No Jurisdiction Over Foreign Insurer Absent a Defense Obligation

By Don R. Sampen, published, Chicago Daily Law Bulletin October 21, 2019

The 7th U.S. Circuit Court of Appeals recently held that Taiwanese insurers that provided additional insured coverage lacked sufficient contacts with the insured’s home state to be sued for contribution or subrogation in that state by the insured’s direct primary insurer.

The case is Lexington Insurance Co. v. Hotai Insurance Co., 2019 U.S. App. Lexis 27483 (7th Cir., Sept. 12, 2019). The direct insurer, Lexington, was represented by Nicolaides Fink Thorpe Michaelides Sullivan LLP. Skarzynski Marick & Black LLP represented one of the Taiwanese insurers, Zurich Insurance Taiwan Ltd. Leib Knott Gaynor in Milwaukee represented the other Taiwanese insurer, Taian Insurance Co. Ltd.

Lexington provided direct general liability and commercial umbrella coverage for Trek Bicycle Corp., in Waterloo, Wis. Under an agreement with one of its customers, Trek was an additional insured under a policy issued by Zurich Taiwan to the customer.

In addition, under an agreement Trek had with one of its parts suppliers, Trek was an additional insured under a policy issued by Taian to the supplier.

Both additional insurers were headquartered in Taiwan. The two policies, among other things, each provided “worldwide” coverage, gave the respective insurer the right but not the obligation to defend the additional insured and required that disputes between the insurer and insured be resolved by arbitration in Taiwan.

In 2012, a Louisiana resident was injured while riding a Trek bicycle in Texas. The injured rider brought suit for damages against Trek in Texas. Neither the customer nor supplier with whom Trek had the additional insured relationships were brought into the lawsuit. Lexington defended Trek and eventually settled.

Lexington then brought the instant suit in Wisconsin against Zurich Taiwan and Taian for contribution and equitable subrogation. The defendants moved to dismiss for lack of personal jurisdiction. They argued, among other things, that their policies were contracts between Taiwanese companies, drafted and signed in Taiwan and governed by Taiwanese law.

The U.S. District Court found that it lacked personal jurisdiction and dismissed. Lexington filed this appeal.

Analysis

In an opinion by Judge Amy Coney Barrett, the 7th Circuit affirmed. She initially reviewed the general requirements for personal jurisdiction, drawing a distinction between general and specific jurisdiction. General jurisdiction is all-purpose and requires that the defendant’s contacts be so continuous and systematic as to render the defendant “at home” in the forum state. Lexington did not argue for general jurisdiction.

Specific jurisdiction, on the other hand, (a) requires that the defendant purposefully avail itself of the opportunity of conducting business in the state or purposefully direct activities at the state, (b) requires that the injury have arisen out of the defendant’s forum-related activities and (c) involves the application of notions of fair play and substantial justice.

Barrett emphasized that specific jurisdiction focuses on the defendant’s contacts with the forum state, not the defendant’s contacts with persons who reside there. In this case, she noted, neither additional insurer visited Wisconsin or contacted anyone residing there. And the worldwide nature of the coverage was not in itself sufficient to establish jurisdiction.

Nor was the fact that the insurers had a contractual obligation specifically to Trek. The reason is that a contract with a forum resident is not enough. Rather, Lexington must show that the additional insurers reached out to Wisconsin during the contract formation process. But no evidence showed that they did.

Additionally as to “worldwide coverage,” Barrett said that an insurer merely gaining a financial benefit by including Wisconsin in a territory of coverage was not the equivalent of “doing business in” Wisconsin. Rather, the defendant must actually have conducted activities within the forum state.

Barrett cited World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980), for the proposition that a financial benefit gained by selling a product with the purpose and ability of traveling to distant forums is not itself business activity within those forums.

By analogy, the mere foreseeability that Trek might be sued anywhere in the world, including Wisconsin, is not alone a sufficient benchmark for jurisdiction.

Most of the cases relied on by Lexington, moreover, Barrett said, involved an insurance policy with a duty-to-defend clause. Hence, she acknowledged that if the additional insurers had assumed a duty to defend Trek in any jurisdiction, “this might be a different case.”

But the defendants here had the right but not the duty defend, so the expectation of being haled into court in a foreign state was not a feature of either policy. The fact that they promised to indemnify Trek no matter where it incurred liability did not require them to make purposeful contact with a state where Trek was sued. In short, the absence of a duty to defend was decisive.

The court, therefore, affirmed in favor of the additional insurers.

Key point

Specific personal jurisdiction may not be exercised over an insurance company providing insurance coverage not imposing the duty to defend, where the basis for jurisdiction is the insurer’s indemnity obligation alone.