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The Fifth Circuit Court of Appeals resolved insurance issues concerning cable damage in the Persian Gulf by recognizing the difference between a broker and an agent, the place where—and to whom—an insurance was delivered, and how to deal with the issue of personal jurisdiction the court has over the parties and that a forum without amenities dismissal is not an assessment in substance; instead, it is a decision that the matter should be tried elsewhere.
IN Dynamic Industries, Incorporated; Dynamic Industries International, LLC; Dynamic Industries Saudi Arabia, Limited v. Walaa Cooperative Insurance Company; Marsh & McLennan Companies, Inc., doing business as Marsh, Inc.; Marsh USA, Inc., doing business as Marsh USA Risk Services, No. 22-30033, United States Court of Appeals, Fifth Circuit (March 13, 2023), the disputes were resolved.
The insureds (Dynamic) allege that their insurance broker (Marsh) failed to obtain adequate insurance coverage from the insurer (Walaa), or alternatively, that Walaa breached the policy by declining coverage for an incident involving submarine cable damage in the Persian Gulf. The district court granted Marsh’s motion to dismiss the lawsuit as unfit under Louisiana law. The district court also granted Walaa’s motion to dismiss the action for forum without amenitiesreasoning that the policy in question designates Saudi Arabia as the exclusive forum.
First, with respect to Marsh, Louisiana law requires insureds who wish to sue their insurance broker to do so “within one year from the date of the alleged act, omission or neglect . . . should have been discovered.” [La. Rev. Stat. § 9:5606].
Actions against brokers
Dynamic sued Marsh after Walaa denied coverage. But Dynamic received a copy of the policy from Walaa almost 18 months earlier. When Dynamic received that copy, it also received constructive notice of any deficiencies contained in the policy. Dynamics’ claims against Marsh are therefore inapposite.
Dynamic rejects constructive notice, claiming the policy contains “absolutely no indication that coverage would be denied.” But the denial was Walaa’s choice, not Marsh’s. According to Dynamic, the policy either omits coverage that Marsh is responsible for not obtaining or offers coverage that Walaa must honor. In order to assert its alternative claims against Marsh Dynamic, the Fifth Circuit asked that the policy omit coverage. All such omissions existed when Dynamic received the policy so its suit is barred.
Choice of Jurisdiction
Dynamic argued that the Walaa policy’s choice of Saudi law is unenforceable, under Louisiana law, if the policy was “delivered” in Louisiana. Dynamic says it received delivery in Louisiana from Walaa’s agent — a Marsh affiliate called Marsh KSA. Walaa replied that Marsh KSA was actually Dynamics’ agent, and that the delivery therefore took place in Saudi Arabia (where Walaa delivered the policy to Marsh KSA). The Fifth Circuit agreed with Walaa because Marsh, as a broker, is an agent of the insured, not the insurer.
Under Louisiana law, an insurance broker is generally considered the agent of the insured rather than the insurer. A broker who is asked by the customer to obtain coverage where possible at the best price is not the insurer’s representative. Marsh KSA “approached” several insurance companies looking for a “competitive price” for Dynamic. Marsh KSA was thus Dynamics’ agent.
After making an independent assessment of the clause’s enforceability, the district court concluded that delivery took place in Saudi Arabia to the insured’s agent.
LACK OF PERSONAL JURISDICTION
Separately, the district court concluded that it lacked personal jurisdiction over a Marsh affiliate known as Marsh & McLennan Companies, Inc. (“Marsh Inc.”). Nevertheless, the district court’s judgment dismissed Dynamics’ claims against Marsh Inc. “with prejudice”—that is, on the merits .” A federal court generally cannot adjudicate on the merits without first establishing that it has jurisdiction over the parties, i.e., personal jurisdiction.
Because the district court lacked personal jurisdiction, it also lacked authority to enter a judgment on the merits as to Marsh Inc. Likewise, the district court dismissed Dynamics’ claims against Walaa “with prejudice.” It was also a mistake, because a forum non conveniens dismissal is not a judgment on the merits; instead, it is a decision that the matter should be tried elsewhere.
The Fifth Circuit therefore vacated the dismissal as to Walaa Cooperative Insurance Company and Marsh & McLennan Companies, Inc., and remanded with instructions for the district court to enter judgment dismissing Dynamics’ claims against Walaa Cooperative Insurance Company and Marsh & McLennan Companies, Inc. prejudice.” I otherwise, the district court’s decision was upheld.
The parties won some arguments and lost others. In the case, the fact was established that an insurance broker is not an agent for the insurer but is an agent for the insured who handles insurance on behalf of the insured. The district court exceeded its authority, and the Fifth Circuit set it up, affirming part of the decision and reversing others.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com
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