this issue commence

with IIC’s brief in opposition to the motion, to which

Clarkson responded in its reply brief and in the affidavit

(with exhibits) of its solicitor, Wiliam Munro Rodger,

dated July 18,1991 (cited as Rodger Opp. Aff.). As a con-

sequence, IIC did not have (and did not seek) an oppor-

tunity to reply to Clarkson’s response.

On the first issue, whether Clarkson’s claims in the Lon-

don litigation arose under the Agreement, both sides are

correct. Clarkson originally stated that its claims against

IIC arose, at least in part, from the A-C Agreements and

were thus presumptively arbitrable. Nevertheless, as dis-

cussed below, Clarkson later dropped its reliance on the

A-C Agreements and we find that its claims do not in

fact arise under them.

A Writ of Summons dated February 3, 1989 and issued

against TLA states that various Clarkson entities (includ-

—4la—

ing the third-party defendants here) have brought suit

against TLA for

Damages for breach of contract and/or negligence

and/or breach of duty arising out of written and/or

oral contracts made in or about November 1983 and/

or January 1983 and/or 1st October 1983 in respect

of the operation and/or management of an environ-

mental impairment liability risks programme and/or

reinsurance pool of environmental impairment liability

risks, including, without limitation, the promotion,

underwriting, claims handling and retrocession of such

programme.

1989 Folio 233 Q.B. Division, Commercial Court, IIC Br.

Exh. A. IIC points to the November 1982 and January

1983 dates, corresponding to the A-C Agreements, and

Clarkson acknowledges that the A-C Agreements were

meant. Rodger Opp. Aff. 4 4.

However, Clarkson’s Points of Claim (corresponding to

the complaint in our procedure) dated April 11, 1990,

Rodger Opp. Aff. Exh. A, make it clear that its claims

do not arise under the A-C Agreements, but from a sepa-

rate claims handling agreement entered into in September

1983. This is consistent with IIC Br. Exh. B, an affidavit

of Mr. Rodger as solicitor for “‘the Clarkson defendants,’’*

filed in another London suit designated 1987 Folio 791,

in which Clarkson seeks leave to add a claim against TLA.

Rodger makes apparent reference to the foregoing Writ

of Summons, and states that at the time it was filed he

had no evidence of a contract between Clarkson and TLA.

He then states that in November 1989 he became aware

4 It is not clear which entities are referred to by Mr. Rodger

as “the Clarkson defendants.” We will refer to them as “Clarkson”

here with the understanding that the word may not denote the

same entities as the parties to this suit.

—42a—

of such a contract. He states that on or about September

1, 1988 TLA undertook for Clarkson to handle all claims

against IIC arising out of the EIL insurance program.

This claims handling function had previously been per-

formed by Alexander Howden Insurance Services (AHIS),

and it was agreed that TLA would receive the same com-

pensation as had been paid to AHIS.

The “Amended Third Party Notice” dated July 3, 1990

and amended October 12, 1990, issued in a suit designated

as 1988 Folio No. 1722 between SCOR as plaintiff and

eleven Clarkson affiliates as defendants, IIC Br. Exh. C,

which adds IIC as an additional third-party defendant, also

refers to an alleged oral agreement made in September

1983 between some or all of the Clarkson Defendants and

IIC. The Notice states that Clarkson complains that IIC

breached a September 1983 EIL claims handling agree-

ment, was negligent in handling EIL claims in 1982 and

1984 and breached duties of good faith, skill, diligence and

care with respect to the handling of claims and the under-

writing of risks, all for the “‘1982 to 1984 years of rein-

surance in the environmental impairment liability reinsur-

ance programme.”

Although IIC disputes the existence of this agreement,

IIC Br. at 5, the materials it has provided are consistent

with Clarkson’s position that the claims against IIC and

TLA arose out of a separate agreement between TLA and

Clarkson. They are also consistent with the statement by

Clarkson’s counsel, Mr. Rodger, that Clarkson regarded

TLA and IIC as separate entities, and entered into the

oral claims handling agreement with TLA as principal. Ac-

cording to Rodger, Clarkson only sought to joint IIC after

IIC’s counsel declared that TLA had been acting solely

as IIC’s agent. See Rodger Opp. Aff. 446-8. Clarkson’s

position is also supported by 4 21 of an affidavit of TLA’s

—43a—

counsel, David Alastair Fraser, in the London litigation

dated April 12, 1990, Rodger Opp. Aff. Exh. D, referring

to a written agreement dated October 6, 1983 between

AHIS and TLA, id. Exh. C, providing for the transferring

of claims handling responsibility from AHIS to TLA.

Finally, Mr. Justice Waller of the Commercial Court held

that Clarkson had a “good arguable case” against TLA

and IIC based on this alleged contract. See Rodgers Opp.

Aff. Exh. F at 27-29.

It is reasonably clear that in the London litigation

Clarkson is not alleging that IIC breached duties under

the A-C Agreements, but is alleging a breach of a subse-

quent agreement by which TLA undertook claims handling

that had been the responsibility of Clarkson or its desig-

nee, AHIS. Although in the “Amended Third Party No-

tice” IIC is named as a defendant, liability appears to

be predicated solely on the acts of IIC’s alleged agent,

TLA, which had no role under the A-C Agreements. See

also Rodger Aff. dated [illegible] June, 1990, IIC Br. Exh.

D at 446, 7; Rodger Aff. dated July 25, 1990, IIC Br.

Exh. E at 44 12-15.

IIC argues that even if Clarkson delegated claims handling

to TLA in a separate contract, any dispute between Clark-

son and TLA would still be subject to the arbitration pro-

visions of the Agreement because the delegation was of

claims handling duties which Clarkson had under the A-

C Agreements and concerned the subject matter of those

agreements. IIC may be correct. However, we need not

decide that question in order to determine whether a

waiver has occurred; the question is whether Clarkson’s

actions are inconsistent with an intention to arbitrate. If

Clarkson can show that the claims it asserted in the Lon-

don litigation were arguably not arbitrable, we should be

—44a—

reluctant to find a waiver when the claims IIC has

asserted here clearly are arbitrable.5

IIC cites Consumer Concepts, Inc. v. Mego Corp., 458

F. Supp. 453 (S.D.N.Y. 1978), in which a license and licen-

sor had an umbrella agreement providing that the licen-

sor would offer the licensee ideas for toys; if the license

accepted an idea it would be incorporated into their agree-

ment. The agreement contained a broad arbitration clause

that provided that “{alny controversy or claim arising out

of or relating to this agreement or the breach thereof,

shall be settled by arbitration.” Jd. at 544. The parties

entered into a separate confidentiality agreement in con-

nection with their negotiation concerning an idea for a

particular toy in which the licensee agreed that if no

agreement was reached by November, 1975 it would not

disclose the idea or make toys based on it until 1979.

The licensor sued for an alleged breach of the second

agreement, and the licensee demanded arbitration. The

court ordered a stay pending arbitration, although the sec-

ond confidentiality agreement had no arbitration provision,

because it found the second agreement supplemented the

master agreement and could not be read apart from it.

Id. at 5465.

The situation here is quite different. The A-C Agree-

ment requires only arbitration of “disagreements which

may arise under this Agreement,” in contrast to the first

A-C Agreement which required arbitration of “[alny con-

troversy or disagreement arising out of or relating to this

5 We emphasize that these conclusions are made upon limited evi-

dence and in part rest on IIC’s heavy burden of showing waiver.

IIC is free to claim in the London proceedings that its dispute

with Clarkson there is arbitrable, pol any determination made by

this court in deciding this motion to stay should not be deemed

to make that issue res judicata.

—45a—

Agency-Company Agreement or transactions contemplated

hereby.” Because the two A-C Agreements are dated only

two months apart, the parties would have been fully

aware of the provisions of the first when they replaced

it with the second, and we read this as an intentional nar-

rowing of the scope of the arbitration provision. Arguably

the transfer of claims handling responsibility to TLA was

“related to” the Agreement (although it does not appear

to be “contemplated by” it), but a dispute relating to such

a transfer does not, we believe, arise ‘‘under” the Agree-

ment and hence is not covered by the arbitration provi-

sion of the Agreement.

Further, the delegation of claims handling responsibility

to TLA was not part of the dealing between the parties

anticipated by the Agreement, unlike Consumer Concepts.

Under the Agreement Clarkson (ERAS) could delegate

its claims handling obligations with IIC’s consent, but

there is no reference in the Agreement to TLA or IIC’s

assuming them. At the time it entered into the Agree-

ment and thereafter Clarkson apparently delegated them

to AHIS, an unrelated party, which is consistent with our

conclusion that claims handling by TLA was not contem-

plated by the A-C Agreements.

In the London suits, Clarkson alleges that TLA took

over the claims handling function with respect to claims

against IIC’s policies on the same terms as AHIS.® IIC

6 IIC alleges that Clarkson has ignored an arbitration agreement

with Howden, by which it apparently means AHIS. IIC Br. at

6, n.38. However, even if TLA somehow assumed AHIS’s claims

handling agreement with Clarkson and thereby became obligated

to arbitrate disputes arising thereunder, this obligation would not

arise under the A-C Agreements. IIC has offered no authority for

the proposition that refusal to arbitrate disputes arising under one

agreement is a waiver of the right to compel arbitration under

another one.

—46a—

has offered no reason to suppose that because TLA was

an affiliate of IIC, when Clarkson contracted with TLA

its agreement automatically incorporated a promise made

by IIC to arbitrate its disputes with Clarkson. TLA and

IIC are separate legal entities. Why should this second

contract have incorporated the arbitration provisions of

the A-C Agreement if it was the same arrangement Clark-

son had with AHIS, which was not a party to the A-C

Agreement? Clarkson had convincingly demonstrated that

the claims it asserted against IIC in the London litiga-

tion arose from a claims handling agreement which con-

tained no agreement to arbitrate. IIC, which has the

burden of showing waiver, has not shown that the arbitra-

tion provisions of the A-C Agreement apply to this sec-

ond agreement.

Did Clarkson’s initial reference to the Agreements in

its February 3, 1989 Writ of Summons constitute an un-

ambiguous election of litigation over arbitration even

though it turns out that its claims are not arbitrable? We

think not. As Clarkson has pointed out, the initial Writ

was against TLA alone. While it is true that one cannot

avoid arbitration by suing the agent of the party with

whom one has agreed to arbitrate, Clarkson had reason

to suppose that it was dealing with TLA as principal in

entering into the claims handling agreement, even though

it surely knew that 1'LA and IIC were affiliated entities.’

The claims handling agreement applied to IIC’s policies

written pursuant to the A-C Agreements, and the author-

7 Clarkson even now questions whether TLA was IIC’s agent for

purposes of claims handling, pointing to an Agency Agreement

dated January 1, 1973 between IIC and TLA which authorizes

TLA to bind coverage and accept premiums but is silent as to

claims handling. Rodger Opp. Aff. Exh. E.

—47a—

ity to delegate claims handling responsibilities to TLA also

came from the A-C Agreements, so mention of the A-C

Agreements was not out of place in the Writ. But the

language of the Writ, “breach of contact and/or negligence

and/or breach of duty arising out of written and/or oral

contracts .. .”’ is vague even by this country’s pleading

standards, and until TLA or IIC was served with the

Points of Claim it would not know what specific claims

Clarkson was asserting, much less whether they were ar-

bitrable.

Clarkson also says that the third-party claims were filed

against TLA and IIC only to protect against the running

of the statute of limitations. Clarkson Br. at 10-11; Rodger

Opp. Aff. at ¢4. IIC has not responded to this conten-

tion. This is an element to be considered, although it has

little significance in view of our finding that the claims

would (probably) not toll the statute of limitations, and

Clarkson should have the right to protect itself by filing

suit and then asking for a stay pending arbitration. Pre-

sumably Clarkson determined that its claims did not arise

under the A-C Agreements and did not ask for a stay.

Finally, we come to the element of prejudice. Although

prejudice is an element to be considered, we do not be-

lieve a showing of prejudice is an absolute requirement.

Midwest Window Systems v. AMCOR Industries, Inc.,

630 F.2d 535, 537 (7th Cir. 1980), stated that all circum-

stances must be considered, and prejudice should be one

of them, a position followed by Mages, 916 F.2d at 405.

If we are correct that the claims made in the London liti-

gation against IIC were not arbitrable, IIC suffered no

prejudice from being sued.

After considering all of the circumstances, we conclude

that IIC has not shown that Clarkson waived its right

—48a—

to have disputes arising under the Agreement resolved

through arbitration.

Conclusion

We conclude that IIC’s obligation to arbitrate disputes

arising under the Agreement is not optional and that

Clarkson has not waived its right to arbitrate. We ac-

cordingly recommend that the motion of the Clarkson

defendants to stay proceedings pending arbitration be

granted, and that the parties be ordered to proceed to

arbitration in accordance with the arbitration provisions

of the Agreement.

The parties are allowed 20 days from the date of service

hereof to file written objections to this Report and Recom-

mendation with Judge Lindberg. 27 U.S.C. § 636(bX1),

Fed. R. Civ. P. 6(b). Failure to file such objections will

normally waive the right to appeal the rulings set forth

in this Report. Egert v. Connecticut General Life Ins. Co.,

900 F.2d 1032, 1039 (7th Cir. 1990).

Respectfully submitted,

Bernard Weisberg

United States Magistrate Judge

Date: December 2, 1991

ee: All Attorneys of Record

(See Attached Service List)

—49a—

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

INTERNATIONAL INSURANCE COMPANY,

Plaintiff,

Vv.

CERTAIN UNDERWRITERS AT LLOYD’S No. 88 C 9838

Defendants.

wn nn ae nn enn a nn nnn nn nnn nnn nnn enn nnn enna eee Judge Lindberg

KEITH KERR, et al.,

Counter-plaintiffs,

Magistrate Judge Weisberg

v

)

)

)

)

)

)

)

LONDON, et al., )

)

)

)

)

)

)

)

INTERNATIONAL INSURANCE COMPANY, )

}

)

Counter-defendant.

INTERNATIONAL INSURANCE COMPANY,

Counter-defendant/Third-

party plaintiff,

Vv.

SOCIETE COMMERCIALE DE

REASSURANCES S.A., et al.,

Third-party defendants.

Magistrate Judge’s Ruling on Motion of

Clarkson Defendants For Protective Order ana

for an Extension of Time to Plead

Defendants and third-party defendants, The Clarkson

Puckle Group, Ltd., ERAS (International), Ltd., Clarkson

Puckle International Reinsurances, Ltd. and Bain Clark-

son, Ltd. (collectively the Clarkson defendants), have moved

for a stay of proceedings against them pending arbitra-

tion (the Arbitration Motion), and certain of them have

also moved to dismiss for lack of personal jurisdiction. In

connection with these motions the Clarkson defendants

—50a—

moved on June 10, 1991 for a protective order staying

all discovery and extending their time to plead until the

Arbitration Motion and motions to dismiss were decided.

All of these motions were referred to this court for a rul-

ing pursuant to 28 U.S.C. § 636(bX1XA).

While the last motion was briefing, on August 1, 1991

this court stayed discovery pending rulings on motions

to dismiss, motions to stay pending arbitration, and deter-

mining whether the presence of the Lloyd’s reinsurers de-

stroyed federal diversity jurisdiction. This, in effect,

granted the motion with respect to a stay of discovery

pending ruling on the Arbitration Motion and certain

Clarkson defendants’ motion to dismiss. The motion for

an extension of time to plead was unopposed and will be

granted.

Our ruling would end here except that in their memor-

anda the parties argued an issue not raised in the motion

itself, namely, what discovery obligations the Clarkson

defendants should have in the event they proceed to arbi-

tration with IIC. In their initial brief dated July 23, 1991

the Clarkson defendants took the position that arbitra-

tion might render their participation in the discovery proc-

ess unnecessary. This was hotly disputed by both IIC and

the reinsurers. In their reply, the Clarkson defendants

then modified their position, stating that as to IIC they

should only be required to give discovery to the extent

ordered by the arbitrators under Section 7 of the Federal

Arbitration Act, and as to the defendant reinsurers dis-

covery should proceed as if the Clarkson defendants were

not parties.

This is a different motion from the one actually filed,

which only addressed the period of time up to rulings on

the Arbitration Motion and motions to dismiss. On De-

—dla—

cember 20, 1991 the court entered its Report and Recom-

mendations on the Arbitration Motion, recommending that

it be granted and all claims by IIC against the Clarkson

defendants be stayed pending arbitration. If this recom-

mendation is adopted, the court will have to address the

additional issue discussed in the briefs, although not raised

in the motion. Only one of the Clarkson defendant, Bain

Clarkson Ltd., continues to challenge personal jurisdiction,

so there is no prospect that none of the Clarkson defen-

dants will remain parties.

The court could defer ruling until after Judge Lindberg

adopts or rejects the recommendation on the Arbitration

Motion, or require a new motion and briefing. However,

both IIC and the reinsurers submitted their briefs after

the court’s ruling of August 1, and recognized that the

issue had become what Clarkson’s discovery obligations

should be if proceedings are stayed pending arbitration.

Neither has sought to file a surreply. Accordingly we

treat the motion as having been amended with the con-

sent of the parties. Since a ruling on the motion can take

effect immediately upon the entering of a stay pending

arbitration (unless modified or set aside under Rule 72(a)),

in the interest of saving time the court will rule on the

motion now. ~

We begin by noting that at least three of the Clarkson

defendants are parties to this action whether or not arbi-

tration is ordered. As parties they have obligations under

the Federal Rules to provide discovery. Under Rule 26(c)

the court “for good cause shown” “‘may make any order

which justice requires to protect a party or person from

annoyance, embarrassment, oppression, or undue burden

or expense.”’ The burden of showing good cause is, of

course, upon the moving party. Schachar v. American

—52a—

Academy of Ophthalmology, Inc., 106 F.R.D. 187, 190

(N.D. Ill. 1985) (Getzendanner, J.).

The Clarkson defendants’ original position, that their par-

ticipation in discovery may be rendered wholly unneces-

sary if IIC’s claims are ordered to arbitration, Clarkson

Def. Br. at 4, is untenable. The reinsurers have filed a

broad counterclaim against IIC, alleging, among other

things, that IIC committed fraud, mismanaged claims, en-

gaged in negligence underwriting, and breached it con-

tractual duties. They allege that the Clarkson defendants,

or some of them, were IIC’s agents and material par-

ticipants in the conduct complaint of. The testimony of

the Clarkson defendants’ employees and records from

their files will be essential to the adjudication of the

counterclaim, which has not, of course, been referred to

arbitration.

Furthermore, the Clarkson defendants may have evi-

dence relevant to IIC’s claims against the reinsurers, since

one or more of them appears to have organized the rein-

surance arrangement IIC seeks to enforce. What Clarkson

told—or did not tell—the reinsurers will probably be ma-

terial to the interpretation and enforceability of the rein-

surance treaties. Thus, even if they were not parties, the

Clarkson defendants would be subject to third party dis-

covery, and even dismissal would not justify a complete

stay of discovery as to them.

The Clarkson defendants raise the point that ordinarily

discovery is stayed pending arbitration except as may be

ordered by the arbitrators, and the court should permit

discovery only in extraordinary circumstances. Having

chosen arbitration, with its more limited discovery tools,

they say, the parties should normally not be allowed to

use the more expansive (and expensive) federal arsenal.

—53a—

But here the dispute between IIC and the Clarkson

defendants is not the entire suit; it is appended to dispute

between IIC and its reinsurers, which neither of them

is required to arbitrate. Since at least some of the Clark-

son defendants were key players in the EIL program, to

limit IIC’s discovery against the Clarkson defendants to

what the arbitrators might allow would be fundamental-

ly unfair for two reasons.

First, there is little or no discovery in arbitration. For

the reasons stated in our Report and Recommendation

on the Arbitration Motion, the Illinois Uniform Arbitra-

tion Act, Ill. Rev. Stat. ch. 10, {101 et seg. (1989), rather

than the Federal Arbitration Act, 9 U.S.C. § 101 et segq.,

will govern the arbitration. The Illinois statute permits

depositions to be taken only when a witness will not be

available to testify at the hearing. Ill. Rev. Stat. ch. 10

¢{ 107. Second, the arbitrators might well take the posi-

tion that they are empowered only to order discovery

with respect to the dispute before them. This court leave

IIC unable to obtain discovery with respect to much of

its dispute with the reinsurers.

It might be possible to separate the issues with respect

to which discovery is sought, and permit IIC only arbitra-

tor—authorized discovery with respect to evidence relating

to arbitrable issues. However, Rule 25(bX1) is a very blunt

knife to make such a division, and it takes little imagina-

tion to realize the likely consequences—disputes about the

scope of discovery on both sides, and double depositions

of witnesses. As with the proverbial judgment of Solomon,

an attempt to divide the matter rationally would cause

more serious problems, and neither party has asked for

this solution.

—54a—

Accordingly, we believe IIC should have the same scope

of court—supervised discovery against the Clarkson defen-

dants as the defendant reinsurers have. But what should

that scope be? The Clarkson defendants ask to be treated

aS non-parties with respect to the reinsurers, since they

have no claims against the Clarkson defendant and the

Clarkson defendants’ dispute with IIC is to be arbitrated.

The Clarkson defendants may be in this forum solely

because of their agreements with IIC. While they (or

some of them) agreed to this forum, they agreed that

disputes would be arbitrated in the first instance, with

the limited discovery obligation that implies. They did not

agree to submit to document requests and interrogatories

from the reinsurers, with whom they have (in this forum)

no dispute at all.

Nevertheless, the arbitration agreements did not entitle

the Clarkson defendants to reasonably expect to be shielded

from discovery of evidence which is important to resolu-

tion of the dispute between IIC and the reinsurers. And

since the Clarkson entities are parties, Rule 26(bX1) gives

the defendant reinsurers the right to conduct discovery

against the Clarkson defendants whether or not they have

any claims against them, subject to the court’s power to

limit discovery for good cause shown. Clarkson has not

shown “annoyance, embarrassment, oppression, or undue

burden or expense.” The valid reasons for limiting or pro-

hibiting discovery when arbitration proceedings are pend-

ing do not apply with respect to the reinsurers, and so

the Clarkson defendants have not made the showing that

would justify the kind of order they seek, limiting dis-

covery to that available against non-parties.

We rule therefore that in the event Judge Lindberg

orders a stay of proceedings between IIC and the Clark-

—5d5a—

son defendants pending arbitration, discovery against the

larkson defendants shall nevertheless proceed as pro-

vided in the rules applicable to the parties. If a stay of

proceedings is denied, this ruling will be moot since the

same result will obtain. The foregoing is without prejudice

to any authority the arbitrators may have to order dis-

covery, or permit its use in the ai‘itration proceeding.

The Clarkson defendants are granted an extension of

time to answer or otherwise please until 20 days after

either Judge Lindberg denies their motion for a stay

pending arbitration or a final award of the arbitrators is

served upon them.

Under Fed. R. Civ. Proc. 72(a) the parties have 10 days

from the date hereof to file written objections to this

Report and Recommendation with Judge Lindberg. Fail-

ure to file such objections will normally waive the right

to appeal the rulings set forth in this Report. Egert v.

Connecticut General Life Ins. Co., 900 F.2d 1032, 1039

(7th Cir. 1990).

Respectfully submitted,

Bernard Weisberg

United States Magistrate Judge

Date: January 15, 1992

ee: All Attorneys of Record

(See Attached Service List)

—5ba—

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

INTERNATIONAL INSURANCE COMPANY,

Plaintiff,

)

)

)

)

v. )

)

CERTAIN UNDERWRITERS AT LLOYD'S )

)

)

LONDON, et al.,

Defendants.

o2-+----- + 2-2 +--+ --- + --- ) No. 88 C 9838

KEITH KERR, et al., ) February 12, 1992

) 9:00 a.m.

Counter-plaintiffs, )

)

v. )

)

INTERNATIONAL INSURANCE COMPANY, )

)

Counter-defendant. ) Chicago, Illinois

TRANSCRIPT OF PROCEEDINGS

BEFORE

THE HONORABLE GEORGE W. LINDBERG

APPEARANCES:

For the Plaintiff/Counter-defendant:

BAKER & McKENZIE

130 East Randolph Drive

Chicago, Illinois 60601

BY: MR. PAUL B. O’FLAHERTY, JR.

For certain Defendants:

PETERSON & ROSS

200 East Randolph Drive

Chicago, Illinois 60601

BY: MR. GREGORY HOPP

—57a—

For certain Defendants:

ADLER, KAPLAN & BEGY

10 North Dearborn Street

Chicago, Illinois 60602

BY: MR. LARRY S. KAPLAN

For certain Defendants:

BIEDERMANN, HOENIG, MASSAMILLO

& RUFF

733 Third Avenue

New York, New York 10017

BY: MR. LAWRENCE MENTZ

For certain Defendants:

JENNER & BLOCK

One IBM Plaza

Chicago, Illinois 60611

BY: MS. DEBBIE L. MOECKLER

THE CLERK: 88 C 9838, International versus Certain

Underwriters.

MR. HOPP: Gregory Hopp for Defendant reinsurers.

MR. O’FLAHERTY: Paul O’Flaherty on behalf of Inter-

national Insurance Company, your Honor.

MR. MENTZ: Larry Mentz on behalf of the Clarkson

defendants.

MR. KAPLAN: Larry Kaplan on behalf of Clarkson

defendants.

MS. MOECKLER: Debbie Moeckler on behalf of SCOR.

THE COURT: Who is the party in the reinsurer?

What’s the name of the party?

MR. HOPP: It’s 14 different people. It’s Certain Under-

writers at Lloyd’s, et al.

THE COURT: That’s the principal defendants. She is

getting my material, I hope. I have worked on it, and

I don’t know what I did with it.

—58a—

MR. HOPP: That happens to you, too?

THE COURT: Yes. That stuff is not easy to sort out.

Thank god you listed out what your motions were. Why

don’t we proceed? I know what’s involved.

MR. MENTZ: If I may, your Honor. Clarkson has made

the emergency motion, so I will start first. 7

THE COURT: Sure.

MR. MENTZ: The position is relatively simple, your

Honor. We believe we will be prejudiced if we are forced

to submit to discovery as parties at this time while there

are pending before your Honor objections to the magis-

trate’s ruling.

We submit that letters rogatory would be the appropri-

ate method by which any party could obtain discovery of

us should they be advised and that that procedure is no

different than what is being done with all other nonpar-

ties to this litigation.

For instance, your Honor, TLA, the London agency

which is an affiliate of the Plaintiff, IIC, and which is the

managing general agent or represented to be the manag-

ing general agent of IIC, has been subpoenaed in Atlanta,

Georgia and is contesting the subpoenas in Atlanta, Georgia.

The propriety and the scope of the discovery to which

TLA is subjected is going to be determined by a federal

court in Atlanta, Georgia.

We are equivalent to nonparties. There are no claims

pending against us right now. There will be no claims

unless your Honor accepts the objections to the magis-

trate’s recommendation that proceedings against us be

stayed. No other parties have any claims against us.

Effectively for all practical purposes, we are not par-

ties to this litigation, notwithstanding whenever the tech-

- nical situation may be.

THE COURT: What do you mean by that, the technical

situation?

—59a—

MR. MENTZ: We were sued. We are a third-party

defendant. We are a named third-party defendant. We are

a named defendant. However, any claims against us, as-

suming your Honor accepts the magistrate’s recommen-

dation, will be stayed. There are no cross-claims against

us by reinsurers.

There are no claims against us by SCOR, the other de-

fendant. So for all purposes there is nothing against us.

Your Honor, I might just bring up one other matter.

Magistrate Weisberg has recommended to your Honor

that all of plaintiff’s claims against us be stayed pending

arbitration pursuant to the Federal Arbitration Act. Now,

that has been objected to, and your Honor has set a brief-

ing schedule on it.

There was some argument before Magistrate Weisberg

that we have created a discovery gridlock in this situa-

tion. Your Honor, however, the chronology is such that

we don’t believe that’s accurate.

The discovery was stayed as to all parties for a substan-

tial length of time in large part, we believe, because

Magistrate Weisberg had raised significant subject mat-

ter jurisdictional concerns, which are also pending before

your Honor.

During that time period, there was no real point in con-

tinuing the discovery until those points—

THE COURT: The subject matter jurisdiction, is that

the July 15th order—

MR. HOPP: No.

THE COURT: —personal jurisdiction?

MR. MENTZ: September 12, I believe.

MR. HOPP: It’s the question about diversity involving

Lloyd’s underwriters.

MR. MENTZ: The position is: We are not really par-

ties to this litigation. All we are asking for now is a tem-

porary stay of discovery until your Honor has an oppor-

—60a—

tunity to see our objections, review our objections, to the

magistrate’s ruling requiring that we submit to discovery.

THE COURT: Well, Judge Weisberg found—I will use

the word, you know, in a nontechnical senses—that you

were at_the eye of the hurricane. Your documents are

at the eye of the hurricane to paraphrase his expression.

You’ve got the core facts in this case. Is that not what

he said?

MR. MENTZ: Well, in a nontechnical sense—I don’t

think we can dispute that we have witnesses and we have

documents that both sides would like to see in this litiga-

tion, but, your Honor, the plain fact of this matter is: If

we hadn’t been improperly sued by IIC to begin with,

we wouldn’t be here fighting whether or not we are sub-

ject to discovery as a party.

People would be going after us with letters rogatory

in London, England. To the extent that this Court author-

ized the issuance of letters rogatory, to the extent the

English court authorized discovery against us, that’s

where we would be.

Clarkson got sued when they shouldn’t have been be-

cause there was an arbitration agreement. Because we

were sued improperly, we contend, and which Magistrate

Weisberg seems to have supported, we are going to be

subject to discovery in this forum when all our docu-

ments—and we are estimating them to be in excess of

500,000 pages—and all of our witnesses are located in Lon-

don, England, and our review of those documents, just

responding to the discovery request, whether we have to

produce them while your Honor is considering the objec-

tions or not, will be massive.

It will be very prejudicial to Clarkson if your Honor

ultimately holds that Magistrate Weisberg was wrong re-

quiring us to submit to discovery as a party. Again, all

we are asking here is for a temporary stay until your

—6la—

Honor has an opportunity to review our objections to the

magistrate’s rulings.

THE COURT: The rationale for Judge Weisberg’s de-

clining to give you a stay other than for the purpose of

this, for these objections, was what?

MR. MENTZ: I don’t recall a rationale stated, your

Honor, other than the fact that the magistrate thought

that discovery should proceed against us. As we cited in

our brief in support of the emergency motions, the ordi-

nary rule is if you file an objection to a magistrate’s rul-

ing, it’s effectiveness is stayed. That’s what Morris said.

That’s what we believe should take place in this circum-

stance because the prejudice to us, your Honor, is very

significant—A temporary delay from reinsurers or from

IIC’s standpoint—Actually IIC shouldn’t be able to get

discovery before us as parties because they are in arbitra-

tion.

However, the temporary nature of the delay for rein-

surers and IIC is not that prejudicial or not prejudicial

at all. Whereas, if we have to go forward now while the

matter is pending before your Honor, we will never get

it back.

Your Honor, with respect to one of the defendants,

CPIR, which also is called Clarkson Puckle International

Reinsurances, there’s a motion to dismiss for lack of per-

sonal jurisdiction. It’s still pending before the magistrate.

Under normal circumstances a party that has challenged

the personal jurisdiction of the Court is never required

to be subject to discovery on the matters. With respect

to that, there should be a temporary stay as tc the magis-

trate’s ruling, and your Honor rule as to whether or not

we are subject to jurisdiction.

THE COURT: When were they made counter’/third-

party defendant?

—6§2a—

MR. MENTZ: We were served March 1. I believe the

second supplemental and amended complaint and the

amended counterclaim were filed on February 26, 1991,

approximately, one year ago, your Honor. In terms of

delaying discovery, I would reiterate that in large part

the discovery was held up because of the magistrate’s

significant concerns about the subject matter jurisdiction.

Our motion has only played a small part in delaying any

discovery against us solely as parties, your Honor. We

have offered to and we have suggested to the other par-

ties that they proceed against us by letters rogatory, and

they have not done so.

THE COURT: Let me hear from ICC.

MR. O’FLAHERTY: Paul O’Flaherty. If the Court

please, I would be glad to summarize Magistrate Weis-

berg’s rationale. He did recognize, as your Honor ob-

served, that the Clarkson documents and witnesses are

at the heart of this controversy. If I wanted to make the

shortest conceivable summary of the disputes between my

clients and Mr. Hopp’s clients, it might be whose agent

was Clarkson.

They claim that we hold responsibility for their actions,

and we hold otherwise. Magistrate Weisberg, therefore,

recognized that discovery against Clarkson, particularly

documentary discovery, is something inevitable and has

to be accomplished in connection with the underlying law-

suit. It’s so central, in fact, that at one point my client,

International Insurance Company, was threatened with

sanctions for not producing Clarkson documents.

We made efforts to secure those documents voluntari-

ly through informal means. We weren’t able to do that.

This is something we have to get onto as a matter of

practical administration in this case.

Moreover, Magistrate Weisberg recognized that in focus-

ing on their arbitration rights as to International Insur-

—68a—

ance Company, that’s a one-dimensional analysis of a

multi-dimensional problem. However, the fact they may

have some arbitration rights vis-a-vis one party in no way

limits Mr. Hopp’s entitlement or the reinsurers’ entitle-

ment to take discovery from the Clarkson defendants.

It is necessary to open it up for the reinsurers. Funda-

mental fairness says IIC has to have the same scope of

discovery. Again, that’s the only practical way to proceed

as in terms of sound judicial administration.

Magistrate Weisberg considered the possibility in terms

of paring out the issues from those that are arbitrable

to those that are not. Magistrate Weisberg recognized it

was an impractical conclusion because what that’s going

to lead to in its conclusion is wrangling over what is ar-

bitrable and what is not and the possibility of duplicative

discovery in the arbitration action and the action in court.

He correctly rejected that as a proper alternative.

Magistrate Weisberg referred repeatedly in the recom-

mendation to this Court to the procedural means of Rule

26 and otherwise for preventing any undue harassment

and oppression of the Clarkson defendants.

This is discovery that would clearly be subject to the

supervision of the Court. I think because he gave us just

a narrow time frame to appear before your Honor and

resolve this matter, Magistrate Weisberg is also convey-

ing a necessity for moving discovery along in this case.

The Clarkson defendants have been with us now for a

year.

The underlying case is in excess of three years old.

There is an important necessity for moving it along.

MR. HOPP: Gregory Hopp for reinsurers. Let me make

three quick points. First of all, the magistrate was also

absolutely correct that Clarkson’s documents are at the

eye of the hurricane. There are two good ways to show

that.

—H4a—

One is—Mr. O'Flaherty alluded to—the magistrate has

already indicated that he thought an award of sanctions

was appropriate based on IIC’s failure to produce these

documents.

We hear from IIC, however, that Clarkson will not give

them the documents. Likewise, there is an appeal pend-

ing before you of that denial by the magistrate of IIC’s

motion to compel some of our clients to produce those

documents. So Mr. Mentz admits it, and I think Paul and

I have agreed as well, that these documents are absolute-

ly of critical importance.

The point that Mr. Mentz makes that they are essen-

tially a nonparty and that letters rogatory, just like sub-

poenas, would give us access to those documents is, if I

may, somewhat disingenuous.

First of all, they aren’t like a nonparty. They are a par-

ty, although, the claims against them have been stayed.

Those three defendants have admitted the jurisdiction of

this court in dealing with them.

CPIR, Clarkson Puckle International Reinsurances, is

a small subsidiary. That’s really a red herring, and they

have admitted that this court has jurisdiction over the

corporate parent and other related entities that have a

role here.

Likewise, the way English courts deal with letters roga-

tory, we would have to show, first, the exact date of

every document, to whom, from whom. We would have

to show that it is for purposes of trail that we seek that

as opposed to simply purposes of discovery.

The very reason that Mr. Mentz is willing to propose

so quickly the idea of letters rogatory is he knows it af-

fords us no relief. That is an option that IIC attempted

to pursue after the mayistrate’s sanctions.

See, the fact is that Clarkson is a party, and unless IIC

and reinsurers are allowed to propound discovery to them

j

%

:

§

—6bda—

as a party, we aren’t going to get these documents. The

first point—and I apologize for going o, your Honor—is

that there is probably a practiical solution here. There are

a lot of extra claims made im Clarkson’s briefs.

For instance, they talk abowt Clarkson Puckle Interna-

tional Reinsurances’ jurisdictional challenge. They talk

about the specter of depositions. Well, all the documents

will come through parties that. have admitted jurisdiction.

No depositions of Clarkson’s parties have been noticed

at this time.

As far as the reviewing of the documents that have

been produced in London, I think everyone would agree

that the English claims of privilege are even more broad

than American claims of privilege.

So at the very least it would be easy, I think, for them

to pack up the documents that have been produced in the

English litigation and produce them here. That is some-

thing that can be done without this onerous privilege

review that they have talked about. So in short, your

Honor, there is not a more important source of documents

here.

The Court has jurisdiction over them as a party, and

that is a fact. There is an easy practical solution to all

the red herrings that are raised in these motions.

MR. MENTZ: May I say something in reply, your

Honor? ;

THE COURT: Surely.

MR. MENTZ: Just a few points. There are no claims

pending against us that this Court is going to be deciding,

certainly, at this time. There is before Magistrate Weis-

berg a motion to sever us from this proceeding because

there are no claims pending against us at this time.

We would argue at that point, certainly, we could not

be treated as parties if that motion is granted. No at-

torney, we believe, would just pass over documents that

—66a—

have been produced in England without reviewing them.

We are going to have to review the documents before

they be produced.

So for it to be suggested that it’s unnecessary and we

will not be burdened, we think is incorrect. We will be

burdened. We will be substantially burdened. The situa-

tion with respect to CPIR, Clarkson Puckle International

Reinsurers, is additionally egregious, your Honor, if we

are not subject to personal jurisdiction here.

Finaliy, your Honor, two things. If your Honor is going

to deny the temporary stay here, we would request two

weeks in order to give us time to file with the Seventh

Circuit or that your Honor certify this for an interlocutory

appeal before the Seventh Circuit.

If we file with the Seventh Circuit, that that stay be

extended while the matter is pending before the Seventh

Circuit.

MR. O’FLAHERTY: Just one final thought, your Honor.

I think since the specter of appeal has been raised here,

you have the gist of our position here this morning.

We are certainly prepared, if your Honor would like,

to cite legal authorities in support of Magistrate Weis-

berg’s recommendation. We are prepared to move very

rapidly on that and provide the Court with a memoran-

dum of law by Monday. If your Honor is prepared to rule,

that’s fine, too.

THE COURT: I have had the opportunity to review

this rather extensively. I am satisfied that the third-party

defendant’s motion for a protective order should be de-

nied, and it is denied.

The second part of the Clarkson motion was with regard

to a briefing schedule for—

MR. MENTZ: The objections to the magistrate’s orig-

inal ruling, your Honor, on January 15, which said that

we were subject to discovery as parties.

10 A ans be ath edt 9D ts Na Mag tea 8 Spa hee dala

eB the whe em. 4

WD ndbribyo ic

MOMS A oh en Dad rete: Bet deme.

—67a—

THE COURT: Well, then that is obviated now.

MR. MENTZ: Is your Honor essentially ruling on the

objections as well?

THE COURT: Yes. What I want you to do—If you are

insisting on appealing this thing, then you ought to get

on with it. I will tell you why.

First of all, I think the magistrate’s reasoning is very

sound. He is trying to move this litigation along. “rom

the standpoint of this court, it is a very old case. The

United States Senate has spoken.

They want these cases moved in the interest of the par-

ties and the public generally. I think the magistrate real-

ized that, and I don’t think the Clarkson third-party de-

fendants denied that their materials are at the heart of

the matter.

Rather than taking the long route, I think that ground-

work has been laid to permit a direct approach. That’s

the way the Court feels the litigation should proceed.

It is not the sense of the Court that the Clarkson third-

party defendants would be prejudiced in any manner what-

soever other than having to produce now what they might

otherwise prefer to produce at some later date or have

screened through the letters rogatory process in England.

So the objective of the Court is to get this litigation

moving without prejudice to Clarkson. I believe that

Magistrate Judge Weisberg has perceived correctly how

to do that.

What’s left then for this emergency motion?

MR. MENTZ: Just the request for the temporary stay

to get up to the Seventh Circuit.

THE COURT: How much time?

MR. MENTZ: Two weeks, your Honor.

THE COURT: Counsel, any problem with that?

MR. O’FLAHERTY: No, your Honor.

—§8a—

MR. MENTZ: Would the stay continue in effect if we

go up to the Seventh Circuit, your Honor?

THE COURT: Yes.

THE CLERK: Stay is in effect until February 26.

MR. MENTZ: And continues if we file with the Seventh

Circuit.

THE COURT: Let me put it this way. If you do, in

fact, do that, then I think you ought to go to the Seventh

Circuit and ask them for the stay. I think that would be

more appropriate. I don’t like to run their business any

more than I am sure they want to run mine.

MR. HOPP: Very good.

MR. O’FLAHERTY: Thank you, your Honor.

MR. HOPP: Thank you, your Honor.

THE COURT: You have your briefing schedule on those

other matters fully in piace, I take it?

MR. HOPP: We do.

THE COURT: Okay. We have got that material organ-

ized. We will be waiting for you.

MR. HOPP: Thank you, your Honor.

CERTIFICATE

I certify the foregoing is a correct transcript from the

record of proceedings in the above-entitled case on Feb-

ruary 12, 1992.

Therese A. Pintozzi 2-18-92

Official Court Reporter Date

—69a—

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

H. Stuart Cunningham Office of the Clerk

CLERK

Peter Hoenig

Biedermann, Hoenig, Massamillo & Ruff

733 Third Avenue — 18th Floor

New York, NY 10017

Case Number: 1:88-cv-09838

Title: International Ins v. Certain Underwriters

Assigned Judge: Honorable George W. Lindberg

MINUTE ORDER of 2/12/92 by Hon. George W. Lindberg:

denying third-party defendant Clarkson’s motion for pro-

tective order [953-1]. Briefing schedule on objections to

Magistrate Judge’s 01/15/92 ruling is stayed to and in-

cluding 02/26/92. Status hearing is set for 02/26/92 at 9:30

a.m. Mailed notice

This order was entered on the docket by the Clerk

February 13, 1992

ATTENTION: This notice is being sent pursuant to Rule

77(d) of the Federal Rules of Civil Procedure. It was

generated by the automated docketing system being intro-

duced to handle the civil dockets of this District. If a

minute order or other document is enclosed, please refer

to it for additional information.

—7Wa—

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

H. Stuart Cunningham Office of the Clerk

CLERK

Larry S. Kaplan

Adler, Kaplan & Begy

10 North Dearborn Street

4th floor

Chicago, IL 60602

Case Number: 1:88-cv-09838

Title: International Ins. v. Certain Underwriters

Assigned Judge: Honorable George W. Lindberg

MINUTE ORDER of 2/27/92 by Hon. George W. Lind-

berg: The Court’s order of February 12, 1992 is clarified

and amended as follows: Third party defendant Clarkson’s

objections to the report and recommendation of the Magis-

trate Judge of*January 15, 1992 are overruled; Clarkson’s

motion for protective order against further discovery and

a briefing schedule thereon are denied. Discovery as to

Clarkson is stayed until March 13, 1992 pending appeal

of this order to the Seventh Circuit. Mailed notice

This order was entered on the docket by the Clerk

February 28, 1992

ATTENTION: This notice is being sent pursuant to Rule

77(d) of the Federal Rules of Civil Procedure. It was

generated by the automated docketing system being intro-

duced to handle the civil dockets of this District. If a

minute order or other document is enclosed, please refer

to it for additional information.

#

$

4

x

=.

—Tla—

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

Name of Assigned Judge or Magistrate Judge

George W. Lindberg

Case Number

88 C 9838

Date

June 12, 1992

Case Title

INTERNATIONAL INSURANCE COMPANY

V. CERTAIN UNDERWRITERS

DOCKET ENTRY:

s & 6-8

(10) X [Other docket entry]

Motion of “Clarkson Defendants” for an order

accepting the report and recommendations of

U.S. Magistrate Judge Bernard Weisberg of De-

cember 20, 1991 concerning the Clarkson defen-

dants’ motion to stay arbitration is granted.

* * * * *

X No notices required, advised in open court.

* * * * x

SB courtroom deputy’s initials

* * * * x

—T2a—

ED-6

RECEIVED FOR DOCKETING

92 JUN 12 PM 5:54

Date/time received in

central Clerk’s Office

JUN 15 1992 date docketed

KS docketing dpty. initials

Document #1135

—7T3a—

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

March 13, 1992

Before:

HON. RICHARD D. CUDAHY, Circuit Judge

HON. DANIEL A. MANION, Circuit Judge

HON. MICHAEL S. KANNE, Circuit Judge

No. 92-1478

IN THE MATTER of:

CLARKSON PUCKLE GROUP, LIMITED,

ERAS (INTERNATIONAL), LIMITED,

CLARKSON PUCKLE INTERNATIONAL

REINSURANCES, LIMITED, et al.,

Petitioners.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division

No. 88 C 9838

GEORGE W. LINDBERG, Judge

This matter comes before the court for its considera-

tion of the following documents:

1. “PETITION FOR WRIT OF MANDAMUS OF DEFEN.-

DANTS AND THIRD-PARTY DEFENDANTS, CLARKSON

~PUCKLE GROUP, LIMITED, ERAS (INTERNATIONAL)

LIMITED, CLARKSON PUCKLE INTERNATIONAL RE-

INSURANCES, LIMITED, AND BAIN CLARKSON, LIM-

ITED” filed herein on February 28, 1992, by counsel for

defendants and third-party defendants-petitioners.

—T4a—

2. “RESPONSE OF PLAINTIFF/THIRD-PARTY PLAIN-

TIFF INTERNATIONAL INSURANCE COMPANY TO PETI-

TION FOR WRIT OF MANDAMUS” filed herein on March

9, 1992, by counsel for International Insurance Company.

3. “RESPONSE OF DEFENDANTS CERTAIN UNDER-

WRITERS AT LLOYD’S TO PETITION FOR WRIT OF

MANDAMUS OF DEFENDANTS AND THIRD-PARTY DE-

FENDANTS, CLARKSON PUCKLE GROUP, LIMITED,

ERAS (INTERNATIONAL) LIMITED, CLARKSON PUCKLE

INTERNATIONAL REINSURANCES, LIMITED, AND BAIN

CLARKSON, LIMITED” filed herein on March 9, 1992, by

counsel for defendants.

4. “PETITIONERS’ MOTION FOR ENTRY OF A PROTEC-

TIVE ORDER TO ALLOW THE FILING OF EXHIBITS

UNDER SEAL?” filed herein on February 28, 1992, by

counsel for the petitioners.

5. “EMERGENCY MOTION OF PETITIONERS FOR A

FURTHER STAY OF THE DISTRICT COURT’S ORDER

OF FEBRUARY 27, 1992 UNTIL TWENTY DAYS AFTER

A FINAL ORDER IS ENTERED WITH RESPECT TO THE

PETITION FOR WRIT OF MANDAMUS” filed herein on

March 9, 1992, by counsel for the petitioners.

On consideration thereof,

IT IS ORDERED that the PETITIONERS’ MOTION FOR

ENTRY OF A PROTECTIVE ORDER TO ALLOW THE

FILING OF EXHIBITS UNDER SEAL IS GRANTED.

IT IS FURTHER ORDERED THAT THE PETITION FOR

WRIT OF MANDAMUS OF DEFENDANTS AND THIRD-

PARTY DEFENDANTS, CLARKSON PUCKLE GROUP,

LIMITED, ERAS (INTERNATIONAL) LIMITED, AND

BAIN CLARKSON, LIMITED is DENIED and the EMER-

GENCY MOTION OF PETITIONERS FOR A FURTHER

STAY OF THE DISTRICT COURT’S ORDER OF FEBRU-

ARY 27, 1992 UNTIL TWENTY DAYS AFTER A FINAL

ORDER IS ENTERED WITH RESPECT TO THE PETI-

TION FOR WRIT OF MANDAMUS IS DENIED.

—7T5a—

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

April 21, 1992

Before:

HON. RICHARD D. CUDAHY, Circuit Judge

HON. DANIEL A. MANION, Circuit Judge

HON. MICHAEL S. KANNE, Circuit Judge

Appeal From the United States District Court

for the Northern District of Illinois, Eastern Division

No. 88 C 9838

GEORGE LINDBERG, Judge

BERNARD WEISBERG, Magistrate Judge

No. 92-1478

In the Matter of Petitioners,

Clarkson Puckle Group, Limited, et al.

INTERNATIONAL INSURANCE COMPANY,

Plaintiff,

—vs.—

CERTAIN UNDERWRITERS AT LLOYD'S et al.,

Defendants.

—T6a—

KEITH WILLIAM KERR, et al.,

Counter-Plaintiffs,

—Vvs.—

INTERNATIONAL INSURANCE COMPANY,

Counter-Defendant.

iNTERNATIONAL INSURANCE COMPANY,

Counter-Defendant/Third-Party Plaintiff,

—Vo.—

SOCIETE COMMERCIALE DE REASSURANCE S&.A.,

CLARKSON PUCKLE GROUP, LIMITED,

ERAS (INTERNATIONAL) LIM'TED, CLARKSON

PUCKLE INTERNATIONAL REINSURANCES, LIMITED,

AND BAIN CLARKSON, LIMITED,

Third-Party Defendants.

ORDER

On consideration of the petition for rehearing, with sug-

gestion for rehearing en banc filed by defendants and

third-party defendants, no judge in active service has re-

quested a vote thereon, and all of the judges on the orig-

inal panel have voted to deny a rehearing. Accordingly,

IT IS ORDERED that the aforesaid petition for rehear-

ing be, and the same is hereby, DENIED.

—T7a—

i UNITED STATES COURT OF APPEALS cs

For the Seventh Circuit

i Chicago, Illinois 60604

September 30, 1992

: Before

Hon. JOHN L. COFFEY, Circuit Judge

Hon. JOEL M. FLAUM, Circuit Judge

Hon. KENNETH F. RIPPLE, Circuit Judge

INTERNATIONAL INSURANCE COMPANY, Appeal from the United

Plaintiff-Third/Party States District Court for

Plaintiff-Appellee, the Northern District of

Illinois, Eastern

No. 92-2530 v. Division.

CERTAIN UNDERWRITERS AT LLOYDS’ No. 88 C 9838

LONDON, DOMINION INSURANCE

COMPANY

]

]

]

]

]

George W. Lindberg,

]

LIMITED, HANNOVER REINSURANCE Judge.

]

]

]

]

]

]

]

)

)

Wh: SB RILLG TEARS LRG ED SpA DS Bite BI OK or

COMPANY, et al.,

Defendants,

and,

CLARKSON PUCKLE GROUP, LIMITED,

q ERAS (INTERNATIONAL) LIMITED,

. CLARKSON PUCKLE INTERNATIONAL

: REINSURANCES, LIMITED, et al.,

; Third/Party

4 Defendants-Appellants.

z

i ACen

This matter comes before the court for its considera-

tion of the following documents:

1. PLAINTIFF-APPELLEE INTERNATIONAL INSUR-

ANCE COMPANY’S MOTION TO DISMISS THE APPEAL

filed herein on 7/16/92, by counsel.

2. DEFENDANTS-APPELLANTS’ RESPONSE TO

PLAINTIFF-APPELLEE’S MOTION TO DISMISS filed here-

in on 7/28/92, by counsel.

On consideration thereof,

IT ISORDERED that the Motion to Dismiss is GRANTED

and this appeal is DISMISSED for lack of jurisdiction.