# Opposition Brief — Clarkson Puckle Group, Ltd. v. International Insurance > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_1903%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1993 - **Citation:** 507 U.S. 919 ## Text ‘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 | | 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its discretion under Supreme Court Rule 10 and issue a writ of certiorari where the Court of Appeals’s two-line unpublished order declining to consider petitioners’ appeal for lack of appel- late jurisdiction was manifestly correct, where no other Court of Appeals has yet considered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.