United States: Applied Underwriters, Inc., Loses Argument To Enforce Mandatory Forum Selection Clause In Reinsurance Contract

On September 12, the District Court for Connecticut denied a motion to transfer predicated on a mandatory forum selection clause in a reinsurance contract. The contract was one of several entered into by Applied Underwriters, Inc., and its affiliates (collectively "Applied") with Aiello Home Services ("Aiello") for a "novel [workers' compensation] insurance product known as 'EquityComp,' which required participation by the insured in a reinsurance facility. Applied's relations with Aiello broke down when Applied sent Aiello a statement "assessing an additional premium charge of $195,786.52, and reporting total estimated costs nearly $200,000 higher than the previous month's total cost estimate." Aiello filed suit alleging violations of the Connecticut Unfair Trade Practices Act and other statutory violations. Applied removed the case to federal court and sought to transfer to the District of Nebraska based on the forum selection clause.

The court denied the motion to transfer. The court found that the bulk of Aiello's claims arose from statutory violations, not the contract, and therefore were not within the scope of the forum selection clause. The fact that Applied's defenses relied primarily on the contract was insufficient to bring the statutory claims within the scope of the clause.

The court also analyzed whether the clause would be enforceable under the law of the chosen forum state (Nebraska). As part of that analysis, the court had to determine if Aiello had sufficient minimum contacts to establish personal jurisdiction in Nebraska. "[T]here is a clear distinction between conventional commercial contracts and those that arise in the business of insurance." While an insurance company that markets policies to residents of a given state establishes sufficient minimum contacts within that state, the insureds do not simultaneously establish sufficient contacts with the insurer's home state. As a result, the court refused to enforce the clause.

Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc., No. 3:17-cv-00689 (SRU) (USDC D. Conn. Sept. 12, 2017).

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