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GLOBAL CORP. v. EQUITAS LTD.
18 N.Y.3d 722 (2012)
2012 NY Slip Op 2251
GLOBAL REINSURANCE CORPORATION-U.S. BRANCH, Formerly Known as GERLING GLOBAL REINSURANCE CORPORATION-U.S. BRANCH, Respondent,
v.
EQUITAS LTD. et al., Appellants.
No. 53.
Court of Appeals of New York.
Argued February 15, 2012.
Decided March 27, 2012.
Judges CIPARICK, GRAFFEO, READ and JONES concur with Chief Judge LIPPMAN; Judge SMITH concurs in a separate opinion, except insofar as Chief Judge LIPPMAN's opinion discusses whether the allegations of the complaint would state a claim under the federal antitrust laws, in which Judge PIGOTT concurs.
OPINION OF THE COURTChief Judge LIPPMAN. At issue is the sufficiency and extraterritorial reach of plaintiff's claim under New York State's antitrust statute, commonly known as the Donnelly Act (General Business Law § 340 et seq.). Plaintiff is a New York branch of a German reinsurance corporation. Defendants (hereinafter collectively referred to as Equitas) are London, England based entities engaged in the business of providing retrocessionary reinsurance. Retrocessionary reinsurers, or retrocessionaires as they are known, write coverage for risks ceded to them by reinsurers, in this transactional context referred to as "cedents." According to the complaint, this action arises from practices employed in connection with the handling of claims made under retrocessional reinsurance treaties providing what is known as "non-life" coverage. Among the risks insured under this heading are those of environmental, catastrophic and asbestos related origin. Liabilities under policies insuring such risks typically are of the "long tail" variety; they may surface long after the policy period and it is clear in retrospect that underwriters did not accurately appreciate the magnitude of "non-life" risks or the unusual persistence of the liability they would engender. Over the years, Lloyd's of London, an insurance marketplace composed of numerous competing insurance syndicates, themselves composed of individual underwriting participants (natural persons referred to as Names), issued, through its syndicates substantial non-life retrocessional coverage. By the early 1990s, it became evident that the liabilities arising under this coverage were mounting at an alarming rate and would soon outstrip the syndicates' reserves. The syndicates individually proved unable to respond to this impending crisis, in significant part because in competing with each other for prospective business it was their practice to pay retrocessionary claims without haggling and without imposing onerous administrative burdens on their cedents. It was thus proposed that, since individual action by the syndicates to limit
liability by more closely scrutinizing claims would be commercially unviable, the Names should agree to repose decision making with respect to the handling of certain liabilities arising under pre-1993 Lloyd's non-life retrocessionary coverage, in a newly created entity—a reinsurer that would, because it would be in perpetual "run-off" (i.e., merely concluding obligations under existing coverage and not soliciting new business), be free to adopt a more aggressive approach to the handling of claims. This proposal, as set forth by the governing body of Lloyd's in a "Reconstruction and Renewal Plan" (R&R plan), was approved by the Names and subsequently reviewed and found unobjectionable by United Kingdom and European Union antitrust regulatory authorities, i.e., the United Kingdom Department of Trade and Industry and the European Commission.1
1. The R&R plan was also submitted for comment to various US government agencies, among them the New York State Department of Insurance, which registered no objection.
2. In 2009, Equitas, with the approval of the British High Court undertook finally to relieve the Names of their obligations under the retrocessional treaties at issue (see Matter of Names at Lloyd's for the 1992 & Prior Years of Account, Represented by Equitas Ltd., [2009] EWHC 1595 [Ch], 2009 WL 1949482 [July 7, 2009]).
3. Under section 9.2 (a) of the RROC, Equitas was authorized "to adjust, handle, agree, settle, pay, compromise or repudiate any Claim, return premium, reinsurance premium or any other insurance or reinsurance liability on behalf of the Syndicate or Closed Year Syndicate."
4. This amendment, as the parties then understood, would be essential to the action's survival, since there was no factually plausible contention that the Lloyd's marketplace was the relevant market in assessing whether Equitas's claims handling practices had an anticompetitive effect upon the retrocessional non-life insurance market.
5. The relevant allegations are contained in paragraph 36 of the complaint: "36. In 1993, in 1996, at the time this action was commenced, and currently, the Lloyd's syndicates collectively had market power in the worldwide market for retrocessional coverage.
"(a) In 1993, in 1996, at the time this action was commenced, and currently, the Lloyd's marketplace was the single most significant seller of most forms of non-life retrocessional coverage to reinsurers worldwide.
"(b) In 1993, in 1996, at the time this action was commenced, and currently, the Lloyd's marketplace provides the benchmark for prices, terms, and conditions for most forms of non-life retrocessional coverage.
"(c) In 1993, in 1996, at the time this action was commenced, and currently, any reinsurer, and any reinsurance broker, wishing to purchase retrocessional coverage would have to at least consider approaching Lloyd's for quotes and would have to take into account the terms and conditions offered by various Lloyd's syndicates in determining what to purchase, and on what terms.
"(d) For many lines of retrocessional business, and in many years, competition within the Lloyd's marketplace is more significant to prospective purchasers of retrocessional coverage than is competition between Lloyd's as a whole and other sellers, because Lloyd's is expected to, and does, set the lead in establishing coverage."
6. Although there are Appellate Division decisions recognizing this basic requirement of a Donnelly Act claim (see e.g. Creative Trading Co. v Larkin-Pluznick-Larkin, Inc., 136 A.D.2d 461, 462 [1st Dept 1988]), there do not appear to be any cases from our Court. It does not seem, however, that there would be much room for doubt as to the requirement. It is logically necessary to a coherent allegation of a trade restraint and has been recognized by federal courts in assessing the adequacy of pleadings alleging violations under the Sherman Act (15 USC § 1 et seq.; see e.g. Newcal Indus., Inc. v Ikon Off. Solution, 513 F.3d 1038, 1045 [9th Cir 2008], cert denied 557 US ___, 129 S.Ct. 2788 [2009]), after which the Donnelly Act is modeled (see State of New York v Mobil Oil Corp., 38 N.Y.2d 460, 463 [1976]).
7. The Donnelly Act claim and the pendent claim for injunctive relief were all that remained of the complaint following the motion court's earlier dismissal of plaintiff's tortious interference claim.
8. Although, as noted (see supra at 729), the second amended complaint, while alleging a worldwide product market, retained its claim of a distinct submarket confined to Lloyd's, the latter is not a legally viable allegation. Product markets are defined for antitrust purposes by applying the rule of "reasonable interchangeability" (see Todd v Exxon Corp., 275 F.3d 191, 201 [2d Cir 2001]) and, particularly in light of the second amended complaint's allegation that the relevant market is global, i.e., that the subject Lloyd's product is interchangeable with retrocessional reinsurance products available worldwide, there is no plausible explanation for the persisting submarket allegation (see id. at 200). Global, accordingly, appears to have abandoned its submarket claim.
9. There is no contention in this case of a per se violation; whether any restraint on trade for which defendants are shown to have been responsible was unreasonable is a bona fide issue in this litigation. There is no dispute that the purported conspiracy arose as a response to the impending ruin of the Lloyd's marketplace, an event that defendants contend would have significantly reduced competition in the world market for retrocessional non-life coverage.
10. There is no contention that the reinsurance product purchased by plaintiff at the Lloyd's marketplace was an import. Nor are there allegations that the alleged conspiracy was directed at any defined import market in this country (see Animal Science Prods., Inc. v China Minmetals Corp., 654 F.3d 462, 471 n 11 [3d Cir 2011]).
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