Opinion
No. CV 03 0828066 S
October 15, 2004
MEMORANDUM OF DECISION
The plaintiff in this matter has sought to compel arbitration of a dispute with the defendant concerning obligations under a facultative reinsurance agreement. The defendant Travelers registered a number of objections to proceeding with arbitration. By prior decision, I limited the issues in this forum to a claim that the plaintiff lacks standing to pursue the matter and left open the possibility that the issue of the statute of limitations potentially was a matter for the court rather than the arbitrator to decide. A hearing on the issue of standing was held on July 27, 2004, and supplemental briefs were presented.
The arbitration clause forming the basis of this application for an order compelling arbitration is found in a facultative agreement between the Travelers and Central National of Omaha ("CNO") formed in the mid-1980s. CNO entered into a commutation agreement with "Cigna Property and Casualty Insurance Company formerly known as Aetna Insurance Company" on February 1, 1991, which agreement purported to transfer CNO's rights and obligations under various insurance and reinsurance contracts to CIGNA PC.
Travelers has insisted that CNO had no rights or obligations to transfer under any facultative agreements with it, because of a commutation agreement and releases with an effective date of January 23, 1991. I have previously held that this issue is appropriately resolved in arbitration.
Travelers also notes that when pressed by Cigna for payment later in 1991, it declined to pay by letter dated March 22, 1991, based on the release executed by CNO. It therefore claims that any claim is now barred by any applicable statute of limitations. I address this issue later in this opinion.
A preliminary issue is whether the plaintiff's motion to substitute a corporate entity as a party plaintiff. This action was instituted by "Ace USA." During the course of the hearing it was agreed that "Ace USA" does not exist as a corporate entity entitled to sue and be sued; rather, "Ace USA" is apparently an operating group within the Cigna "family" of insurers. Testimony disclosed that a direct genealogy leads from the Aetna Insurance Company, familiarly known locally as "little Aetna," which was incorporated into Connecticut General in 1962. In 1982 Connecticut General and INA merged to form Cigna, and "Aetna" changed its corporate identity to Cigna Property and Casualty Company in 1987. Cigna PC became "Ace Property and Casualty Insurance Company" ("Ace PC") in 1999. The evidence established that any rights and obligations which any of those entities had over time would as a general proposition be assumed by Ace PC by 1999 in the ordinary course of succession. Ace USA is, without dispute, not an entity which may bring this action.
A difficulty, of course, is that the action was not brought by Ace PC, but rather by Ace USA. Ace USA now moves to substitute Ace PC as a party plaintiff. The defendant Travelers strenuously objects to the substitution. Travelers' position is strengthened by the consistency of its objection, over the life of this case, to standing on the part of Ace USA. Ace argues, on the other hand, that the "mistake" was nothing other than an honest mistake that did not in any substantive way mislead the defendant.
The law is not complex and is governed, as a starting point, by statute. Section 52-109 of the General Statutes provides: "[w]hen any action has been commenced in the name of the wrong person as plaintiff, the court may, if satisfied that it was so commenced through mistake, and that it is necessary for the determination of the real matter in dispute so to do, allow any other person to be substituted or added as plaintiff." Factors to be considered include the length of delay, fairness to all parties and the negligence of the party offering of substitution. Beckman v. Jalich Homes, Inc., 190 Conn. 299, 302-03 (1983). I am persuaded by the analysis of Judge Sheldon's decision in DiLieto v. County Obstetrics and Gynecology Group, 26 Conn. L. Rptr. 345, 2000 WL 157538 (2000) (Sheldon, J.): the drafters of the predecessor of § 52-109 sought to ameliorate the inflexible rules of common-law pleading to allow substitution, so far as is relevant here, unless the "mistake" were one which would not have been made with the exercise of reasonable diligence. See Federal Deposit Ins. Corp. v. Retirement Management Group, Inc., 31 Conn.App. 80, 84-85 (1993); Hayden v. Wallace Sons Mfg. Co., 100 Conn. 180, 187 (1923); Poly-Pak Corp. of America v. Barrett, 1 Conn.App. 99 (1983). Judge Sheldon concluded:
[T]his court infers that the term "through mistake," as used in Section 52-109, means an honest conviction, entertained in good faith and not resulting from the plaintiff's own negligence, that she is the proper person to commence the lawsuit. Only if she bears the burden of proving that she acted upon such a conviction in commencing the lawsuit can the plaintiff's motion to substitute be granted.
The issue to be resolved as to substitution, then, is whether the designation of "Ace USA" was made without negligence. The plaintiff insists that it was reasonably relying on the decision of a California federal district court in Underwriters Reinsurance, et al. v. ACE American Insurance Company, Docket No. CV-02-08177 (2003), which addressed a similar but by no means identical issue tracing arbitrability clauses through the Cigna-Ace history. There, reference was made to ACE USA as a "parent corporate entity," the precise meaning of which is somewhat elusive. More specific reference also was made to "ACE Property Casualty Company" as a successor to Cigna entities.
A temptation, of course, is to ignore the difference in name and to assume that the precise name of the company makes little or no difference and that, in the sometimes labyrinthine world of insurance and reinsurance, it is reasonable to make mistakes as to the precise name of the precise company involved in the transaction in issue. This position, though analytically suspect, may perhaps make some sense in the consumer context: someone buying Cigna insurance may, perhaps reasonably, not draw distinctions within the Cigna or "ACE" groups. Within the complex and highly regulated insurance system, however, precise names can make a significant difference and it certainly is not unreasonable to expect a more precise standard.
It also makes little sense to justify use of a nonlegal entity by reference to casual use in a trial court decision when the putative plaintiff is, in fact, the entity in question and has complete access to documentation, corporate history and corporate registrations and licenses. Not only is more precise reference made to Ace PC in the California opinion itself, but also the affidavits of Howard Denbin, a corporate attorney within the Cigna family, clearly refer to Ace PC. Quite dramatically, his affidavit in support of the very first pleading in the case, a motion for an order to show cause why arbitration should not be compelled in the case, is encaptioned " Ace Property and Casualty Insurance Company, Plaintiff, v. The Travelers Indemnity Company, Defendant." Not only should the plaintiff have known of its own corporate structure, it clearly did know, and to bring the action in the name of an inappropriate party, and to adhere to its position for many months after the defendant raised the problem, is clearly negligent.
I do not doubt the good faith of the plaintiff, in that I do not suggest that there was any attempt to mislead or to gain some advantage from the mistake. The "honest" portion of the requirement was surely met.
Because the mistake was negligent and would have been avoided through the exercise of reasonable care, the case law rather clearly holds that I should deny the motion to substitute and, as a result, dismiss the case for lack of subject matter jurisdiction because ACE USA is not an entity which may maintain an action. I have a natural reluctance to do so, because the defect is, in a broad sense, readily correctable and perhaps ought not to derail an action. On reflection, however, in the circumstances of this case there is no unfair termination of a proceeding one way or another. The plaintiff has suggested in its briefs that if the motion to substitute is denied, it will simply start over. The real driving issue in cases involving motions to substitute is frequently not so much whether a party is substituted, but rather whether the substitution will relate back to the first filing for purposes such as the statute of limitations. The defendant has raised a statute of limitations issue, but the resolution of the issue would be the same whether this action is deemed to have been initiated in 2003 or 2004. There is no compelling reason to depart from conceptual purity. The motion to substitute is denied, then, and the action is dismissed for lack of subject matter jurisdiction.
I note that analytically, a motion to substitute where the initial party lacks standing, and the court thus lacks subject matter jurisdiction, is logically suspect. If the case ought to be dismissed the instant that lack of subject matter jurisdiction is realized, then there is nothing to be substituted for. Experience occasionally trumps logic, however, and I am persuaded by the reasoning and authority cited in DiLieto that courts will leap the chasm to avoid a sense of' injustice.
I will briefly mention several issues which are likely to arise when the case is brought again. First, I had reserved decision on whether the statute of limitations issue is appropriately addressed by the court at this juncture or by an arbitrator. On consideration, I believe that the context here is much more similar to that in Levine v. Advest, Inc., 244 Conn. 732 (1998) and Carlin, Pozzi Architects v. Town of Bethel, 62 Conn.App. 483 (2001), than that in Wynn v. Metropolitan Property Casualty Co., 228 Conn. 436 (1994). Where the agreement to arbitrate is broadly phrased, every issue is to be decided in arbitration unless the court can state with "positive assurance" that the issue was not intended by the parties to be arbitrated. Doubts are to be resolved in favor of arbitration. In Levine, for example, the parties had entered into an arbitration clause that provided for the submission to arbitration of "all controversies . . . concerning any transaction, or the construction, performance or breach of this or any other agreement . . ." There additionally was a choice of law clause stating that the "agreement and its enforcement shall be governed by the laws of the State of New York," and New York has a statute which specifically provides that if any claim would be barred by a statute of limitations if brought to court, a party may prevent submission of the claim to arbitration by application to court. Our Supreme Court held, in essence, that the submission clause was broad enough to create, at a minimum, an ambiguity as to whether the statute of limitations was intended by the parties to be arbitrable. And if there is an ambiguity, the issue is arbitrable by virtue of the positive assurance test. Levine, supra, 749, 755.
Wynn, on the other hand, concerned statutorily mandated arbitration in which coverage of an uninsured or underinsured motorist claim was required to be submitted to arbitration. Because the submission was necessarily more narrowly confined, then the statute of limitations issue was held to relate to the question of arbitrability, which is, in such a case, an issue for the court to decide.
The clause providing the genesis for the instant arbitration is found in the facultative agreement between Travelers and Central National, which became Exhibit 3 in the hearing. It provides that "[a]ny difference of opinion between the Reinsurer and the Company with respect to the interpretation of this Certificate or the performance of the obligations under the Certificate shall be submitted to arbitration." There is no language regarding statutes of limitations. I cannot say with positive assurance that the issue of statute of limitations was intended by the parties to be considered by the court as a condition to submission; thus, the issue would appear to be one to be resolved in arbitration.
The final issue which is likely to arise again I discuss only briefly and do not resolve at this point in the proceedings. This is the argument of the defendant Travelers that ACE does not have a contractual right to pursue arbitration. In the facultative agreement there is a clause, ¶ D, which states that "[i]n no event shall anyone other than the Company or, in the event of the Company's insolvency, its receiver, liquidator, or statutory successor, have any rights under this agreement." ACE does not fall into any of the exceptions: although it is a successor, it is not a statutory successor. This clause also may be appropriate for resolution by arbitration; on the other hand, if the parties agreed contractually that no rights could be assigned, then the issue may be one of arbitrability. I would want specific authority from the parties on this issue prior to resolution. It may be appropriate to note that there was no novation as to the Travelers, though there were as to other reinsurers or retrocessionaires.
The action is dismissed for lack of standing.
Beach, J.