How long is a long-arm statute? - 40 FEATURE
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40 FEATURE
How long is a long-arm
statute?
Should international travel insurers operating within US borders be wary of the
use of long-arm statutes? Thomas L. Hudson investigates
I
n my recent article Contracts speak when
PPOs are silent (ITIJ 138, July 2012), I
described the Tenet Healthcare case1. In
December 2011, four Florida hospitals sued
a large Canadian insurance company and its
affiliated sales agent and assistance company.
The hospitals alleged that the defendants had
taken improper discounts when paying bills for
their insureds. One of the interesting aspects of
the case was the use of the Florida Long-Arm
Statute to subject the Canadian companies to
suit in Florida. Long-arm jurisdiction is based on
the defendants’ contacts with the state, and the
nature of the contacts will be explored below. The
defendants decided not to appeal the use of the
long-arm statute, but rather to fight the case on its
merits. Well, the fight did not last very long. On 26
June 2012, all parties met with a court-appointed
mediator and settled the litigation in a confidential
Stipulation of Settlement. Efforts to learn the terms
of the settlement have proved futile. Neither the
parties nor their counsel will discuss the settlement.
The now-settled litigation was brought by
four Tenet hospitals against Co-operators Life
Insurance Co. and two of its subsidiaries, TIC
Travel Insurance Coordinators Ltd. and SelectCare
Worldwide Corp. The hospitals claimed that the
defendants had applied unjustified discounts to
hospital bills. Early in the litigation, Co-Operators
Life filed a third-party claim against Olympus
Managed Health Care, Inc., its Preferred Provider
Organisation (PPO). Co-Operators Life alleged
that if it was liable to the hospitals, it was the
fault of its PPO. Of course, Olympus denied
1 Delray Medical Center, Inc., Palm Beach Gardens
Community Hospital, Inc., Tenet St. Mary’s, Inc.
and West Boca Medical Center, Inc. v. Co-
Operators Life Insurance Company, TIC Travel
Insurance Coordinators, Ltd. and SelectCare
Worldwide Corp. v. Olympus Managed Health
Care, Inc. (Third-Party Defendant).
International Travel Insurance Journal
FEATURE 41
the allegations. Contracts often specify the place of contracting to
While we do not know the terms of the avoid this result.
settlement, I am sure the reader can conjure up Nexus, however, is the linchpin. It is the basis
any number of possibilities. While silent PPO
cases are often settled behind closed doors,
for a court’s application of a long-arm statute.
Nexus is present when a defendant has sufficient
Jurisdiction, or being subject
to the power of a court in
it is difficult to imagine the Tenet hospitals contacts in the state where a court is being asked
agreeing to a dismissal without some sort of to use its long arm. A foreign insurance company
monetary settlement. selling travel insurance to policyholders who may
a place where you do not
However, enough speculation about the travel to the US may find itself being subjected to
settlement! When the suit was dismissed with the jurisdiction of a state or federal court in the
prejudice (so it cannot be refiled), the court also US – just as Co-Operators Life was held in by
reside, is usually expanded by
agreed to vacate its earlier decision to invoke the the federal court in Florida. That Co-Operators
long-arm statute. The reasons are not known. Life’s sales agency, TIC Travel Insurance, and its
Keeping this judicial volte-face in mind, this article assistance company, SelectCare, were held in
conduct or nexus
explains some of the implications for non-US travel may be more a plaintiff’s shotgun approach rather
insurers regarding the extra-territorial jurisdiction than the targeting of the alleged main culprit. And
embodied in a long-arm statute. Co-Operators Life did bring in its PPO, Olympus
Managed Health Care, and the long arm embraced
Exceptions to the general rule
Typically, a foreign corporation expects that it is
immune from being sued in the US. It expects to
be sued where it resides. In the Tenet Healthcare
case, Co-Operators and its co-defendants
argued that they should be subject to suit in
Ontario, Canada, where they are incorporated
and headquartered. This is generally true. A
corporation – whether foreign or domestic US –
is subject to suit where it resides, but there are
exceptions to this general rule.
Jurisdiction, or being subject to the power of
a court in a place where you do not reside, is
usually expanded by conduct or nexus. Conduct
is jurisdiction based on some act that occurs in a
jurisdiction where the actor would not otherwise
be subject to jurisdiction. For example, being
involved in a motor vehicle accident subjects one
to the jurisdiction where the accident occurred.
Jurisdiction can also flow from contractual dealings.
If a foreign corporation enters into a contract in
a US state, it may be subject to the jurisdiction of
the state’s courts in a breach of contract action.
www.itij.co.uk
42 FEATURE
Typically, a long-arm statute
will grab a defendant
that transacts any business or
performs any character of work
or service in the state
in question
the PPO as well. These defendants can serve as coverage.” It seems to be a stretch to characterise
examples for any non-US companies in the travel the ‘availing themselves’ argument as amounting
insurance business, including a British or European to transacting business in Florida. Nevertheless,
or Latin carrier, and their subsidiaries. The normal the basis for long-arm jurisdiction appears to lie,
business of these companies may fall into the in part, on the defendants purposefully availing
standard categories of conduct covered by a long- themselves of the privilege of conducting business
arm statute. in Florida.
Typically, a long-arm statute will grab a defendant Nexus can also be based on what amounts to
that transacts any business or performs any fraudulent conduct – that is, the commission of
character of work or service in the state in a tort (a civil wrong) in the state in question. In
question. This is usually the first prong in any its order, the court stated that the hospitals had
long-arm statute, and it can be the most expansive. alleged sufficient facts to show misrepresentation
In the Tenet Healthcare case, the court’s opinion and tortious interference by the defendants
stated: “By including Florida in its covered territory, with the hospitals’ contracts with its legitimate
[the Co-Operators Life defendants] personally PPOs. The court noted the existence of the
availed themselves of Florida because they benefit PPO contracts, the defendants’ knowledge of
financially from customers who purchase their the hospitals’ relationships with their PPOs, the
policies due to the benefits of their nationwide intentional interference by using a silent PPO
International Travel Insurance Journal
FEATURE 43
to claim a discount, and the resulting damage Given its earlier ruling and the allegations of
in lost revenue. This ruling may have had tortious interference, it is unlikely that the court
serious consequences for the Co-Operators changed its mind about jurisdiction. It is more
Life defendants and Olympus, and it may have likely that the court vacated its earlier decision
influenced the settlement. Tortious interference as an accommodation to the Co-Operators Life
with a contract can support an award of punitive defendants and Olympus because the case had
damages; although, in the Tenet Healthcare case, been settled. Usually, a court declining to invoke
we do not know if the facts would have supported a long-arm statute would base such a decision
such an award. on those cases where the requisite quantum of
minimum contacts was held to be insufficient.
Delving deeper Examples abound: a New Jersey manufacturer
Another category is contracting to supply services of cigarette filters could not be sued in Virginia
in a state. This is where the analysis starts to get simply because the filters were sold in Virginia;
tricky because Co-Operators Life’s SelectCare a Massachusetts bank could not be sued in New
assistance company probably provided services Hampshire simply for sending inspectors into
to snowbirds inside Florida from outside Florida New Hampshire to determine the progress on
since SelectCare is not located in Florida. As for a construction project; a defendant could not be
the PPO, it would appear that Olympus provided held in because the revenue it derived from the
services in Florida2. In its decision, the court forum state was too small; and a Pennsylvania ski
noted the hospitals’ allegations that the defendants resort could not be sued in Maryland by a Maryland
contracted to insure persons and risks located resident injured on a ski lift because the resort did
within Florida, anticipated that the insureds would not commit resources to marketing in Maryland. >>
travel to Florida, and entered into contracts with
third parties to process claims and make payments 2 In any event, Olympus is amenable to suit in
in Florida. In short, the hospitals described the Florida because it maintains an office in Florida
modus operandi of any travel insurer.
no travel insurer can argue
credibly that it does not
market to travellers who will
travel into the US
www.itij.co.uk
44 FEATURE
Comparing the Florida contacts of the Co-
Operators Life defendants with the cases
described above, questions arise about the quality
and quantity of the defendants’ contacts. Like the
cigarette filters, the snowbirds insured by Co-
Operators Life ended up in Florida. No personnel
of Co-Operators Life entered Florida; only
Olympus had personnel in Florida.
And the Co-Operators Life revenue attributable
to the snowbirds treated at the Tenet hospitals
was likely a very small percentage of total
revenue. The only case on point for applying
Florida’s long arm is the ski resort case.
Remember, the court in Tenet Healthcare
stated that the Co-Operators Life defendants
‘purposefully availed themselves of the privilege
of conducting business in Florida’. If the ski resort
had actively marketed to Maryland residents,
the resort may have been subject to Maryland
jurisdiction. Similarly, no travel insurer can argue
credibly that it does not market to travellers who
will travel into the US.
A national scheme
Long-arm statutes are common to all 50 US
states. Frankly, I think that there is a trend in the
US to employ the long-arm statute whenever
there is a reasonable basis for finding minimal
contacts. This may be a function of interstate
commerce in the US, and it may signify a global
judicial or legislative trend to protect residents
when they do business with foreign vendors.
Long-arm jurisdiction is embodied in the law of
most countries,
including all Canadian provinces, which are similar
to the US states in how they interpret and apply
the requisite quantum of minimum contacts. Also, there is a trend in the US to employ the long-arm
in the European Union (EU), the concept was laid
out in the Treaty of Rome, and it has been codified
by the EU in various rulings that are applicable to statute whenever there is a reasonable basis for
the member states.
In the US, the concept of extra-territorial
jurisdiction embodied in a long-arm statute has finding minimal contacts
influenced lawmakers in Washington to extend
personal jurisdiction in securities cases brought by
the US Securities and Exchange Commission. It has and Texas as well as other courts in New York and
also been applied in cases involving the US Foreign Virginia have reached opposite conclusions.
Corrupt Practices Act and the Sarbanes-Oxley Act The implications for foreign insurers clearly include
with respect to corporate governance practices the possibility – perhaps, the likelihood – of being
regulated by the Act. In addition, many aspects of subject to the jurisdiction of a US court if the insurer
foreign trade draw upon the long arm of the law to sells a travel insurance policy to a non-US citizen for
bring defendants into a US court. The implications whom it pays a US hospital bill. The defenses may
are clear: the application of long-arm jurisdiction in include those suggested above if the travel insurer
the US is increasing, not shrinking. can argue that it had insufficient contacts with the
To emphasise the trend to hold in foreign defendants forum state. On the other hand, if the allegations
by using a long-arm statute, consider the gradual include claims of misrepresentation and tortious
change in the way that US courts have viewed the interference, there is wrongful conduct being alleged,
quantum of minimum contacts based on phone possibly fraudulent conduct. It would appear that
calls and correspondence. In many cases over the using a silent PPO to take an improper discount
years, US courts have held that phone calls and would subject travel insurers to the unwelcome
correspondence were not enough to establish the embrace of a long-arm statute.
requisite contact because the defendant did not
purposefully avail itself of the privileges of conducting
business in the forum state simply by using these
forms of commercial communication. The court in
Tenet Healthcare based its long-arm decision, in part,
on the allegations that the defendants made material
misrepresentations to the hospitals in Florida via
telephone calls and facsimiles that the patients were
covered by insurance issued by Co-Operators Life
and that the services provided to the patients were
authorised and would be reimbursed.
Because so many companies today use email to
communicate throughout a country and around the Tom Hudson has practiced law for over 35
world, agreements executed in cyberspace may years, and during a long career with MEDEX,
result in a defendant finding itself an unwilling party he developed an understanding of legal
to litigation in a foreign forum. Recently in the US, matters relating to travel insurance and the
judges in New York, New Jersey, Maryland and assistance business. In addition to practicing
Virginia have held that non-resident defendants had law, Tom is a co-founder of American Clinics
sufficient contacts in their states based in part on International, Inc. (FirstMed Centers),
email communications. On the other hand, legal MediTRAVEL Insurance LLC, and recently
trends are usually characterised by fits and starts Nurse Call Centers LLC.
in any particular direction, and courts in Missouri
International Travel Insurance Journal
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