A New York federal court recently found that a lawsuit commenced by two insurance companies in run-off, Seaton Insurance Company and Stonewall Insurance Company, against their run-off manager, defendant Cavell USA Inc. and its principal, Ken Randall, was subject to the exclusive jurisdiction of the English courts, granting defendants’ motion to dismiss on that basis.  See Seaton Ins. Co. and Stonewall Ins. Co. v. Cavell USA Inc. and Ken Randall, No. 07-cv-7032 (S.D.N.Y. May 14, 2008).

In the late 90s, Cavell entered into so-called “administration agreements” with Seaton and Stonewall whereby Cavell agreed to perform certain services in connection with the run-off of those companies.  In 2006, the parties entered into a commercial disengagement pursuant to an agreement known as the Term Sheet, the purpose of which was to govern the winding-down and termination of their commercial and contractual relationships.  Under the Term Sheet, Seaton and Stonewall agreed to release defendants from future claims, except those sounding in fraud.  The Term Sheet contained a forum selection clause, which provides that the Term Sheet “shall be governed by and construed in accordance with English law and the parties submit to the exclusive jurisdiction of the English courts.”

In 2007, Seaton and Stonewall commenced an action in the United States District Court for the Southern District of New York accusing defendants of fraudulent misconduct in connection with the administration agreements.  Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(3) and 12(b)(6) arguing, among other things, that the Term Sheet contained express language mandating that England was the exclusive forum for the parties to resolve any and all disputes arising out of their prior contractual relationships.  Seaton and Stonewall opposed defendants’ motion to dismiss arguing, among other things, that the forum selection clause did not apply to the fraud claims, because they were expressly carved out from the Term Sheet.  The court found that (1) the forum selection clause was mandatory with regard to the selection of England as the exclusive jurisdiction for the parties’ disputes; (2) the fraud claims stemmed from the parties’ contractual relationships; and (3) that such claims “ultimately hinge[d] on the rights and duties” set forth in the Term Sheet. As such, the court found that Seaton’s and Stonewall’s claims fell squarely within the scope of the Term Sheet and granted the Rule 12(b)(1) and Rule 12(b)(3) prong of defendants’ motion to dismiss in favor of the English forum.

Click here to review a copy of the District Court’s decision.