United States District Court, D. Connecticut
CHARTER OAK OIL CO., INC. d/b/a AIELLO HOME SERVICES, Plaintiff,
APPLIED UNDERWRITERS, INC.,, Defendants.
RULING AND ORDER
R. UNDERHILL, UNITED STATES DISTRICT JUDGE.
diversity action, the plaintiff, Charter Oak Oil Co., d/b/a
Aiello Home Services (“Aiello”), alleges that its
workers' compensation insurer, Applied Underwriters, Inc.
(“Applied”) and its affiliates, are liable for
multiple violations of Connecticut insurance, unfair trade
practice, and securities laws. The underlying dispute in this
case involves a series of insurance and reinsurance contracts
between Aiello and the defendants. One of the disputed
contracts contains a mandatory forum selection clause
requiring the parties to bring all suits in the State of
Nebraska. Applied and its co-defendants, which are
corporations based in Nebraska, Iowa, and California, have
moved to enforce the forum selection clause by dismissing
this case or, in the alternative, by transferring it to the
agreed forum, the United States District Court for the
District of Nebraska. Aiello opposes the motion, arguing that
Nebraska law precludes the enforcement of forum selection
clauses that impose an unreasonable inconvenience on the
August 7, 2017, I held oral argument on the defendants'
motion to dismiss or transfer. For the reasons detailed
below, that motion is denied.
Standard of Review
defendants brought their original motion to dismiss for
improper venue under Rule 12(b)(3) of the Federal Rules of
Civil Procedure. Def.'s Mot. Dismiss, Doc. No. 13. Rule
12(b)(3) is an inappropriate method to enforce forum
selection clauses when the plaintiff's chosen venue
otherwise satisfies 28 U.S.C. § 1391. See Atl.
Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. of
Tex., 134 S.Ct. 568, 578 (2013). The defendants not make
any arguments in support of Rule 12(b)(3) dismissal in their
brief; they appears to exclusively pursue transfer under 28
U.S.C. § 1404(a) or dismissal under forum non
conveniens in the alternative. See Def.'s
Br., Doc. No. 13-1.
forum selection clause may be enforced through transfer to
another federal district court under section 1404(a) if the
destination forum is another federal district, or by
dismissal under forum non conveniens if the movant
seeks transfer to a state or foreign jurisdiction. Atl.
Marine, 134 S.Ct. at 579-80. The distinction between
forum non conveniens dismissal and section 1404(a)
transfer is a procedural formality because the two mechanisms
share a common doctrinal foundation. See Atl.
Marine, 134 S.Ct. at 580 (“Section 1404(a) is
merely a codification of the doctrine of forum non
conveniens . . . [it] ‘did not change “the
relevant factors” which federal courts used to consider
under the doctrine of forum non
conveniens'.” (quoting Stewart Org., Inc.
v. Ricoh Corp., 487 U.S. 22, 37 (1988) (Scalia, J.
dissenting))). The legislative intent of section 1404(a),
however, strongly weighs against outright dismissal when
there is an alternative federal forum to which the case could
be transferred. See Atl. Marine, 134 S.Ct. at 580
(“[When] the transferee forum is within the federal
court system . . . Congress has replaced the traditional
remedy of outright dismissal with transfer.”);
Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253-54
(1981) (Congress intended section 1404(a) as a
“housekeeping measure” with a “remedial
purpose” to allow “easy change of venue within a
unified federal system”); Norwood v.
Kirkpatrick, 349 U.S. 29, 32 (1955) (“Congress, in
writing [section] 1404(a) . . . was revising as well as
codifying. The harshest result of the application of the old
doctrine of forum non conveniens, dismissal of the action,
was eliminated by the provision in [section] 1404(a) for
evaluating motions to dismiss or transfer based on forum
selection clauses, a district court typically relies on
pleadings and affidavits from the parties. Martinez v.
Bloomberg LP, 740 F.3d 211, 216 (2d Cir. 2014) (citing
Phillips v. Audio Active Ltd., 494 F.3d 378, 384 (2d
Cir. 2007)). For reasons discussed infra, courts
applying section 1404(a) generally give “controlling
weight” to any valid forum selection clauses that
parties include in a written agreement. Atl. Marine,
134 S.Ct. at 579.
underlying dispute in this case concerns a novel insurance
product known as “EquityComp” provided by Applied
and its affiliates: California Insurance Company
(“CIC”), Applied Risk Services
(“ARS”), and Applied Underwriters Captive Risk
Assurance Company, Inc. (“AUCRAC”). Applied marketed
the EquityComp program to businesses throughout Connecticut
as a workers' compensation insurance plan that would
deliver substantial cost savings to insureds as long as
workplace injury claims were minimized. Compl. at ¶ 10,
Doc. No. 1-1; Notice of Removal at 8, Ex. C, Doc. No. 1-3. In
November 2013, Aiello sought to purchase workers'
compensation insurance through Sinclair Insurance Group, a
Connecticut-based broker. Pl.'s Br. at 3, Doc. No. 16.
Applied provided Aiello with a proposal for the EquityComp
program. Id. After reviewing that proposal, Aiello
requested that Sinclair issue a binder of workers'
compensation insurance coverage through Applied. Id.
Michael Jezouit, Aiello's president, executed a formal
binder request November 14, 2013. Notice of Removal at 13,
Ex. C, Doc. No. 1-3. In that binder request, Jezouit
acknowledged that the issuance of insurance by Applied or its
affiliates was contingent on Aiello's execution of a
supplemental “Reinsurance Participation
Agreement” (“RPA”). Id. Jezouit
executed the RPA with AUCRAC on November 14, 2013. Def.'s
Mot. Dismiss at 5, Ex. B, Doc. No. 13-4 (hereinafter
“RPA Contract”). CIC issued its first
workers' compensation policy to Aiello on November 15,
2013. Notice of Removal at 2, Ex. D, Doc. No. 1-4.
structured the EquityComp program as a traditional
workers' compensation policy coupled with a reinsurance
facility in which the policyholder was required to
participate. Notice of Removal at 8, Ex. C, Doc. No. 1-3.
Aiello's traditional workers' compensation policy was
written by CIC, who was the only Applied affiliate that was
licensed to sell and issue insurance policies in the State of
Connecticut. RPA Contract at 4, Doc. No. 13-4; see
also discussion supra note 1. AUCRAC, the
administrator of the reinsurance facility, entered into a
treaty with CIC to reinsure losses under Aiello's
workers' compensation policy. RPA Contract at 4, Doc. No.
13-4. AUCRAC, through the RPA, simultaneously entered into an
agreement with Aiello that obligated Aiello to provide
funding for a “segregated protected cell” within
AUCRAC's reinsurance facility. Id.
network of agreements had the practical effect of making
Aiello act as its own reinsurer. Unlike traditional
reinsurance mechanisms, the funds in Aiello's segregated
cell were not pooled with those of similar cells funded by
other EquityComp policyholders. Id. Aiello's
basic obligation under the RPA was to apply the funds from
its segregated cell toward the losses accrued under its own
CIC workers' compensation policy, up to 128% of a
predetermined annual “Loss Pick Containment
Amount.” Id. at 9. There were three
primary ways in which the segregated cell would be funded.
First, Aiello was responsible for maintaining “capital
deposits” in the cell equal to 10% of the Loss Pick
Containment Amount. Id. Second, AUCRAC would help
fund the segregated cell by periodically allocating a partial
refund of “excess” premiumspaid by Aiello to
CIC; that amount was calculated quarterly according to a
complex formula in which the total collected premiums were
adjusted by factors that reflected Aiello's loss
activity.Id. at 9-10. Finally, if
Aiello's capital deposits and AUCRAC's premium
allocations were insufficient to cover the policy's
aggregate losses (up to the 128% threshold), Aiello was
responsible for providing additional capital deposits into
the segregated cell to make up the difference. Id.
The RPA designated ARS as the “billing agent”
with responsibility for “tru[ing] up” any amounts
owed among the parties. Id. at 5. Applied acted as
the overall administrator of the EquityComp program, issuing
monthly statements that documented Aiello's current
policy costs and the estimated total costs to be incurred at
the end of the three-year program. Compl. at ¶ 27, Doc.
enrolled in the EquityComp program for a three-year term.
Notice of Removal at 13, Ex. C, Doc. No. 1-3. During that
period, CIC issued three one-year insurance policies; Aiello
renewed its coverage on November 15, 2014 and November 15,
2015. Jezouit Aff. at ¶¶ 7-8, Doc. No. 16-1. During
its three years of participation in EquityComp, Aiello paid
all premiums due through a monthly electronic funds transfer
from its Connecticut bank account. Id. at ¶ 10.
For the first two years, Aiello appears to have had no
disputes regarding its premium payment obligations under the
EquityComp program. See Compl. at ¶¶
25-31, Doc. No. 1-1. In April 2016, Aiello received a
statement from Applied assessing an additional premium charge
of $195, 786.52, and reporting total estimated costs nearly
$200, 000 higher than the previous month's total cost
estimate. Id. at ¶ 32. Aiello was
“shocked” by the additional premium charge and
questioned the increased premium through its insurance
advisor. Id. at ¶ 34. Applied responded that
the extra premium charge was due to the application of a
to a previously closed claim that had been reopened. The LDF
used by Applied was allegedly higher than any figure that
Aiello had contemplated, because it did not appear in any of
the EquityComp quote materials. Id. at ¶ 35.
Aiello attempted to cancel its policy, but Applied informed
the company that there would be financial penalties for early
cancellation. Id. at ¶¶ 37-38. Aiello
decided to complete the policy term and made arrangements
with Applied to pay the outstanding premium balance via an
installment plan. Id. at ¶ 40-41. To implement
the payment plan, Applied offered Aiello a promissory note
for $54, 886.52, which Aiello executed. Id. at
did not renew its EquityComp coverage following the
expiration of the three-year term on November 15, 2016.
Jezouit Aff. at ¶ 15, Doc. No. 16-1. In December 2016,
Aiello received a statement from Applied demanding $264, 277
in unpaid premiums. Id. On December 15, 2016,
Applied attempted to electronically transfer funds from
Aiello's bank account in the amount of $264, 677.38.
Id. at ¶ 16; Compl. at ¶ 50, Doc. No. 1-1.
Aiello placed a hold on its bank account to prevent the
transfer of the disputed funds. Jezouit Aff. at ¶ 16,
Doc. No. 16-1. In January 2017, Aiello received a letter from
Applied claiming that Aiello owed an additional $268, 646.38
in unpaid premiums. Id. at ¶ 17. Applied sent
another letter in February 2017 demanding that Aiello pay
$236, 352.71. Id. at ¶ 20. That amount was less
than Applied demanded in its January 2017 letter, and both
the January and February letters sought a different amount
than Applied attempted to electronically transfer in December
2016. Id. With each letter, Applied attached
EquityComp statements that explained that the past-due amount
under the “Worker's Compensation Program” was
calculated “based upon [Aiello's] actual claims
applying run-off Loss Development Factors (LDF's) and an
additional capital deposit of $48, 000.” See,
e.g., Pl.'s Br. at 4, Ex. D, Doc. No. 16-5.
March 28, 2017, Aiello filed suit in Connecticut Superior
Court, Judicial District of Hartford, alleging that Applied
and its affiliates violated the Connecticut Unfair Insurance
Practices Act (CUIPA), Conn. Gen. Stat § 38a-816, the
Connecticut Unfair Trade Practices Act (CUTPA), Conn. Gen.
Stat. § 42-110g, and the Connecticut Uniform Securities
Act, Conn. Gen. Stat. § 36b-29. See Compl. at
¶¶ 65-93, Doc. No. 1-1. Aiello also sought a
declaratory judgment that the unpaid premiums and capital
deposit demanded by Applied were not based upon any premium
calculation factors on file with the Connecticut Department
of Insurance, and the disputed premiums were therefore
unenforceable under Connecticut law. Id. at
¶¶ 55-64. Applied and its affiliates filed a Notice
of Removal with this court pursuant to 28 U.S.C. §§
1332, 1441, and 1446. Notice of Removal at 1, Doc. No. 1.
This motion to dismiss followed.
Contract contains a choice-of-law provision specifying that
the agreement is to be construed exclusively under the laws
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Nebraska
without giving effect to any choice or conflict of law
provision . . . that would cause the application of Laws of
any jurisdiction other than those of the State of Nebraska.
Contract at 6, Doc. No. 13-4. The agreement also contained a
forum selection clause that was one of only two clauses in
the agreement printed in capital letters:
ANY LEGAL SUIT, ACTION, OR PROCEEDING ARISING OUT OF, RELATED
TO OR BASED UPON THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY MUST ONLY BE INSTITUTED IN THE
FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS
OF THE STATE OF NEBRASKA, IN EACH CASE LOCATED IN OMAHA AND
THE COUNTY OF DOUGLAS, AND EACH PARTY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT,
ACTION, OR PROCEEDING. . . . THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF
ANY SUIT, ACTION, OR ANY PROCEEDING IN SUCH COURTS AND
IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Id. at 6-7. The CIC workers' compensation
insurance policy did not contain any similar forum selection
clause. Applied filed the current motion in an attempt to
enforce that forum selection clause by dismissing
Aiello's case, or in the alternate, transferring it to
the United States District Court for the District of
Nebraska. Def.'s Br. at 1, Doc. No. 13-1.
deciding a typical section 1404(a) or forum non
conveniens motion not involving a forum-selection
clause, a district court must evaluate both the private
interests of the parties and various public-interest
considerations to determine whether the transfer or dismissal