Opinion
8:03CV273
March 30, 2004
MEMORANDUM AND ORDER
This matter is before the court on defendant Swiss Reinsurance America Corporation's ("Swiss Reinsurance") objection, Filing No. 31, to the report and recommendation of Magistrate Judge Thomas D. Thalken, Filing No. 30. This action, brought pursuant to the Nebraska Insurers Supervision, Rehabilitation, and Liquidation Act, Neb. Rev. Stat. § 44-4801 et seq. ("NISRLA"), was originally filed in the District Court of Lancaster County, Nebraska, and was removed to this court pursuant to 28 U.S.C. § 1441 and 1446. Federal subject matter jurisdiction is premised on diversity of citizenship under 28 U.S.C. § 1332(a)(1). Amwest Surety Insurance Company is an insolvent Nebraska insurance company. It was declared insolvent on June 7, 2001, in the proceeding In re Amwest Insurance Company, District Court of Lancaster County, Nebraska, Case No. C101-2102. See Complaint, ¶ 5. Tim Wagner, Director of Insurance for the State of Nebraska ("Wagner"), was appointed liquidator for Amwest pursuant to the Nebraska Insurer's Supervision, Rehabilitation and Liquidation Act, Neb. Rev. Stat. § 44-4801 et seq. ("NISRLA" or "Liquidation Act"). Defendant Swiss Reinsurance America ("Swiss Re") moved to remand, Filing No. 13.
The magistrate recommended, Filing No. 30, that this court grant the State of Nebraska, ex rel Tim Wagner's ("Wagner") motion to remand, Filing No. 13. The magistrate found that the principle of reverse preemption under the McCarran-Ferguson Act, 15 U.S.C. § 1011 through 1015, applied. Swiss Re objects to that finding. It contends the preference provision of the Nebraska Liquidation Act, Neb. Rev. Stat. § 44-4828, does not reverse-preempt 28 U.S.C. § 1332 under the McCarran-Ferguson Act because the preference statute does not regulate the business of insurance. Pursuant to 28 U.S.C. § 636, the court has conducted a de novo review of those portions of the magistrate's report and recommendation to which objection has been made.
The facts are adequately set forth in the magistrate's report and recommendation and need not be repeated here. Briefly, Wagner's action involves the interpretation of several contracts of reinsurance between the parties and application of Nebraska's scheme for liquidation of insolvent insurers to those contracts. In his complaint, Wagner alleges twelve claims for relief, including a claim for breach of the Excess Contract and the Quota Contract for past insurance claims, a claim for declaratory relief under those contracts for yet unreported claims, a claim for imposition of a constructive trust for unearned reinsurance premiums paid for the Quota Contract, preference recovery for premiums paid for the Quota Contract in the four months prior and one year prior to liquidation under the Liquidation Act § 44-4828(1)(b), and indirect preference recovery for co-surety and Miller Act claims paid by Amwest in the four months prior and one year prior to liquidation under the Liquidation Act § 44-4828(1)(b). Wagner asserts Swiss Re owes Amwest under the terms of the contracts for amounts that Amwest paid to insureds. Additionally, Wagner contends Swiss Re is not entitled to setoff amounts Swiss Re paid on co-surety bonds and certificates of insurance. Further, Wagner seeks to recover from Swiss Re the amount of an allegedly invalid and preferential payment for insurance premiums and the insurance claims paid.
The McCarran-Ferguson Act provides that "[n]o act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any state for the purpose of regulating the business of insurance." 15 U.S.C. § 1012(b). The Act was designed to "restore the supremacy of the States in the realm of insurance regulation." United States Dept. of Treas. v. Fabe, 508 U.S. 491, 500 (1993). The McCarran-Ferguson Act bars the application of a federal statute if the federal statute does not relate specifically to the business of insurance, a state statute has been enacted to regulate the business of insurance, and the federal statute would invalidate, impair, or supersede the state statute. Humana Inc. v. Forsyth, 525 U.S. 299, 307 (1999). Because the federal diversity jurisdiction statute does not relate specifically to the business of insurance and because Nebraska has enacted a comprehensive statutory scheme to regulate the business of insurance, the decisive question is whether application of diversity jurisdiction in the present circumstance would invalidate, impair, or supersede Nebraska's insurance laws. See LeBarre v. Credit Acceptance Corp., 175 F.3d 640, 642 (8th Cir. 1999). The phrase "invalidate, impair or supercede" has been interpreted to mean "directly conflict[ing] with a state's insurance statutes, frustrat[ing] any declared state policy, or interfer[ing] with a state's administrative regime." Id.
The state statute at issue here is NISRLA, Neb. Rev. Stat. § 44-4801 et. seq. Nebraska's Legislature passed NISRLA "to protect the interests of insureds, claimants, creditors, and the public with minimum interference with the normal prerogatives of the owners and managers of insurers. . . ." Neb. Rev. Stat. § 44-4801. The Legislature stated that "[p]roceedings in cases of insurer insolvency and delinquency are . . . an integral aspect of the business of insurance and are of vital public interest and concern." Id., § 4801(7). Accordingly, NISRLA was designed to furnish "a comprehensive scheme for the supervision, rehabilitation, and liquidation of insurers . . . as part of the regulation of the business of insurance, insurance industry, and insurers in [Nebraska]." Id. (emphasis added). The statute further provides that all actions brought under the Liquidation Act "shall be brought in the district court of Lancaster County, Nebraska." Neb. Rev. Stats. § 44-4804(5).
The court agrees with the magistrate that application of diversity jurisdiction to this action would frustrate state policy and interfere with Nebraska's administrative regime in connection with liquidation of insurers. In this case, Wagner seeks to resolve a contract dispute that is directly related to the liquidation proceedings. Swiss Re is only liable under the reinsurance agreements if payments were made by Amwest when Amwest was insolvent. The Liquidation Act specifically anticipates claims against reinsurers. See Neb. Rev. Stat. § 44-4832. Additionally, resolution of the dispute between the parties involves issues of preference and setoff, also specifically covered under the Liquidation Act. See Neb. Rev. Stats. §§ 44-4821(u) 44-4828(1)(a), 44-4830. Wagner's lawsuit requests relief unique to NISRLA and will involve a statutory priority determination under NISRLA.
Accordingly, the court finds the Nebraska statute designating the state forum for adjudication of these claims regulates the business of insurance and, under the McCarran-Ferguson Act, cannot lawfully be "invalidate[d], impair[ed], or supercede [d]" by permitting additional litigation in the federal court on the basis of diversity. "The McCarran-Ferguson Act reflects `a strong federal policy of deferring to state regulation of the insurance industry,' including insolvency statutes." Murff v. Professional Medical Ins. Co., 97 F.3d 289, 293 (8th Cir. 1996), quoting Wolfson v. Mutual Ben. Life Ins. Co., 51 F.3d 141, 147 (8th Cir. 1995) (finding no conflict between the ADEA and state insurance insolvency statutes). Moreover, a district court is required to resolve all doubts about federal jurisdiction in favor of remand. Transit Cas. Co. v. Certain Underwriters at Lloyd's of London, 119 F.3d 619, 624 (8th Cir. 1997).
IT IS ORDERED that:
1. Defendant's objection, Filing No. 31, to the report and recommendation of the magistrate, Filing No. 30, is overruled.
2. The report and recommendation of the magistrate, Filing No. 30, is adopted.
3. Plaintiff's motion to remand, Filing No. 13, is granted.
4. Defendant's motion to compel arbitration, Filing No. 10, is denied without prejudice.
5. This action is remanded to the District Court of Lancaster County, Nebraska.