Seventh Circuit Holds that Service of Suit Clause in Insurance Contract Waives Right of Removal

by Uri Abt

The Seventh Circuit recently weighed in on the meaning and effect of a “service of suit” clause in a reinsurance treaty.  In Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., 2015 WL 8780611, – F.3d – (7th Cir. Sept. 1, 2016), the Court held that a service of suit clause gave the insured the right to pick the jurisdiction and venue for bringing suit and, it followed, waived the insurer’s right to remove the suit to federal court.

The plaintiff was an assignee of some of the assets of a liquidated insurance company.  Included among the assigned assets where claims under two reinsurance treaties.  Defendant, a company incorporated in the United Kingdom, had assumed the treaty obligations from a Japanese insurance company.  Plaintiff sued for breach of contract in Illinois state court and defendant removed to federal court.  The reinsurance treaties both contained a service of suit clause that stated:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.  Id. at **2-3.

Based on this language, the district court remanded the case to state court.  The appellate court affirmed. 

Noting that a number of its sister circuits have held that service of suit clauses waive the right to removal, the Court held that the clause “unambiguously grants [plaintiff] the absolute right to choose the forum for litigating this matter and the district court properly concluded that to allow removal would be to ignore the contractual term’s plain and ordinary meaning.”  Id. at **3, 6.  The Court rejected the defendant’s argument that a mandatory arbitration clause created a contract ambiguity.  It reasoned that, reading the reinsurance treaty as a whole, the defendant was required to submit to the court of plaintiff’s choice “whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or resolve on the merits, a claim not subject to arbitration.”  Id. at *5.

Similar service of suit clauses and endorsements are frequently included in all types of insurance contracts.  Given the strong and broad language of the opinion, the Pine Top decision could provide guidance to the interpretation of service of suit clauses in the context not just of removal, but of other types of forum and jurisdiction disputes as well.