Seaton and Stonewall appeal jurisdiction ruling
The private equity backed run-off insurers Seaton Insurance Co and Stonewall Insurance Co have appealed against a decision earlier this month in a New York court which prevents them from pursuing a claim against a Randall & Quilter (R&Q) affiliate in the US.
It is the latest round in an increasingly bitter dispute which has also embroiled Berkshire Hathaway and R&Q rival firm, the Bermuda-headquartered run-off acquisition firm Enstar Group.
Earlier this month, A New York federal court dismissed fraudulent misconduct claims against Cavell USA Inc – part of the UK-listed Randall & Quilter group – and its chairman Ken Randall.
Seaton and Stonewall had brought the action in the US accusing defendants of fraudulent misconduct “in connection with the negotiation, amendment and operation” of run-off agreements between the parties.
The companies alleged Cavell USA and Randall fraudulently concealed a collaboration agreement delegating claims handling activities to Seaton and Stonewall’s reinsurer National Indemnity Company (NICO), part of the Berkshire Hathaway empire.
Cavell USA, an associate company of UK listed run-off firm Randall & Quilter Investment Holding plc (R&Q), had worked closely with Seaton and Stonewall owner Dukes Place Holdings – itself an affiliate of New Jersey private equity firm Greenwich Street Capital Partners II LP – in the late nineties in relation to the acquisition and management of run-off companies.
But, as reported in the May issue of The Insurance Insider, relations between the parties broke down and, in February 2006, an agreement was reached for Cavell USA to end its management of Seaton and Stonewall, a relationship that had been in place since 1999.
In exchange, it was agreed that Dukes Place would waive any rights to action against Cavell and Randall from all claims related to run-offs, apart from fraud claims.
The so-called “term sheet”, which terminated the relationship, also provided that the agreement “shall be governed by and construed with English law and the parties submit to the exclusive jurisdiction of the English Courts”.
Despite the agreement, Dukes Place and Greenwich – through Seaton and Stonewall – brought proceedings in the US, contending that the jurisdiction it defined “is a narrow provision that applies solely to claims for breach of the term sheet” and has “no application to other claims, including plaintiff’s fraud claims”.
But Cavell and Randall argued that the language of the term sheet “is as expansive as can be imagined, as the types of disputes that it covers are not limited by subject matter”.
In granting the defendants’ motion to dismiss, the judge said the plaintiffs have not successfully “rebutted the presumption of enforceability of the forum selection clause contained in the term sheet”.
Cavell and Randall, who deny the fraud allegations, are separately pursuing Seaton and Stonewall in the English Commercial Court seeking declarations and damages, and arguing that the companies have breached the 2006 agreement.
Asserting that the US-filed Seaton and Stonewall claim was pursued in the wrong jurisdiction, they add that the “false allegations” would not amount to fraud “even if they were true”.
Preliminary issues – which include the scope of the term sheet and the definition of fraud - are due to be determined in the autumn, following a hearing that took place last week.
At the same time, Berkshire Hathaway is suing the NASDAQ listed run-off firm Enstar Group together with Greenwich and Dukes Place, alleging that the entities conspired to concoct allegations against NICO to enable Enstar to buy and manage Seaton and Stonewall.
In the 30 April suit, filed in the US District Court, Southern District of New York, NICO alleges that a number of Greenwich partners “hatched a scheme” in 2005-2006 to enable NICO to sell the insurance companies to Castlewood Holdings, now Enstar.
Although Seaton and Stonewall were owned by Dukes Place, NICO had a controlling influence because it had provided nearly $600mn of reinsurance cover to enable Greenwich’s investment run-off arm to buy the companies in 1998 and 2002.
NICO alleges that Enstar would only agree to buy the companies if the Berkshire Hathaway subsidiary, along with its claims advisor Cavell, waived the right to continue managing the companies.