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Pac re 5-At v. Amtrust North America, Inc.

United States District Court, D. Montana, Billings Division

May 13, 2015

PAC RE 5-AT, a protected cell of PACIFIC RE, INC., a Montana corporation, Plaintiff,
v.
AMTRUST NORTH AMERICA, INC., a Delaware corporation; and TECHNOLOGY INSURANCE COMPANY, INC., a New Hampshire corporation, Defendants-Counterclaim-Plaintiffs,
v.
PACIFIC RE, INC., a Montana corporation, Counterclaim-Defendant.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

CAROLYN S. OSTBY, Magistrate Judge.

This declaratory judgment action arises out of a demand for arbitration sent to Pacific Re, Inc. ("Pacific Re") and to Pac Re 5-AT ("Cell 5"), a protected cell of Pacific Re. The demand was sent by Defendants AmTrust North America, Inc. ("AmTrust") and Technology Insurance Company, Inc. ("TIC") and is based on alleged breaches of a Captive Reinsurance Agreement.

Now pending are cross motions for summary judgment. ECF 29, 33. Having reviewed the parties' arguments and the applicable law, the Court orders as follows.

I. BACKGROUND

Pacific Re is a captive insurance company organized under the laws of the State of Montana. Effective October 1, 2010, Pacific Re and Safebuilt Insurance Services, Inc. ("SIS") entered into a Participation Agreement. ECF 1-2 at 1. In the Participation Agreement, Pacific Re agreed to establish a protected cell entitled PacRE 5-AT ("Cell 5") for Safebuilt.

On the same date, AmTrust, on behalf of TIC, and Pacific Re, on behalf of Cell 5, entered into a Captive Reinsurance Agreement ("CRA"). ECF 1-3. In the CRA, the parties agree that "[a]ny dispute between the Company (AmTrust) and the Reinsurer (Pacific Re)... shall be submitted to arbitration before a panel of three arbitrators." ECF 1-3 at 10.

In September 2014, AmTrust and TIC served on Respondents Pacific Re and Cell 5 a demand for arbitration of a CRA dispute. ECF 1-4. The arbitration is currently stayed pending the resolution of this action. ECF 24-4 at 1.

Plaintiff's Complaint herein states two counts. Count I requests a judicial declaration that, under Montana law, the proper party to be named in the Defendants' Demand for Arbitration is only Cell 5, and not also Pacific Re. Count II seeks an injunctive order staying the pending arbitration until Count I is resolved. Because the parties have agreed to stay the arbitration proceeding, Pacific Re and Cell 5 acknowledge that Count II is moot. ECF 23 at 4. Defendants' Answer denies the allegations of Count I and asserts a counterclaim against Pacific Re for a judicial declaration that Pacific Re is properly a party to the arbitration.

All parties move for summary judgment. Although the underlying issues in the arbitration may be complex, the issue before this court relatively simple: Is Pac Re a proper party to the arbitration? For the following reasons, the Court concludes that it is a proper party and that summary judgment should issue for the Defendants/Counterclaimants.

II. PARTIES' ARGUMENTS

Pacific Re and Cell 5 argue that Cell 5 is the only proper party to arbitration of the CRA because Cell 5, as a protected cell, has segregated assets and liabilities from Pacific Re and the other protected cells of Pacific Re. ECF 34 at 4-5. They argue that Defendants contracted only with Cell 5, and that no other cell is referenced in any agreement, and all parties intended to conduct business only with Cell 5. ECF 34 at 10-11. Essentially, Pacific Re and Cell 5 argue that the statutory language isolates protected cells as their own entities, separate from the other protected cells and from the core of a protected cell company, making Cell 5 the only proper party to the arbitration arising out of the CRA. ECF 34 at 11-13.

Pacific Re and Cell 5 acknowledge that there is a statutory distinction between incorporated and unincorporated protected cells, but argue that a protected cell, regardless of whether it is incorporated, owns its own assets and liabilities and thus should be considered separately from the protected cell company in order to give meaning to the entire statutory scheme. Id.

In response, AmTrust and TIC argue that Pacific Re is a proper party to the arbitration. ECF 36 at 8-9. They argue that Cell 5 is a non-existent legal entity, and as a result, Pacific Re is liable for the obligations it incurred in Cell 5's name. Id. They argue that because Montana's protected cell statute indicates that a protected cell is not a separate legal person from the protected cell company, Pacific Re is the proper party to be named in a lawsuit or arbitration. Id.

AmTrust and TIC further argue that Pacific Re is bound by the terms of the SIS CRA since it contracted with them on behalf of Cell 5, a non-existent legal entity that lacked capacity to agree to the terms on its own behalf. They argue that Pacific Re accepted and ratified the terms of the CRA through performance of the trust agreements created as part of the CRA. Id. at 9. The trust agreements include the Loss Corridor Trust Agreement and the Loss Fund Trust Agreement. Id. They argue that because Pacific Re entered the trust agreements on behalf of itself and Cell 5, and because the Grantor is ...


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