Foreign Sovereign Immunity

• Author: International Law Group

In insurance dispute involving Irish insurance company owned by Irish government, Third Circuit holds that, for sovereign immunity purposes under FSIA Section 1603(b)(2), "organ" of foreign government requires public activity by company on behalf of foreign government

USX Corporation and Bessemer and Lake Erie Railroad Company ("B&LE") (USX's subsidiary during the relevant time) (jointly referred to as USX) sought indemnification from approximately 50 insurance companies under umbrella liability insurance policies.

These insurance arrangements had been set up beginning in the 1970s and included layers of insurance, as well as coverage of up to $325 million.

In 1982, B&LE had pleaded nolo contendere to violations of the Sherman Antitrust Act (15 U.S.C. Section 1) for its part in a conspiracy to restrict the transport of iron ore to inland steel mill locations. For example, the railroads allegedly prevented the introduction of self-unloading vessels and refused to let non- railroad-owned docks and trucking firms share in iron ore transport. Massive litigation later arose which became known as the In re Lower Lake Erie Iron Ore Antitrust Litigation. The final judgments totaled $638.5 million, and B&LE was left as the sole defendant after all other defendants settled or were dismissed.

The insurers denied coverage and in 1995 USX brought a coverage action in Pennsylvania state court against the insurers of the catastrophic liability insurance program. Claiming to be an "agency or instrumentality of a foreign state," ICAROM plc, successor to the Insurance Corporation of Ireland (ICI), removed the action to federal court. USX then voluntarily dismissed its state court action and filed a similar action in federal court, the only difference being that it excluded ICAROM because it was an "agency or instrumentality of a foreign state." Three of the named insurers, however, brought third-party complaints against ICAROM. [USX unsuccessfully sought a remand to state court.] The district court eventually gave summary judgment to defendants.

The U.S. Court of Appeals for the Third Circuit affirms. Title 28 section 1441(d) permits a foreign state, as defined in the FSIA, to remove state actions brought against them to federal court. Section 1603(b)(2) of the FSIA defines a foreign state to include an "agency or instrumentality of a foreign state" which is (1) a separate legal person, and (2) an organ of a foreign state or political subdivision thereof...