NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC. V. AIG, ET AL
(NORTHERN DISTRICT OF ILLINOIS AUGUST 20, 2009)
The issue before the district court is whether the National Council of Compensation Insurance, Inc. (“NCCI”) had standing to assert claims involving a National Workers Compensation Reinsurance Pool (“Pool”). The Pool is an unincorporated active association that provides an insurance company with a means of complying with residual market requirements. To become part of the Pool, insurers must execute a contract stating that the NCCI is the administrator and would allow NCCI to “execute the quota share reinsurance contracts on behalf of the pariticpating companies” as well as performing all accounting, actuarial and administrative functions. According to the complaint, NCCI’s main function was to “calculate ‘the reinsurance pariricpation rate’ for each pariticpating Company.” In 2005, New York State regulators revealed that AIG had “provided false reports of its workers compensation premiums to NCCI and state authorities to evade its residual market obligations.” The unreported premiums totaled between 300 and 400 million dollars. In 2006, AIG settled the claims with state and federal authorities to the tune of 1.6 billion dollars. A year later, NCCI commenced this action against AIG and others for AIG’s alleged false reports and the under reporting of premium data. NCCI was listed on the complaint “solely as Attorney-In-Fact for the pariticpating companies.” AIG, in turned, moved to dismiss the complaint for the reason that this court lacks subject matter jurisdiction because there is no controversy between NCCI and AIG.
NCCI argued that it has standing by reason of its capacity as the Pool’s Attorney-in-Fact. Moreover, NCCI argued that it has suffered a direct injury because NCCI “relied on AIG’s misleading data in calculating and allocating the premium, losses, and expenses of the residual market.” Furthermore, NCCI claims it suffered a direct injury because AIG’s actions “undermined the integrity of the allocation mechanism causing it to fail and compromise the purpose of the Pool.” Finally, in the alternative, NCCI argued that it has standing as the Pool’s bailee and trustee. The District Court disagreed with each of NCCI’s positions on standing.
With respect to direct injury, the Court, in reviewing the Complaint, revealed that it alleges only that the Participating Companies in the Pool suffered harm, not NCCI. Moreover, with respect to the NCCI’s assertion under the theory of bailment, NCCI failed to articulate that it had an exclusive right under the contracts separate and distrinct from the Pool’s agreements. Without that link the Court determined that NCCI could not establish a bailor-bailee relationship. Furthermore, NCCI failed to establish a trustee relationship as the contracts and Pool did not create a trust in which NCCI could assert any rights. As a result, the District Court dismissed the Complaint without prejudice.
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Daniel W. Gerber and Jeffrey L. Kingsley
https://www.goldbergsegalla.com/attorneys/Gerber.html
https://www.goldbergsegalla.com/attorneys/Kingsley.html