Insurance companies that offer worldwide coverage should take notice.1 Contracting to provide such broad coverage may subject insurers to personal jurisdiction of the US courts in states where the insured resides or the covered event occurs – even if the insurance company has no employees, agents or offices in the state and does not otherwise conduct business there. In July 2012 the US Court of Appeals for the Fourth Circuit (the Court) ruled that a district court can exercise personal jurisdiction in precisely those circumstances. The Court reasoned that exercising personal jurisdiction over the insurer was a fair quid pro quo for the increased premiums the insured paid for worldwide coverage. Further, because the insurance company contracted to defend the insured throughout the policy territory, the exercise of personal jurisdiction was not unreasonable.While other means to avoid litigating in an undesirable forum remain available, insurance companies should not count on successfully challenging personal jurisdiction after agreeing to cover an insured anywhere in the world.
The Fourth Circuit’s ESAB Decision
In ESAB Group, Inc. v. Zurich Insurance plc,2 the US Court of Appeals for the Fourth Circuit affirmed the district court’s exercise of personal jurisdiction over Zurich Insurance plc (Zurich). The decision is binding law on all federal district courts in Maryland, Virginia,West Virginia, North Carolina and South Carolina. Further, because it is a decision from one of the 11 US federal appellate courts, the ESAB decision will be persuasive, though not binding, legal precedent in the other federal district courts and state courts throughout the US. The Court’s decision has significant implications for insurance companies that offer worldwide coverage.
Zurich had issued multiple global liability policies to ESAB. The policies covered occurrences “worldwide.” The policies selected Swedish law for the resolution of disputes and were executed outside the US by foreign companies.
ESAB requested that Zurich defend and indemnify it in numerous product liability lawsuits filed in various state and federal courts throughout the US.When coverage was declined, ESAB filed a lawsuit against Zurich in South Carolina state court. Zurich removed the case to the US District Court for the District of South Carolina.
Zurich argued that it did not have the minimum contacts with South Carolina necessary to support personal jurisdiction and sought dismissal of the case. Specifically, Zurich: (i) had no employees, agents, offices or property in South Carolina; (ii) was not licensed as an insurer by South Carolina; and (iii) did not regularly conduct business in South Carolina. The district court rejected Zurich’s argument, finding its contacts with South Carolina sufficient to exercise personal jurisdiction.
On appeal, the Fourth Circuit applied the three-part due process test to determine whether the exercise of personal jurisdiction over Zurich was proper. The test examined: (i) the extent to which Zurich “purposefully availed itself of the privilege of conducting activities” in South Carolina; (ii) whether ESAB’s claims against Zurich arose from those activities; and (iii) whether exercising personal jurisdiction over Zurich was “constitutionally reasonable.” Because Zurich did not dispute that ESAB’s claims arose from conduct in ESAB’s home state of South Carolina, the Court only addressed the first and third prongs of the test.
Citing its prior opinion in Rossman v. State Farm Mutual Automobile Insurance,3 the Court recognized two “unique aspects of the business of insurance” relevant to the personal jurisdiction analysis. First, an insurer’s agreement to defend an insured within a specified policy territory indicates the insurer’s willingness to litigate in courts throughout that policy territory. Second, because a broad policy territory induces sales and increases premiums, the insurer’s contacts with the policy territory are purposeful.
Focusing on those two aspects of insurance, the Court determined that both the first and third parts of the personal jurisdiction test were satisfied. The Court concluded that Zurich “targeted” South Carolina and “purposefully availed itself of the privilege of conducting business under South Carolina law” by contracting to provide worldwide coverage for occurrences and charging ESAB higher premiums for it. The exercise of personal jurisdiction was also reasonable because Zurich indicated that it would not be overly burdensome to litigate in South Carolina by contracting to cover ESAB worldwide. Additionally, the interest of South Carolina in protecting its own corporations and ESAB’s interest in the convenience of litigating in its home state outweighed any inconvenience to Zurich. Accordingly, the Fourth Circuit affirmed the district court’s decision to exercise personal jurisdiction. This ruling is consistent with decisions from other circuits in the US, further strengthening the majority view among the circuits of the US courts that insurance companies can be subjected to personal jurisdiction throughout the policy territory.4
Can Insurance Companies Do Anything to Avoid Litigating in an Undesirable Forum?
Yes. Insurance companies can minimize the risk of litigating in an undesirable forum. Consider incorporating mandatory forum selection (jurisdiction) clauses in future policies to dictate where disputes with an insured will be resolved. Courts in the US regularly enforce those clauses, making them a valuable and effective tool for preventing litigation in undesirable places. Another alternative to consider is an arbitration clause that requires the arbitration of any disputes with the insured, thereby avoiding the court system.
If a lawsuit is filed, the insurance company can seek to dismiss the case on forum non conveniens grounds or request a transfer to a more convenient district court. Pursuant to the doctrine of forum non conveniens, a court can decline to exercise its jurisdiction when the parties’ convenience, the court’s convenience, and the relevant public and private interests weigh in favor of litigating in a different forum.5 Similarly, Section 1404(a) of the United States Code permits a federal district court to transfer a case to another appropriate district “for the convenience of parties and witnesses” and “in the interest of justice.”6
Other alternatives may be available depending upon the particular circumstances of the matter.