In Midwest Employers Cas. Co. v. Legion Ins. Co. (In Liquidation), No. 4:07CV870 CDP (E.D. Mo. Nov. 7, 2007), Midwest Employers Casualty Company (“MECC”) sought a declaration that the demand for arbitration from Legion Insurance Company under forty-three reinsurance contracts that did not contain arbitration clauses was null and void.  MECC also sought a permanent injunction barring Legion from pursuing arbitration against MECC under those contracts and declaratory relief with regard to its liability under the contracts.  Consequently, Legion sought to dismiss or stay MECC’s action on the grounds that a resolution of the dispute in federal court would interfere with the receiver’s control of Legion or frustrate Pennsylvania’s interest in the insolvency proceedings.

In denying Legion’s motion to dismiss or abstain, the Court concluded that the contract dispute was an action in personam, instead of in rem, and that the Princes Lida doctrine, under which the first court to assume jurisdiction over property in a suit in rem must maintain and exercise that jurisdiction to the exclusion of other courts, did not apply.  The Court reasoned that although the liquidation proceeding was in rem, the issue before the Court was not to determine ownership rights in the reinsurance contracts, but rather to determine Legion’s and MECC’s rights under those contracts, thus making the case an in personam proceeding.

The Court also disagreed with Legion’s argument that the McCarran-Ferguson Reverse Preemption Doctrine applied, because MECC was not a creditor of Legion was not seeking to alter the distribution of Legion’s assets.  Allowing MECC’s suit to go forward would not impair the Pennsylvania insurance regulatory scheme, nor did the case involve Pennsylvania’s regulation of insurance.  Click here to review the court’s decision.