The United States District Court for the Eastern District of Pennsylvania recently ruled that a non-signatory insured was obligated to arbitrate her claims against a reinsurer pursuant to the reinsurance contract’s arbitration provision, finding that the insured was a third-party beneficiary of that contract. Doeff v. Transatlantic Reinsurance Co., No. 07-2110 (E.D. Pa., Dec. 13, 2007). In Doeff, the insured psychiatrist purchased malpractice coverage through the Psychiatrists' Purchasing Group Inc. (“PPG”) from Transatlantic Reinsurance Co. (“TRC”), using Legion Insurance Company (“Legion”) as a fronting carrier to comply with Pennsylvania insurance regulations. Doeff was sued for malpractice in state court and Legion initially defended. During the litigation, however, Legion withdrew its defense and a judgment was later entered against Doeff. Thereafter, Legion was declared insolvent and ordered into liquidation. During that same period, a Pennsylvania state court ruled that Legion’s insureds were third-party beneficiaries of Legion’s reinsurance contracts with TRC, and thus could assert direct actions against TRC. See Koken v. Legion Ins. Co., 831 A.2d 1196 (Pa. Cmwlth. 2003), aff’d, Koken v. Villanova Ins. Ca., 878 A.2d 51 (Pa. 2005).

Doeff brought an action against TRC for Legion’s breach of contract, breach of covenant of good faith and fair dealing, and insurance bad faith, and also asserted a bad faith action against TRC for its own conduct. TRC moved to compel arbitration, arguing that Doeff, as a third-party beneficiary of the reinsurance agreement, was bound to arbitrate the dispute. TRC further argued that Doeff was equitably estopped from renouncing the arbitration provision and at the same time seeking to invoke the benefits of that same contract.

Relying on Legion and Villanova, the District Court granted TRC’s motion to compel arbitration, finding in favor of TRC on its third-party beneficiary and equitable estoppel arguments. Click here to review a copy of the Court’s decision.