MUNICH REINSURANCE AMERICA, INC. v. AMERICAN NATIONAL INSURANCE COMPANY
Filing
96
OPINION filed. Signed by Judge Freda L. Wolfson on 9/28/2012. (mmh)
***FOR PUBLICATION***
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
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Plaintiff,
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v.
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AMERICAN NATIONAL
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INSURANCE COMPANY,
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Defendant.
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___________________________________ :
MUNICH REINSURANCE
AMERICA, INC.,
Civil Action No.: 09-6435 (FLW)
OPINION
WOLFSON, United States District Judge:
This case involves complex retrocessional agreements between Plaintiff Munich
Reinsurance America Inc. (“Munich”) and Defendant American National Insurance
Company (“ANICO”). Presently before the Court are two motions: Munich’s motion
for partial summary judgment, pursuant to Federal Rule of Civil Procedure 56(c), on
its breach of contract and declaratory judgment claims against ANICO and on ANICO’s
rescission counterclaim, as well as ANICO’s cross-motion for summary judgment. Each
of Munich’s claims, and the rescission counterclaim, relate to ANICO’s refusal to pay
certain claims submitted for payment by Munich under the parties’ agreements.
Munich seeks partial summary judgment:
(a) on ANICO’s rescission
counterclaim, arguing that ANICO has waived its right to rescind and, alternatively,
1
that its rescission counterclaim should be dismissed on the merits; (b) on ANICO’s
untimely claim submission defense to Munich’s breach of contract claim, arguing that
ANICO waived its defense and for judgment on the merits; (c) that, under the
agreements, Munich’s “retention” is calculated on a “ground up” basis; (d) that claims
issued by Everest Re1 are covered by the agreements; (e) that Munich’s “roofer” claims
are covered by the agreements; and (f) that Munich’s use of bordereaux reporting did
not breach the agreements. In its cross-motion, ANICO seeks summary judgment on
its rescission counterclaim and, in the alternative, partial summary judgment on its
untimely claim submission defense to payment.
The Court grants in part, and denies in part, Munich’s partial motion for
summary judgment. With respect to ANICO’s rescission counterclaim, the Court
denies Munich’s motion on the merits because there exists a genuine issue of material
fact. With respect to ANICO’s untimely claim submission defense to payment, the
Court grants Munich’s motion on the merits. The Court grants Munich’s motion on the
retention issue, concluding that retention is calculated on a ground up basis. With
respect to the Everest Re and roofer claims, Munich’s motion is denied. Finally, in
light of the aforesaid ruling on the untimely claim submission defense, the Court does
not reach Munich’s use of bordereaux reporting; hence summary judgment on that
1
As explained in more detail herein, Everest Re is an entity related to the
underlying ceding insurer, Everest National Insurance Company, that filed the claims
covered by the retrocessional agreement.
2
basis is denied. ANICO’s cross-motion on the rescission counterclaim and untimely
claim submission defense is denied.
I.
FACTS AND PROCEDURAL HISTORY
Before delving into the facts of this case, a brief overview of reinsurance and
retrocessional insurance is helpful.
Of course, an overview of such complex
intersections of insurance law must be taken with a grain a salt. As an attorney with
fifty years of reinsurance practice experience has explained,“[t]he minds that run the
insurance and reinsurance industries are very clever, intelligent, and sophisticated,
and they have devised almost an infinite number of variations on [the] basic categories
[of reinsurance]....” Interview with Eugene Wollan, Esq.,
in Zukerman, T.,
Environmental Ins. Litig.: Law and Practice Appx. 31A at 2 (2012) (“Wollan
Interview”). Nevertheless, I provide a basic primer for the purpose of orienting the
reader to this obtuse subject.
The Third Circuit, in Pacific Employers Ins. Co. v. Global Reinsurance Corp. of
America, --- F.3d ----, 2012 WL 3871588, *1 (3d Cir. 2012), describes reinsurance as
insurance for insurance companies. A reinsurer agrees to
indemnify a reinsured for certain payments the latter
makes under one or more of its issued policies. In return,
the reinsurer receives a share of the underlying premiums.
Ceding a portion of an insured risk prevents a single
catastrophic loss from hurling the reinsured into insolvency.
It also allows the reinsured to invest more capital or to
insure more risks.
3
Id. at 5. In short, “[a] reinsurance contract is essentially a contract of indemnity ....”
Christiania General Ins. Corp. of New York v. Great American Ins. Co., 979 F.2d 268,
271 (2d Cir. 1992).
“The reinsurance of reinsurance is called a retrocession, and the reinsurers of
reinsurers—that is, reinsurers who assume retrocession risk through retrocessional
agreements—are called retrocessionaires.” Century Indem. Co. v. Certain Underwriters
at Lloyd's, London, subscribing to Retrocessional Agreement Nos. 950548, 950549,
950646, 584 F.3d 513, 519 (3d Cir. 2009) (emphasis added).
Such retrocession
agreements present considerably more complex legal and factual scenarios because
“there is another layer of coverage created and another party thrown into the mix.”
Plitt, et al., 1A COUCH ON INSURANCE § 9:3.
There are two overarching categories of reinsurance and retrocession—treaty
and facultative; and the agreement here is the former. Through treaty reinsurance,
the reinsurer [or retrocessionaire] agrees to accept an entire
block of business from the reinsured. Once a treaty is
written, a reinsurer is bound to accept all of the policies
under the block of business, including those as yet
unwritten. Because a treaty reinsurer accepts an entire
block of business, it does not assess the individual risks
being reinsured; rather, it evaluates the overall risk pool.
Pacific Employers, 2012 WL 3871588, *2.
As with primary insurance, reinsurance comes in several basic types, including
proportion and excess of loss policies. An “excess of loss” policy is one that obligates
the retrocessionaire to pay up to its “retention” amount, i.e., the amount of “cover” the
retrocessionaire agreed to provide the reinsurer, once the total claim amount has
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surpassed a set monetary limit or “layer” that the reinsurer must first pay. See
Hartford Acc. and Indem. Co. v. Ace American Reinsurance Co., 284 Conn. 744, 750 n.5
(2007).2 Excess of loss policies come in three forms: “per risk,” “annual aggregate” or
“per occurrence.” See Orpett, et al., 3 LAW AND PRAC. OF INS. COVERAGE LITIG. § 41:10
(2012). These three methods differ in the manner in which risks “attach” to the
reinsurance agreement. Under a per occurrence policy, like that at issue here, the
retrocessionaire’s obligation is triggered by a particular incident, such as a personal
injury. Id.
Turning now to the details of the retrocessional policy at hand, the following
facts are undisputed unless otherwise noted. In this fact section, I also provide an
outline of the parties’ agreement. As there are additional facts that aid my analysis
of the particular provisions that must be interpreted, I provide greater factual detail
in the body of the Opinion where appropriate.
2
The Connecticut Supreme Court has succinctly explained this sort of
agreement as follows:
A reinsurance treaty reinsures all policies in a defined block
of an insurer’s business, such as general liability. Under an
excess of loss contract, the insurer retains liability for losses
up to a specified threshold, known as the retention. If a loss
exceeds the retention, the reinsurer is liable for all or an
agreed part of the excess, up to the contractual limit of
liability. Excess of loss contracts may consist of multiple
layers, in which coverage under the first layer is triggered
when the amount of the insurer’s loss exceeds the retention,
and each subsequent layer is triggered when the loss
exhausts the limit of the layer below.
Id.
5
Munich entered into a reinsurance relationship with Everest National Insurance
Company (“Everest”), whereby Munich agreed to reinsure Everest’s workers
compensation insurance program for the period of January 1, 1998 through December
31, 2001 under an excess of loss reinsurance agreement.
The Munich-Everest
relationship was governed by an agreement with limits of $750,000 excess of $250,000.
This means that Munich had no liability for any claim of less than $250,000—the layer
from $0 to $250,000 was Everest’s responsibility. For claims that exceeded $250,000,
Munich was liable only for that portion of the claim beyond the initial $250,000
attachment point and up to a limit of $750,000.
Munich purchased excess of loss retrocessional cover, i.e., reinsurance on its
reinsurance policy with Everest, for the duration of the Munich-Everest reinsurance
agreement. The retrocessional cover was purchased through an agent—IOA Re—that
represented several retrocessionaires. One of the retrocessionaires IOA Re represented
was ANICO. Munich contends that the retrocessional agreements it entered into with
various retrocessionaires each attach at the $500,000 level, such that “on a million
dollar claim, Everest would be responsible for the first $250,000, Munich [ ] would be
responsible for the next $250,000 and the retrocessionare would be responsible for the
final $500,000.” Pl. Stat. Mat. Facts at ¶ 20.
The ANICO-Munich retrocessional agreements at the center of the parties’
dispute are for the periods of November 1, 1999 through December 31, 2000 (“the 2000
Retrocessional Agreement”), and January 1, 2001 through December 31, 2001 (“the
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2001 Retrocessional Agreement”). For purposes of this motion, the parties agree that
these two agreements are identical in substance.
Generally, the agreements provide that ANICO will indemnify Munich “for the
amount of ultimate net loss . . . which may accrue to [Munich] as a result of loss or
losses occurring during the term of [the] Agreement[s] as a result of [Munich’s]
participating in the [Munich-Everest] Reinsurance Agreement ....” LeBlanc Cert., Exh.
2 (“2001 Retrocessional Agreement”), Art. I(A). Ultimate net loss is defined by the
agreements as “only such amounts as are actually paid or payable by [Munich] and
[Everest] under the Underlying [Munich-Everest] Agreement ....” Id. at Art. VII(A).
The agreements further provide that ANICO indemnifies Munich for “each and every
accident or occurrence or series of accidents or occurrences arising out of one event ....”
Id. at Art. VI. In short, ANICO agreed to indemnify Munich for the amount of ultimate
net loss accruing under the Munich-Everest workers’ compensation reinsurance
agreement, on a per occurrence basis.
To be clear, and as suggested above, ANICO is not the only retrocessionaire that
agreed to indemnify Munich.
ANICO agreed to accept a 75.00% share of the
retrocessionaire obligations under the 2000 retrocessional agreement. LeBlanc Cert.,
Exh. 1 (“2000 Retrocessional Agreement”), Interest and Liabilities Contract.3 This
share of the retrocessionaire obligations is referred to as ANICO’s “proportionate”
3
The other retrocessionaire(s), which are not parties to this suit, agreed to
accept a 25.00% share of ANICO’s obligations under the 2000 retrocessional
agreement. Id.
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share. However, ANICO agreed to accept 100% of the retrocessionaire obligations
arising under the 2001 retrocessional agreement. 2001 Retrocessional Agreement,
Interest and Liabilities Contract.
In terms of notice, Munich agreed to “promptly” advise ANICO of “all claims
coming under [their] Agreement on being advised by [Everest] ....” Once so advised,
ANICO “agree[d] to pay [Munich] on demand, [ANICO’s] proportion of all losses and/or
loss expenses paid by [Munich] arising from the Underlying [Munich-Everest]
Agreement ....” Id. at Art. X.
On December 22, 2009, Munich brought the instant action against ANICO. In
its complaint, Munich alleges that ANICO owes Munich $4,330,578.01 under the
retrocessional agreements and that ANICO has refused to pay. The complaint asserts
two breach of contract claims (Count One - the 2000 retrocessional agreement; Count
Two - the 2001 retrocessional agreement), and a declaratory judgment claim regarding
any future losses under the agreements. ANICO answered and discovery ensued.
On January 3, 2011, following the close of discovery, ANICO moved for leave to
file an amended answer asserting several counterclaims against Munich: fraudulent
inducement, breach of the duty of good faith and fair dealing, breach of the duty of
utmost good faith owed to a reinsurer, rescission of the retrocession agreements, and
breach of contract. In moving for leave to file its amended answer, ANICO argued
before the Magistrate Judge that, through discovery, it uncovered alleged
misrepresentations and omissions by Munich that form the basis of its rescission claim.
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Now before the Court is Munich’s motion for partial summary judgment, on its
breach of contract and declaratory judgment claims, and on ANICO’s rescission
counterclaim. ANICO cross-moves for summary judgment.
II.
STANDARD OF REVIEW
“Summary judgment is proper if there is no genuine issue of material fact and
if, viewing the facts in the light most favorable to the non-moving party, the moving
party is entitled to judgment as a matter of law.” Pearson v. Component Tech. Corp.,
247 F.3d 471, 482 n. 1 (3d Cir. 2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986)); accord Fed. R. Civ. P. 56(c). For an issue to be genuine, there must be “a
sufficient evidentiary basis on which a reasonable jury could find for the non-moving
party.” Kaucher v. County of Bucks, 455 F.3d 418, 423 (3d Cir. 2006); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether a genuine issue
of material fact exists, the court must view the facts and all reasonable inferences
drawn from those facts in the light most favorable to the nonmoving party. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Curley v. Klem, 298
F.3d 271, 276-77 (3d Cir. 2002). For a fact to be material, it must have the ability to
“affect the outcome of the suit under governing law.” Kaucher, 455 F.3d at 423.
Disputes over irrelevant or unnecessary facts will not preclude a grant of summary
judgment.
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III.
DISCUSSION
As noted, both parties have moved for summary judgment on issues relating to
the viability and interpretation of the retrocessional agreements. Munich seeks partial
summary judgment: (a) on ANICO’s rescission counterclaim, arguing that ANICO has
waived its right to rescind and, alternatively, that its rescission counterclaim should
be dismissed on the merits; (b) on ANICO’s untimely claim submission defense to
Munich’s breach of contract claim, arguing that ANICO waived its defense and for
judgment on the merits; (c) that, under the agreements, Munich’s “retention” is
calculated on a “ground up” basis; (d) that claims issued by Everest Re are covered by
the agreements; (e) that Munich’s “roofer” claims are covered by the agreements; and
(f) that Munich’s use of bordereaux reporting did not breach the agreements. In its
cross-motion, ANICO seeks summary judgment on its rescission counterclaim and, in
the alternative, partial summary judgment on its untimely claim submission defense
to payment.
Because ANICO’s rescission counterclaim is threshold in nature, I analyze that
issue first. Thereafter, I turn to Munich’s remaining grounds for partial summary
judgment raised by both parties’ motions. In assessing the viability of each claim at
issue, I apply New York law as the parties agree that it governs their agreements.
A.
Legal Standard
“A reinsurance contract is governed by the rules of construction applicable to
contracts generally.” Christiania, 979 F.2d at 274 (citation omitted). That is, the
terms of unambiguous contracts are enforced as written. An ambiguous contract is one
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subject to different, reasonable interpretations. Where the terms of the contract are
ambiguous, “reference to extrinsic evidence provides guidance to the parties’ intent.”
Id. (citation omitted). Extrinsic evidence may include evidence of custom and usage.
Excess Ins. Co. v. Factory Mut. Ins. Co., 3 N.Y.3d 577, 590–591, 789 N.Y.S.2d 461, 822
N.E.2d 768, 777 (2004) (“Our precedent establishes that where there is ambiguity in
a reinsurance certificate, the surrounding circumstances, including industry custom
and practice, should be taken into consideration”) (Read, J., dissenting) cited with
approval in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758, 1769
n.6 (2010).
In this connection, “when resort to extrinsic evidence is necessary to shed light
on the parties’ intent summary judgment ordinarily is not an appropriate remedy, and
must be denied unless, viewing the evidence in a light most favorable to the nonmovant
and resolving all doubts in its favor, no reasonable trier of fact could find against the
movant.” Christiania, 979 F.2d at 274 (internal citations omitted).
B.
Rescission
A substantial portion of the parties’ briefing focuses on ANICO’s rescission
counterclaim, which was added to this suit by way of an amended counterclaim after
discovery was concluded. The parties dispute whether ANICO has waived its right to
pursue the rescission counterclaim by raising it so late and Munich argues that, even
if ANICO has not waived its right to rescind, it is not entitled to rescind as a matter
of law. As both parties seek summary judgment on this issue, I address their motions
simultaneously. But, first, I recount the pertinent facts.
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Lisa Hoekstra served as the IOA Re underwriter for the retrocession
agreements. Oct. 18, 2010 Hoekstra Dep. at 19:2-7. During the formation of the
Retrocession Contracts, Munich conveyed to Hoekstra “information about what Everest
. . . was intending to write.” Oct. 21, 2011 Hoekstra Dep. at 231:21 - 232:2. The parties
do not dispute that Everest provided Munich with data relevant to the underwriting
process. Pl. Stat. of Facts, at ¶¶ 27, 31; Def. Resp. Stat. of Facts, ¶¶ 27, 31; Oct. 21,
2011 Hoekstra Dep., at 162:12-24. And, neither ANICO nor IOA Re contend that
Munich withheld any information that Everest provided to Munich. Nov. 29, 2011
Circuit Dep. at 239:10-20; Oct. 25, 2011 Schouweiler Dep. at 135:23-136:4. However,
the parties disagree about the sufficiency of the information Munich did provide to
ANICO.
Before signing the retrocession agreements, both Munich and IOA Re calculated
potential losses and liabilities inherent in the Underlying Agreement between Munich
and Everest. Verhaegen Dep., at 116:1-10. Specifically, they calculated “loss ratios”
and “loss costs” using different internal “manual” rates.4 Oct. 21, 2011 Hoekstra Dep.
at 24:1-12; Verhaegen Dep. at 118:6-17. When possible, underwriters use historical loss
data to formulate an “experience rating projection,” based upon the reinsured
business’s prior losses. Oct. 21, 2011 Hoekstra Dep. at 21:21-22:1. However, when
relatively new reinsurance agreements lack sufficient historical loss data, underwriters
4
“Loss cost” refers to the portion of the premium charged that will ultimately
constitute a loss, represented as a percentage of the premium rate (i.e., 1.72% loss for
a 4.5% premium). “Loss ratio” compares total losses incurred to total premiums
charged, represented in a comparative percentage (i.e., 150% loss ratio).
12
resort to more generalized “actuarial numbers.” Id. at 23:16-20. Because IOA Re did
not have sufficient historical loss data regarding the Underlying Agreement, IOA Re
calculated the loss ratio using a “manual rate.” Id. at 24:1-12. With that rate, and
using the data provided by Everest, IOA Re estimated a 1.65% loss ratio. Kline Cert.,
Appx. II, Vol. III, Ex. 110 at 5.
Munich also performed an internal analysis of potential losses related to the
$750,000 in excess of $250,000 layer of the Underlying Agreement. In an intracompany email, Munich employee Edward Pawlowski summarized loss projections on
the Underlying Agreement as follows:
Treaty Rate: 4.5%
...
Treaty Expected Loss Cost/ELR: 4.95%/110%
Carve Out Loss Cost: 1.72%/120%
Net Treaty Loss Cost/ELR: 3.23%/106%”
LeBlanc Cert., Ex. 10.
ANICO contends that Munich withheld its internal calculations from IOA Re,
and that the internal calculations would have materially affected the underwriting
process undertaken by IOA Re on behalf of ANICO. Specifically, ANICO contends that
Munich did not disclose the following information:
(1) Munich’s internal Underwriting Summary Memo showed
a “156% incurred loss ratio,” and expected “the all-time loss
ratio to be above 200% before carve-out cessions;” LeBlanc
Cert., Ex. 9;
(2) Munich “project[ed] an incurred loss ratio of 150 percent
for 2000” for their $750,000 excess reinsurance of Everest;
Verhaegen Dep. at 155:2-8;
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(3) Munich’s guidelines “would require [it] to move [the] deal
offshore,” because the alleged 150% loss was “unacceptable
to” Munich; Pawlowski Dep., at 178:14-23;
(4) Munich employee Edward Pawlowski believed the loss
ratios provided to Munich by Everest National were
“dubious;” LeBlanc Cert., Ex. 6; and
(5) Munich still estimated its loss ratios to be 110%, while
the carve-out loss cost to the retrocessionaire would be
120%. LeBlanc Cert., Ex. 10.
Munich acknowledges that it did not provide ANICO with its internal analysis,
although it contends it had no obligation to do so.
Accounts differ on whether the internal analysis would have been relevant to the
underwriting process. Munich representative Thierry Verhaegen testified that while
a ceding company’s expected loss calculations “would [be] good to have . . . a
retrocessionaire would do [its] own pricing analysis,” and “would not rely on secondhand information.” Verhaegen Dep. at 252:5-23. IOA Re underwriter Lisa Hoekstra
“assumed” that Munich would calculate a loss ratio of its own, but has no recollection
of “asking what their loss ratio was.” Oct. 21, 2011 Hoekstra Dep. at 42:24-23:11;
130:5-11. Nonetheless, Hoekstra also testified that, had she known that Munich
“purchased at 1.42 percent,” but expected a loss cost of “1.72 percent,” she would not
have issued coverage at the same price. Id. at 196:24-197:19. Similarly, Hoekstra
testified that she “doubt[ed]” she would have underwritten the Retrocession Contracts
in the same way had she known that Munich estimated a “Carve-Out loss cost of
1.72%/120%,” or a “Net treaty loss cost/ELR [of] 3.23%/106%.” Id. at 198:17-22; 199:319.
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The issues relating to Munich’s internal analysis and its failure to disclose that
analysis to IOA Re form the cornerstone for ANICO’s rescission claim.
Steven
Schouweiler, Senior Vice President of Health Operations at ANICO, had “overall
responsibility for . . . the Munich Re/American National contracts.” Oct. 26, 2010
Schouweiler Dep. at 6:14-16; Oct. 25, 2011 Schouweiler Dep. at 6:5-9. In his October
25, 2011 deposition, Schouweiler testified that he became aware that ANICO was
considering rescission of the Retrocession Contracts “‘a year’ or ‘two’” before his
deposition. Oct. 25, 2011 Schouweiler Dep. at 16:8-15. Indeed, he discussed rescinding
the contracts with another ANICO employee, “Mr. Stelling,” “a couple of years” before
his (Schouweiler’s) 2011 deposition. Id. at 17:16-22. “[I]n [his] own mind,” Schouweiler
thought that “lack of disclosure and compliance with the agreement” justified
rescission at that time. Id. at 18:13-16. Thus, according to his deposition testimony,
Schouweiler believed rescission might be a remedy available to ANICO sometime
during late 2009.
Subsequent to his deposition, Schouweiler avers in a 2012 affidavit that once
this suit was filed by Munich and served in January 2010, he then knew “something
had gone wrong” and that he would rescind the agreement if he could, at that time.
LeBlanc Cert., Ex. 11, Schouweiler Aff. p. 5.5 Thereafter, he qualifies the foregoing
statement by averring that “[u]ntil all the depositions of Munich’s witnesses were
5
Schouweiler’s affidavit does not contain paragraph numbers, thus, I refer
to page numbers instead.
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completed in late 2010, [he] did not have facts from which [he] could determine
whether to file a rescission claim.” Id.
As noted, ANICO did not initially assert a rescission counterclaim but
successfully sought leave to add the counterclaim after the close of discovery. In its
January 2011 motion seeking leave to amend before the Magistrate Judge, ANICO
argued that, through discovery, it discovered that Munich failed to convey to ANICO
historical loss data that was solely in Munich’s possession. Specifically, Munich
pointed to Pawlowski’s testimony that the “expected loss ratios for . . . [the Agreements
were] very dubious ....”, among other deposition testimony taken near the end of 2010.
April 18, 2011 Order at 10. While not ruling on the merits of ANICO’s contention, the
Magistrate Judge held that ANICO’s claim was colorable on its face and, therefore,
granted its request for leave to amend. With these facts in mind, I now turn to the
merits of the parties’ arguments.
1.
Waiver of Right to Rescind
As an initial matter, Munich argues that ANICO’s lengthy delay in bringing the
rescission counterclaim amounts to a waiver of that claim. Generally,
[a] reinsured is obliged to disclose to potential reinsurers all
“material facts” concerning the original risk, and failure to
do so generally entitles the reinsurer to rescission of its
contract. But the reinsured ordinarily has no obligation to
disclose the terms upon which insurance has been granted
where those terms are generally to be found in policies of
that nature, for the reinsurer ought to be aware of such
standard terms. Where the reinsured has offered extended
coverage or an unusual term, however, that is a material
fact which, if not disclosed, would render a reinsurance
agreement voidable.
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Sumitomo Mar. & Fire Ins. Co.–U.S. Branch v Cologne Reins. Co. of Amer., 75 N.Y.2d
295, 303 (1990) (internal citations omitted). In the reinsurance context, this duty to
disclose is rooted in the duty of utmost good faith or uberrimae fidei. Allendale Mut.
Ins. Co. v. Excess Ins. Co. Ltd., 992 F.Supp. 278, 282 (S.D.N.Y. 1998).
Even when this duty is breached, if the reinsurer or retrocessionaire treats the
reinsurance or retrocessional agreement as valid for a “considerable time” after
discovering the undisclosed facts, and fails to assert its rescission claim “within a
reasonable time,” the insurer waives its right to seek rescission. Sumitomo, 75 N.Y.2d
at 304. See also Prudential Ins. Co. of America v. BMC Industries, Inc., 630 F.Supp.
1298, 1300 (S.D.N.Y. 1986) (“A waiver requires the intentional relinquishment of a
known right with both knowledge of its existence and an intention to relinquish it.”)
(quoting City of New York v. State of New York, 40 N.Y.2d 659, 669, 357 N.E.2d 988,
389 N.Y.S.2d 332, 340 (1976)). Indeed, “New York courts have held specifically that
‘[w]here an insurer accepts premiums after learning of an event allowing for
cancellation of the policy, the insurer has waived the right to cancel or rescind.”
GuideOne Specialty Mut. Ins. Co. v. Congregation Adas Yereim, 593 F.Supp.2d 471, 485
(E.D.N.Y. 2009) (collecting cases). See also BMC Industries, Inc., 630 F.Supp. at 1300
(“waiver will be found where, subsequent to the discovery of the fraud, the party later
claiming a right to rescind has continued to accept the benefits of the agreement or
17
acted in some other fashion inconsistent with exercise of a right to rescind.”) (quoting
MacTaggart v. Risucci, 85 Civ. 0812, slip op. at 3 (S.D.N.Y. October 28, 1985)).6
Here, while the parties devote considerable space in their briefs to their waiver
arguments, the arguments distill to a single factual dispute: whether ANICO asserted
its rescission counterclaim within a reasonable period of time.
Pointing to
Schouweiler’s testimony, Munich suggests that ANICO knew as early as 2009 that it
intended to rescind the retrocessional agreements. Yet, according to Munich, ANICO
“sat on its rights,” made some payments under their agreements, and for those claims
that ANICO denied, it never cited Munich’s alleged failure to disclose material facts
as a basis for denying those claims. While Schouweiler testified in his deposition that
he considered rescission as early as late 2009, he later stated in an affidavit that it was
not until he became aware, through discovery in late 2010, of (i) Pawlowki’s emails
indicating a treaty rate of 4.5% and carve out loss cost of 1.72%, and (ii) that Everest’s
projections (that were provided to Munich and ANICO) were “dubious,” that he
(Schouweiler) had sufficient facts to assert a rescission counterclaim. Thus, it is
Schouweiler’s testimony that the rescission counterclaim could not have been brought
until late 2010.
Munich has not demonstrated that summary judgment is appropriate on the
question of waiver. The record evidence establishes that Schouweiler believed that he
could not assert the rescission claim on behalf of ANICO until he became aware of
6
Courts also refer to this sort of conduct as ratifying a voidable contract.
See BMC Industries, Inc., 630 F.Supp. at 300.
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Munich’s alleged failure to disclose during discovery in late 2010. Munich has not
pointed to any evidence to challenge Schouweiler’s testimony on this point, nor has
Munich shown that Schouweiler’s affidavit testimony clearly contradicts his earlier
deposition testimony.7 Indeed, his testimony vaguely states that he became aware that
ANICO was considering rescission “a year or two” before his Oct. 25, 2011 deposition,
and that he discussed rescission with his co-employee “a couple of years” before his
deposition. Viewing this deposition testimony in the light most favorable to ANICO,
a reasonable factfinder could view these non-specific, open-ended time frames as
consistent with his later assertion that it was not until late 2010 that he had sufficient
facts to support a rescission claim.
More importantly, ANICO then moved for leave to amend and add its rescission
counterclaim in January of 2011, shortly after the Pawlowski deposition was completed
in late 2010. Furthermore, this is not a case where the retrocessionaire became aware
of a failure to disclose and then received premiums or otherwise performed under the
contract months after attaining that knowledge. Compare GuideOne, 593 F.Supp.2d
at 485 (holding that insurer waived rescission claim by accepting premiums four
months after learning of facts comprising rescission claim). The only payments that
ANICO made on Munich’s claims were made before Schouweiler contends he became
aware of Munich’s failure to disclose.8
Finally, while one could argue that
7
As discussed in more detail below, subsequent contradictory testimony
could run afoul of the sham affidavit doctrine.
8
For this reason, Munich’s citation to Times Mirror Magazines, Inc. v. Field
& Stream Licenses Co., is inapposite—the non-breaching party in that case continued
19
Schouweiler’s affidavit—in which he states that he was not fully apprised of Munich’s
failure to disclose until late 2010—albeit not inconsistent with his prior deposition
testimony that he considered rescission in 2009, nonetheless, may not be wholly
credible. But credibility is the province of the factfinder, not the Court on summary
judgment.
Altogether, viewing Schouweiler’s testimony in the light most favorable to
ANICO, Munich has not established that the record supports, as a matter of law, that
ANICO did not pursue rescission within a reasonable time of becoming aware of the
facts supporting Munich’s alleged failure to disclose. Accord CNA Reinsurance of
London Ltd. v. Home Ins. Co., No. 85 CIV. 5681 (JFK) 1990 WL 3231 (S.D.N.Y. Jan.
10, 1990) (denying summary judgment where there existed a genuine issue of material
fact as to whether reinsurer’s employee knew that ceding insurer was violating express
terms of reinsurance agreement). Hence Munich is not entitled to summary judgment
on ANICO’s rescission claim based on a theory of waiver.9
2.
Right to Rescind Based on Failure to Disclose
Having concluded that summary judgment in favor of Munich is inappropriate
on the basis of waiver, I now turn to the merits of ANICO’s rescission counterclaim.
As explained above, “[t]he relationship between a reinsurer and a reinsured is one of
to receive its share of joint licensing royalties, pursuant to the various joint licensing
provisions in the parties’ agreements in that case. 103 F.Supp.2d 711, 736 (S.D.N.Y.
2000). Munich has not pointed to similar conduct by ANICO in this case.
9
To be clear, only Munich’s motion addresses the waiver argument; ANICO
does not cross-move for summary judgment on the waiver issue.
20
utmost good faith, requiring the reinsured to disclose to the reinsurer all facts that
materially affect the risk of which it is aware and of which the reinsurer itself has no
reason to be aware.” Christiania, 979 F.2d at 278 (citing Sumitomo, 75 N.Y.2d at 303).
The Second Circuit’s decision in Christiania succinctly explains the black letter law
applicable to rescission claims:
A fact is material so as to void ab initio an insurance
contract if, had it been revealed, the insurer or reinsurer
would either not have issued the policy or would have only
at a higher premium. Materiality is ordinarily a question of
fact, the standard for disclosure being whether a reasonable
insured should have believed the fact was something the
insurer would consider material. Of course, materiality
must be assessed as of the time the contract was entered
into. The issue [then] is whether, [armed with undisclosed
information], [the retrocessionaire] would have acted
differently, and, if so, whether [the reinsurer] should have
been aware that such listing would have affected [the
retrocessionaire’s] decision.
979 F.2d at 278 (italics in original).
Here, then, the inquiry is two-part: (1) whether ANICO reasonabley would have
considered the undisclosed information material; and (2) whether Munich should have
known that ANICO would consider the information material. These are generally
questions of fact. Id. Only “[c]lear and substantially uncontradicted” evidence of
materiality presents a question of law. Allendale, 992 F.Supp. at 282.
Munich’s central argument is that it fulfilled its duty to ANICO by providing
IOA Re with the underwriting package that it (Munich) had received; in Munich’s view,
that it and IOA Re independently came to different pricing for different sets of risks
merely reflects that each party used its own proprietary risk calculation methods—it
21
does not establish that Munich failed to disclose material information to ANICO. See
Munich Opp. Br. at 5-6. Moreover, Munich argues, both Munich and IOA Re reached
the same risk percentage on $500,000 excess of $500,000 layer. In Munich’s view, this
confirms that there was no additional information that it failed to disclose.
This
evidence could be viewed as suggesting to a reasonable factfinder that ANICO would
not have considered Munich’s internal loss calculations material. But the question on
summary judgment is not what ANICO would have considered with the benefit of
hindsight—the question is whether ANICO would have actually considered the
information material at the time of contracting. See Christiania, 979 F.2d at 279
(“[M]ateriality must be assessed as of the time the contract was entered into.”). Even
assuming that this evidence could support the inference that ANICO did not view the
undisclosed information as material at the time of contracting, it does not compel that
conclusion, which is what would be required for Munich to be entitled to summary
judgment. See id. (holding that a genuine issue of material fact was created by
underwriter’s testimony that, if undisclosed information was brought to his attention,
he would have inquired further and would have, likely, underwritten the policy only
at a higher premium).
Munich further argues that ANICO’s reliance on Pawlowski’s September 29,
2000 “dubious” email, that was disclosed in discovery in late 2010, is misplaced because
Lisa Hoekstra testified that she reached the same underwriting conclusions that
Pawlowski did even without the benefit of his negative view of Everest’s expected loss
ratios. Contrary to Munich’s contention, the email could be read to support ANICO’s
22
contention that Munich intentionally withheld material information from ANICO.
Consider the following colloquy in Pawlowski’s deposition:
Q:
[In your email] you indicate that Everest[’s] expected
loss ratios for the book of business is very dubious ....
[a]nd that was your opinion at the time?
A:
Yes.
Q:
Did you share that with [ANICO]?
A:
No.
Nov. 19, 2010 Pawlowski Dep. 171:1-23. This testimony could be interpreted by the
trier of fact to support the inference that Munich withheld information it believed was
material.
Finally, Munich argues that Hoekstra acknowledged at her deposition that,
when underwriting the retrocessional agreement, she, like Pawlowski, concluded that
there was not enough file history from which to develop a loss ratio and that, instead,
she was forced to use a manual rating. See Pl. Resp. Stat. Mat. Facts, ¶ 16. Even
assuming that this is an accurate characterization of Hoekstra’s testimony, it does not
satisfy either prong of the Christiania two-part inquiry. It does not establish as a
matter of law that ANICO would not have considered the information material at the
time of contracting, nor does it establish that Munich did not know that ANICO would
consider the information material. As the preceding discussion makes clear, each
party presents competing versions of the facts relating to the materiality of Munich’s
internal rate calculations, both versions of which find some support in the record.
23
Importantly, the record also includes competing expert reports and testimony
as to whether Munich’s calculations were material and whether it was objectively
reasonable for ANICO to expect that Munich would disclose the rates. For example,
Munich’s expert, Lydia B. Kam Lyew states in her expert report that it is customary
in the reinsurance industry for a company to safeguard its proprietary data, see
Waterman Dep. at 386:3-6 (recounting Lyew’s testimony), suggesting that it was
objectively unreasonable for ANICO to expect Munich to disclose its internal
calculations. See also O’Neill Cert., Exh. B (“Lyew Report”) at 9 (“[E]veryone involved
in a reinsurance transaction understands that each company will perform its analysis
and evaluations of a transaction utilizing the proprietary models and will not be
relying on the analysis of others.”) She, further, avers that it is customary for each
reinsurer to engage in contemporaneous underwriting and each reaches its own,
independent assessment of the risk presented by a given contract. Id. According to
Lyew, because companies employ their own underlying assumptions, they may arrive
at different results even when using similar methodologies for assessing risk. Thus,
she deduces, “companies do not typically share information of this type because the
results are company specific and are not particularly relevant to the evaluation each
company is performing for itself.” Id. at 10. Most notably, Lyew further concludes that
ANICO and Munich had access to the same underlying data from Everest and,
therefore, that ANICO had all the information it needed to properly evaluate the risk
relevant to its layer of excess coverage. Id. at 17-18, 20.
24
Conversely, ANICO’s expert, Richard Waterman, testified that a separate
provision in the agreements—the Sunset commutation provision—mandates that even
proprietary data and its underlying assumptions be shared with the retrocessionaire,
Waterman Dep. at 386:20-388:4, thereby making ANICO’s expectation of disclosure
reasonable. In Waterman’s view, and based on his experience in the reinsurance
industry, Munich’s knowledge that the “4 1/2 percent [rate] was not going to produce
an underwriting profit [was] the kind of information you share with reinsurers.” Id.
at 390:16-21. He explains “it’s the first principle belief in reinsurance . . . that if you
have a rate of 4 1/2 percent that you know is going to produce a loss to your reinsurer,
no matter what share they take, you know that the rate you’re offering is a loss to
them, you have to share that information with your retrocessionaire, the reinsurer.
That’s just a basic fundamental premise ....”. Id. at 391:9-18.
As this condensed version of the experts’ opinions makes clear, there is
competing expert testimony relating to the reasonableness of ANICO’s belief that it
would have considered Munich’s underlying assumptions and internal rate calculations
material at the time of contracting. And, the experts’ disagreements are relevant
because they speak to whether Hoekstra’s and ANICO’s belief that the undisclosed
data was material reflects industry custom and is objectively supportable, as New York
case law demands. See American Home Assur. Co. v. Fremont Indem. Co., 745 F.Supp.
974, 977 (S.D.N.Y. 1990) (“[T]he standard by which materiality is judged [is] an
objective one.”).
25
As noted above, “when resort to extrinsic evidence is necessary to shed light on
the parties’ intent summary judgment ordinarily is not an appropriate remedy, and
must be denied unless, viewing the evidence in a light most favorable to the nonmovant
and resolving all doubts in its favor, no reasonable trier of fact could find against the
movant.” Christiania, 979 F.2d at 274 (internal citations omitted). Here, there are
competing expert reports and contradictory testimony regarding the materiality of the
undisclosed information; thus, I conclude that summary judgment is inappropriate for
either party. Accord American Home Assur. Co. v. Fremont Indem. Co., 745 F.Supp.
at 977 (denying summary judgment where competing testimony regarding materiality
presented, and where it was not clear as a matter of law whether underwriter’s belief
that loss projections were material was objectively supportable). Accordingly, both
Munich’s motion and ANICO’s cross-motion on the merits of the rescission
counterclaim are denied.
C.
Untimely Claims Submissions Defense
Having concluded that summary judgment is not appropriate on ANICO’s
rescission counterclaim, I now turn to ANICO’s untimely claims submissions defense.
In its amended answer, ANICO asserts as its Second Affirmative Defense that Munich
has not satisfied conditions precedent to seeking damages
from [ANICO] herein or to seeking payment for claims
under the Retrocession Agreements as it has not satisfied
the conditions precedent of Articles I, X and XVI of the
Retrocession Agreement. [ANICO] is relieved of any liability
for the payment of claims which were in violation of these
conditions precedent, including those claims submitted
untimely or submitted with inadequate information.
26
Amended Answer, ¶ 47. In other words, ANICO argues that it may deny payment of
certain claims that were submitted by Munich in an untimely fashion because, under
its interpretation of the agreement, immediate notice is a condition precedent to
payment. Munich disagrees, arguing that the parties’ agreements make clear that
untimely notification does not affect its right to receive payment under the agreements.
For simplicity’s sake, I refer to this defense as the “untimely notice defense” in the
ensuing discussion.
As noted, if the language of the parties’ agreement is clear on its face, the Court
must enforce it as written. Only if a contract is ambiguous, i.e., “written so imperfectly
that it is susceptible to more than one reasonable interpretation,” Brad H. v. City of
New York, 17 N.Y.3d 180, 186 (2011), may the Court deny summary judgment and
“leave it to a fact-finder to decide its meaning.” Pacific Employers, supra at *6 (citing
Amusement Bus. Underwriters v. Am. Int'l Grp., Inc., 66 N.Y.2d 878, 498 N.Y.S.2d 760,
489 N.E.2d 729, 732 (1985)).
ANICO’s untimely notice defense hinges on Article X of the 2000 and 2001
retrocessional agreements:
A.
The Company [(Munich)] agrees to advise the
Reinsurer [(ANICO)] promptly of all claims coming under
this Agreement on being advised by the Original Ceding
Company, and to furnish the Reinsurer with such
particulars and estimates regarding same as are in the
possession of the Company. An omission on the part of the
Company to advise the Reinsurer of any loss shall not be
held to prejudice the Company’s rights hereunder.
B.
In addition, the following categories of claims shall be
reported to the Reinsurer immediately, regardless of any
27
questions of liability of the Company or coverage under this
Agreement:
1.
2.
3.
4.
Any accident reserved at 50% of the reinsured
attachment point;
Any accident involving a brain injury;
Any accident resulting in burns over 25% or
more of the body; or
Any spinal cord injury.
C.
The Reinsurer agrees to pay the Company on
demand, the Reinsurer’s proportion of all losses and/or loss
expenses paid by the Company arising from the Underlying
Agreement, including any and all expenses incurred directly
by the Company in the litigation, defense and settlement of
claims made against the Company by the Original Ceding
Company under the Underlying Agreement, excluding,
however, all office expenses of the Company and the salaries
and expenses of its employees.
2000 Agreement at Endorsement No. 1 (emphasis added). Hereafter, I refer to the
claims specified in subsection B as “category B claims.”
The claims at issue in this case are category B claims, specifically, those that fall
under subsection B.1 of Article X—accidents that Munich reserved at 50% of the
reinsured attachment point. As the above-quoted language makes clear, claims falling
within this category “shall be reported to the Reinsurer immediately ....” According to
ANICO, Munich received notice of these claims from the original ceding insurer at
various dates over the course of several years, from August 2003 through April 2010,
with notice for most of the claims being provided in 2006 through 2008. See LeBlanc
Cert., Exh. 1 (chart of untimely claims). Once Munich received that notice, it reserved
at 50% of the reinsured attachment point, typically, around three months after
receiving notice. So, Munich reserved at 50% for the bulk of the claims in 2006
28
through 2008. However, according to ANICO, Munich did not report many of these
claims to ANICO until August 8, 2008, which, in ANICO’s view, does not comply with
the agreement’s dictate that Munich notify ANICO of these types of claims
“immediately.”10
More to the point, ANICO argues that Munich’s failure to immediately notify it
of these claims absolves ANICO of its responsibility to pay the claims. ANICO
acknowledges that subsection A unequivocally states that “[a]n omission on the part
of the Company [(Munich)] to advise the Reinsurer [(ANICO)] of any loss shall not be
held to prejudice the Company’s rights hereunder.” 2000 Agreement at Endorsement
No. 1 (emphasis added). It is ANICO’s position that, since subsection B does not
contain similar language, the agreement dictates that immediate notice is a condition
precedent to payment for claims that fall within the categories specified in subsection
B. Munich disagrees with ANICO’s interpretation of Article X, arguing instead that
nothing in Article X creates a condition precedent for any category of claims.
10
The Court notes that ANICO’s notice chart states that Munich notified
it of claims on August 8, 2008 for which Munich had not yet ever received notice. For
example, the chart states that Munich received notice of the Childers claim from the
original ceding insurer on April 12, 2010. Thereafter, the chart states that Munich
notified ANICO of this claim on August 8, 2008. The Court cannot discern from the
chart whether this is a typographical error, or whether Munich gave ANICO advance
notice of a claim that it believed would subsequently be reported to it by the original
ceding insurer. Indeed, ANICO acknowledges in its reply brief on its motion that there
are other typographical errors in the chart. In any event, as I conclude that Article X.B
does not create a condition precedent to payment, I need not resolve this factual
quandry.
29
In my view, reading the plain language of Article X as a whole, it is clear that
Munich’s failure to timely advise ANICO of any claim is not a condition precedent that
affects Munich’s right to receive payment. Subsection A directs Munich to advise
ANICO “promptly of all claims coming under this Agreement [up]on being advised by
the Original Ceding Company . . . An omission on the part of the Company to advise
the Reinsurer of any loss shall not be held to prejudice the Company’s rights
hereunder.” 2000 Agreement at Endorsement No. 1 (emphasis added). By using the
terms “any” and “all,” subsection A expressly covers each and every claim covered by
the parties’ agreement—including category B claims.
Indeed, subsection B makes clear that its terms apply “in addition” to, not in lieu
of, those of subsection A:
In addition, the following categories of claims shall be
reported to the Reinsurer immediately, regardless of any
questions of . . . coverage under this Agreement ....
Id. (emphasis added). By incorporating this additional requirement for category B
claims, the drafters did not intend for subsection B to trump the general language of
subsection A. Rather, the drafters supplemented subsection A’s language with a
special notice requirement (of immediate notice), just for category B claims.
Even assuming that the subsection A “shall not be held to prejudice the
Company’s rights” language did not apply to category B claims, there is no language
in subsection B indicating that it creates a condition precedent to payment. The Third
Circuit’s recent decision in Pacific Employees, in which it interpreted a prompt
30
payment provision in a reinsurance agreement governed by New York law, is
instructive on this point.11
The language at issue in Pacific Employers, found in Paragraph D of the parties’
agreement in that case, provided: “As a condition precedent, [Plaintiff] shall promptly
provide [Defendant] with a definitive statement of loss on any claim or occurrence
reported to [Plaintiff] and brought under this Certificate which involves a death,
serious injury or lawsuit.” 2012 WL 3871588 at *7. The circuit concluded, without
difficulty, that Paragraph D’s express language created a condition precedent,
particularly when read in light of other language in the parties’ agreement that the
defendant “does hereby reinsure” the plaintiff “subject to the terms, conditions, and
limits of liability set forth herein.” Id. at *11.
Instructive, here, is the following portion of the circuit’s reasoning:
When reading the first sentence of Paragraph D in context,
it becomes even clearer that the consequences for failing to
comply with it must be different in kind than the
consequences for failing to comply with other provisions in
the Certificate. No other provision in the Certificate uses
“condition precedent” language. For example, Paragraph
D's second provision makes no mention of a “condition
precedent,” and simply provides that “[PEIC] shall also
notify [Global] promptly of any claim or occurrence where
[PEIC] has created a loss reserve equal to (50) percent of
[PEIC’s] retention.” Thus, while Paragraph D's first
sentence creates a condition precedent to coverage, the second
(like all other provisions in the Certificate) is an ordinary
11
Since Pacific Employers was issued while the Court was drafting this
Opinion, the Court directed the parties to file supplemental briefing on the case. The
Court has considered that briefing in ruling on the parties’ motions.
31
contractual covenant the breach of which may entitle Global
to damages but does not automatically forfeit coverage.
Id. (emphasis added).
The language at issue in this case mirrors that rejected by the Third Circuit as
creating a condition precedent to payment. The circuit interpreted the language that
“[PEIC] shall also notify [Global] promptly of any claim or occurrence where [PEIC] has
created a loss reserve equal to (50) percent of [PEIC’s] retention” as failing to create
such a condition because it did not expressly state as much. Id. So too, here, there is
no “as a condition precedent” or similar language in the parties’ agreement.12 This
means that the prompt payment provision in this case is “an ordinary contractual
covenant the breach of which may entitle [ANICO] to damages but does not
automatically forfeit coverage.” Id.
ANICO argues that Pacific Employees actually supports its construction,
because the retrocessional agreements contain generic language stating that the
agreement is “in consideration of the mutual covenants hereinafter contained and upon
the conditions hereinafter set forth.” 2000 Agreement at 1. However, ANICO’s
argument falls wide of the mark because, although the agreements do include such
language, they are nonetheless missing the far more critical condition precedentcreating language upon which the Third Circuit hinged its interpretation. Language
12
I do not, and need not, conclude that retrocessional agreements must
contain the magic words “as a condition precedent” in order to create such a condition
to payment. Because the agreements here do not contain any clear statements of an
intent to condition payment upon the timing of Munich’s claims submissions, I merely
hold that the contracts before me do not create a condition precedent.
32
generally stating that the agreement is “in consideration of the mutual covenants
hereinafter contained and upon the conditions hereinafter set forth” does not, alone,
amount to clear language demonstrating the parties’ intent to make a breach a
condition precedent to payment. Compare Pacific Employers, supra at *13 (noting
that, under New York law, the contract must “use the words ‘condition precedent’ or
. . . other words indicating an intent to create a condition precedent.”).
ANICO further argues that Munich’s interpretation would permit it to present
a claim at any time, and absolve Munich of any delay in providing notice. That is not
accurate. As the circuit recognized, covenants that do not include express “condition
precedent” language are still enforceable under breach of contract principles; a ceding
insurer’s failure to comply may cost that insurer damages attributable to its delay,
though it will not forfeit the insurer’s coverage. Pacific Employers, supra at *11. The
circuit explained in Pacific Employers that prompt notice provisions— particularly, like
here—tied to the ceding insurer’s setting of a 50% claim reserve, are designed to allow
the reinsurer to forecast and prepare for future losses. When a ceding insurer fails to
comply with a prompt notice provision, the reinsurer may incur economic damages that
it could have otherwise avoided. It is these sort of damages that appear to be
contemplated by Pacific Employers, and that could, potentially, be available to ANICO
here. For these reasons, I conclude that the prompt and immediate notice language
in Article X of the parties’ agreements here does not operate to create a condition
precedent.
33
ANICO appears to argue, in the alternative, that it may deny payment even
where there is no express language creating a condition precedent, as long as it can
demonstrate prejudice. The Third Circuit addressed this issue in Pacific Employers
as well.
For a reinsurer to be relieved from its indemnification
obligations because of the reinsured’s failure to provide
timely notice, absent an express provision in the contract
making prompt notice a condition precedent, it must show
prejudice resulted from the delay.
Pacific Employers, 2012 WL 3871588, at *13 (quoting Christiania, 979 F.2d at 274
(emphasis omitted)).
ANICO has not pointed to sufficient record evidence in support of its contention
that it has suffered prejudice.
In its opposition to Munich’s motion for partial
summary judgment, ANICO acknowledges Schouweiler’s testimony that ANICO did
not maintain reserve or loss information, nor did it perform any calculation with
respect to damages incurred due to Munich’s late reporting. ANICO does not challenge
Munich’s characterization of Schouweiler’s testimony in its brief; it argues, instead,
that “[w]hether or not [ANICO] maintained specific loss or reserve information . . . , the
failure of [Munich] to report claims as it was required to do so changed the mix of total
reserve or loss information which was maintained by IOA Re and upon which [ANICO]
relied ....” ANICO Opp. at 21. Moreover, ANICO argues that it was prejudiced by the
untimely notice because, in June 2003, it commuted Munich’s claims and, had it
received timely notice of the disputed claims, it may not have entered into the
commutation. See Schouweiler Afft., pp. 3-4 (“The reporting of these additional claims
34
would have had a material effect on the decision I made to commute the reinsurance
agreement with [Munich].”).13 In support of these factual contentions, ANICO cites
Schouweiler’s 2012 affidavit that followed his earlier deposition testimony cited by
Munich.
But ANICO cannot create a genuine issue of material fact by pointing to
inconsistent testimony given by Schouweiler on separate occasions. For example,
Schouweiler testified in his deposition that ANICO did not maintain specific loss
information, see October 25, 2011 Schouweiler Dep. 45:24-46:14, yet he provides
specific loss information in his affidavit: “As of March 31, 2003, when financial
calculations were made by IOA Re concerning potential commutation, the outstanding
loss reserve relative to the [agreements] was only $500,000.” Schouweiler Afft., p. 4.
He, further, agreed in his deposition that “there was no allocation of the commutation
to . . . any one underlying contract” between Munich and ANICO, October 25, 2011
Schouweiler Dep. 91:6-9, and that, at the time of commutation, he did not expect IOA
Re to be performing any commutation analysis of each underlying contract, id. at
92:16-20. Yet, in his affidavit he unequivocally states that “there should have been at
13
“A commutation is a settlement agreement reached between a reinsured
and a reinsurer by which the reinsurance obligation is terminated by an agreement by
the reinsurer to pay funds at present value that are not yet due under the reinsurance
agreement. Similar to a policy buy-back with an insured, a commutation allows the
reinsured to receive cash now to invest for the payment of claims that will come due
in the future.” Larry P. Schiffer, Esq., To Commute or Not To Commute, that Is the
Question, http://www.irmi.com/expert/articles/2003/schiffer07.aspx (last visited
September 18, 2012).
35
least twice as many claims reported to IOA Re . . . by the time [of] commutation ....”
Schouweiler Afft., p. 4.
It is axiomatic that a party may not create a genuine issue of material fact by
contradicting his own testimony. Per the sham affidavit doctrine, district courts are
instructed to disregard affidavits that conflict with a party’s prior deposition testimony.
Jiminez v. All Am. Rathskeller, Inc., 503 F.3d 247, 251 (3d Cir. 2007).
A sham affidavit cannot raise a genuine issue of fact
because it is merely a variance from earlier deposition
testimony, and therefore no reasonable jury could rely on it
to find for the nonmovant. [I]f it is clear that an affidavit is
offered solely for the purpose of defeating summary
judgment, it is proper for the trial judge to conclude that no
reasonable jury could accord that affidavit evidentiary
weight and that summary judgment is appropriate.
Id. at 253 (internal citations omitted). Only where there is “independent evidence to
bolster the contradictory testimony,” should the court consider the affidavit.
Nationwide Mut. Ins. Co. v. Shaw, --- Fed.Appx. ----, 2012 WL 3156865, *7 (3rd Cir.
Aug. 6, 2012).
Here, ANICO has not pointed to any independent evidence to support the
contradictory aspects14 of Schouweiler’s testimony, and it is clear that the affidavit was
14
By referring to “the contradictory aspects of Schouweiler’s testimony,” I
am acknowledging that some of the testimony in his affidavit does not contradict his
prior deposition testimony. For example, in response to several questions at his
deposition, Schouweiler testified that he “did not know” or “did not recall.” Those
instances in his subsequent affidavit in which he states that he now recalls an answer
are, therefore, technically not inconsistent with his deposition testimony.
Nevertheless, the above-referenced instances in the body of this Opinion differ in that
they involved affirmative statements that his later affidavit sought to alter, amend, or
qualify.
36
offered to defeat summary judgment.15
Nor has ANICO explained away the
discrepancies, a factor that courts consider when determining whether the sham
affidavit doctrine should apply. See, e.g., Morgan v. Communication Workers of
America, AFL-CIO, Dist. 1, Civil Action No. 08-cv-249 (FLW), 2009 WL 749546, *10
(D.N.J. Mar. 17, 2009). Thus, ANICO has failed to carry its burden of demonstrating
prejudice and, accordingly, Munich’s motion for summary judgment on ANICO’s
untimely notice defense is granted and ANICO’s cross-motion on this same issue is
denied.16
D.
Retention
The parties’ retention dispute centers on the definition of the term “ultimate net
loss” set forth in the agreements. As noted, the agreements generally provide that
ANICO will indemnify Munich “for the amount of ultimate net loss . . . which may
accrue to [Munich] as a result of loss or losses occurring during the term of [the]
Agreement[s] as a result of [Munich’s] participating in the [Munich-Everest]
15
Although the affidavit was attached to ANICO’s moving papers on its
cross-motion for summary judgment, its motion was filed after Munich’s motion for
partial summary judgment and it addresses issues outlined in Munich’s motion. Thus,
I construe ANICO’s attachment of the Schouweiler Affidavit to its cross-motion papers
as also in furtherance of its opposition to Munich’s motion.
16
To be clear, I am not ruling upon whether Munich failed to timely report
claims under the retrocessional agreements because I conclude that ANICO is not
entitled to deny payment on that basis. For this same reason, I also do not address
whether Munich’s bordereaux reporting satisfied the agreements’ notice provisions, nor
do I address Munich’s argument that ANICO waived the untimely notice defense. I,
further, note that my ruling does not foreclose ANICO from pursuing monetary relief
against Munich for untimely submissions of claims if it indeed suffered damages as a
result of the delayed submissions. See Pacific Employers, supra at *11.
37
Reinsurance Agreement ....” 2001 Retrocessional Agreement, Art. I(A) (emphasis
added). The agreements, further, specifically address when ANICO becomes obligated
to indemnify Munich for Munich’s ultimate net loss:
ARTICLE IV - RETENTION AND LIMIT
[ANICO] shall not be liable for any loss hereunder until
[Munich’s] ultimate net loss, each loss occurrence exceeds
$500,000. [ANICO] shall then be liable hereunder for the
amount of ultimate net loss in excess of $500,000, each loss
occurrence subject to a limit of liability to [ANICO] of
$500,000, each loss occurrence, and further subject to a
maximum aggregate recovery hereunder of $20,000,000 in
any one agreement year.
Id., Art. IV.
Article VII of the agreements specifically defines the term “ultimate net loss”:
A.
The term “ultimate net loss” as used herein shall be
understood to mean only such amounts as are actually paid
or payable by [Munich] and [Everest] under the [MunichEverest] Agreement, in the settlement of claims or
satisfaction of judgments, including court costs,
prejudgment interest and any other liabilities covered under
the [Munich-Everest] Agreement for business covered
hereunder.
B.
All salvages, recoveries, payments, and reversals or
reductions of verdicts or judgments, recovered or received
subsequent to a loss settlement under this Agreement,
including amounts recoverable under other reinsurance
(whether collected or not) which inures to the benefit of this
Agreement, shall be applied as if recovered or received prior
to the loss settlement, and shall be deducted from the actual
losses sustained to arrive at the amount of the ultimate net
loss.
Id., Art. VII.
38
Relying heavily on the reference to both Munich and Everest in Article VII,
Munich argues that, once Everest and Munich collectively pay $500,000 toward a
settlement or judgment on a covered workers’ compensation claim, ANICO is required
to pay on its $500,000 excess policy. This means, under Munich’s interpretation, that
Munich is required to pay (or be required to pay by virtue of a judgment or settlement)
only $250,000 before ANICO’s excess obligation comes into effect. In addition to Article
VII’s language, Munich relies on the deposition testimony of Lisa Hoekstra, the IOA
Re underwriter, who underwrote the parties’ agreements.
She testified at her
deposition that her intent in underwriting the agreements was that both Everest’s and
Munich’s losses would count toward the $500,000 limit.
Contrary to Munich’s interpretation of the policy language, ANICO argues that
Munich alone must pay or be required to pay $500,000 before ANICO is obligated on
the excess policy.17 ANICO finds support for its interpretation in Article IV which
refers solely to Munich’s ultimate net loss. In addition, ANICO argues that several of
the claims Munich submitted were premised on a $500,000 loss incurred solely by
Munich. See LeBlanc Cert., Exh. 3, Washburn Afft. Munich’s key response to ANICO’s
interpretation is that it would lead to an absurd result; because Munich is liable for a
total of $750,000, and Munich will indemnify up to $500,000 per claim, if ANICO’s
17
Munich refers to its preferred method of calculation (Munich and Everest
losses combined) as “ground up” basis, and refers to ANICO’s preferred method as “net
retained” basis. While neither of these terms are found in the agreements themselves,
the terms are used by various deponents and by the parties in their briefs in this case.
I refer to the terms here where necessary or helpful to elucidate the parties’
arguments.
39
coverage did not attach until Munich spent $500,000, as a practical matter, Munich
could never recover more than $250,000 from ANICO. Munich argues that this result
is inconsistent with Article IV, which provides that Munich purchased up to $500,000
in coverage.
As this argument can be difficult to follow, consider the following charts that
represent the practical effect of the parties’ proposed interpretations on a $1 million
workers’ compensation claim:
Munich’s
ANICO’s
Proposed Interpretation
Proposed Interpretation
$0 - $250,000
Everest pays
Everest pays
$250,000 -
Munich pays
Munich pays
ANICO pays
Munich pays
ANICO pays
ANICO pays
$500,000
$500,000 $750,000
$750,000 - $1
million
As this comparison illustrates, the key difference between the parties’ proposed
interpretations relates to which entity pays the $500,000 - $750,000 layer. Under
ANICO’s interpretation, Munich bears that burden because it is only when Munich
pays $500,000 from its own pocket that ANICO’s obligation attaches. The problem
with this interpretation is that the retrocessional agreements clearly provide for
$500,000 in retrocessional coverage. See 2001 Retrocessional Agreement, Art. IV.
40
Thus, adopting ANICO’s interpretation would ensure that ANICO “will never pay more
than $250,000 per claim” since Munich alone is responsible for the $250,000 - $500,000
and $500,000 - $750,000 layers. Pl. Stat. Mat. Facts, ¶ 114; Def. Resp. Stat. Mat.
Facts, ¶ 114 (“Agree”). In Munich’s view, this undermines the central purpose of the
retrocessional agreements, which is to provide Munich with $500,000 worth of cover.
Ultimate net loss is a term of art. “Excess insurance policies generally provide
indemnification coverage for ‘ultimate net loss,” defining that loss to encompass the
total amount the insured, or any company acting as his insurer, becomes obligated to
pay as personal injury or property damages. A.W. Chesterton Co. v. Massachusetts
Insurers Insolvency Fund, 838 N.E.2d 1237, 1256 n.15 (Mass. 2005). In short, it is “the
amount that the insurer owes the insured.” SR Intern. Business Ins. Co., Ltd. v.
Allianz Ins. Co., 343 Fed.Appx. 629, 633 (2d Cir. 2009).
Although ultimate net loss is a term of art with a commonly accepted meaning,
courts nonetheless focus their analyses on the language of the policy at issue to
ascertain the term’s meaning in a particular case. See, e.g., In re Enron Corp., Civ.
Action No. H-01-3624, 2006 WL 1663383, *6-7 (S.D.Tex. Jun. 12, 2006) (construing
“ultimate net loss” to exclude defense costs that have not yet been “incurred,” in
accordance with specific provisions in policy); Fischer v. Excess Ins. Co. of America, 115
F.2d 755, 756-57 (8th Cir. 1940) (when construing “ultimate net loss”, rejecting
appellant’s reliance on contract language from other cases that differed from the
contract language at issue in that case). See also Fidelity & Deposit Co. v. Pink, 302
U.S. 224, 230 (1937) (“We do not question the general rules concerning liability of
41
reinsurers . . . but the liability under any written contract must be determined upon
consideration of the words employed, read in the light of attending circumstances.”)
superceded by statute on other grounds as stated in Skandia Am. Reins. Corp. v.
Schenck, 441 F.Supp. 715, 725 (S.D.N.Y. 1977).
Turning to the policy language here, there are several provisions that are
difficult to reconcile. In this connection, the Court notes that the agreements are not
artfully drafted. It has been commented:
Many reinsurance contracts are cut-and-paste jobs, where
some relatively low-level, clerical person in an
intermediary's office will go through a file and pick out the
boilerplate clauses that look as if they ought to apply in this
particular contract, and put them in. Very often, you end up
with contracts that are internally inconsistent.
Wollan Interview at 12. In citing this comment, I do not necessarily find that the
parties here engaged in such short-sighted efforts when drafting and negotiating their
agreement, but I mention it to highlight the fact that the contradictory language of the
parties’ agreement here is, unfortunately, not uncommon in the field of reinsurance.
Article IV, the retention provision, refers solely to Munich’s losses by stating
that ANICO “shall not be liable for any loss hereunder until [Munich’s] ultimate net
loss . . .exceeds $500,000.” Similarly, Article X provides that ANICO
agrees to pay [Munich] on demand, [ANICO’s] proportion of
all losses and/or loss expenses paid by [Munich] arising
from the Underlying Agreement, including any and all
expenses incurred directly by [Munich] in the litigation,
defense and settlement of claims made against [Munich] by
[Everest]....
42
2001 Retrocessional Agreement, Article X (C) (emphasis added). If these were the sole
provisions addressing ultimate net loss, I would conclude that the agreement
unambiguously supports ANICO’s interpretation; only Munich’s losses are
incorporated in this expression of the ultimate net loss calculus.
However, Article VII’s reference to both Everest’s and Munich’s losses makes
such a ruling untenable. The purpose of Article VII is to define the term ultimate net
loss, and Article VII does that by referencing Everest’s losses in addition to Munich’s.
As noted, Article VII provides: “‘ultimate net loss’ as used herein shall be understood
to mean only such amounts as are actually paid or payable by [Munich] and [Everest]
....”
ANICO makes the facially appealing argument that if the drafters intended to
include Everest’s losses, they most likely would have also referenced Everest in Article
IV. It is conceivable that both Articles IV and VII could be harmonized by construing
Article VII’s reference to “Everest” as invoking the losses that Munich, itself, is
obligated to pay as Everest’s reinsurer. As Munich correctly argues, however, ANICO’s
interpretation would have the practical effect of limiting Munich’s cover to only
$250,000. That result would, in turn, conflict with Article IV which expressly states
that ANICO provides $500,000 in excess coverage and would undermine the purpose
of the agreement—for ANICO to provide $500,000 worth of excess coverage to Munich.
This renders ANICO’s proposed interpretation unreasonable since New York courts
seek to give meaning to all provisions of a contract, New York State Thurway Auth. V.
KTA-Tator Eng. Svcs., P.C., 78 A.D.3d. 1566, 1567, 913 N.Y.S.2d 438, 438 (N.Y.A.D.
43
2010), and disfavor interpretations that lead to absurd results, Greenwich Capital Fin.
Prods., Inc. v. Negrin, 74 A.D.3d 413, 415, 903 N.Y.S.2d 346 (2010) (“[A] contract
should not be interpreted to produce a result that is absurd, commercially
unreasonable or contrary to the reasonable expectations of the parties.”). See also SR
Intern., 343 Fed.Appx. at 633 (rejecting party’s “tortured” interpretation on summary
judgment where party’s interpretation would “ lead to an absurd result” by reducing
the insurer’s ultimate net loss).
Indeed, it has been consistently repeated by courts interpreting New York
contract law that absurd results should be avoided, particularly when they undermine
the purpose of the parties’ agreement.
[In the] interpretation of insurance contracts ... words
should be given the meanings ordinarily ascribed to them
and absurd results should be avoided .... the meaning of
particular language found in insurance policies should be
examined “in light of the business purposes sought to be
achieved by the parties and the plain meaning of the words
chosen by them to effect those purposes.”
World Trade Center Props., LLC v. Hartford Fire Ins. Co., 345 F.3d 154, 184 (2d Cir.
2003) (quotation marks omitted) overruled in part on other grounds by Wachovia Bank,
N.A. v. Schmidt, 546 U.S. 303 (2006). See also Gorman v. Consol. Edison Corp., 488
F.3d 586, 596 n. 9 (2d Cir. 2007) (“canons of construction forbid contractual
interpretations that lead to absurd results”); Bank Julius Baer & Co. v. Waxfield Ltd.,
424 F.3d 278, 283 (2d Cir. 2005); Vector Capital Corp. v. Ness Techs. Inc., No.
11–cv–6259, 2012 U.S. Dist. LEXIS 36847, at *8–9 (S.D.N.Y. Mar. 16, 2012) (under
New York law, “a court should not interpret a contract in a manner that would be
44
absurd, commercially unreasonable, or contrary to the reasonable expectations of the
parties”) (internal quotation marks omitted); Bank of N.Y. Trust, N.A. v. Franklin
Advisers, Inc., 674 F.Supp.2d 458, 463–64 (S.D.N.Y. 2009) (“[A]n interpretation that
gives a reasonable and effective meaning to all of a contract is generally preferred to
one that leaves a part unreasonable or of no effect.”).
In determining whether a contract is ambiguous, the Second Circuit has
explained: “[a] word or phrase is ambiguous when it is capable of more than a single
meaning when viewed objectively by a reasonably intelligent person who has examined
the context of the entire integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in the particular trade or
business.” U.S. Fire Ins. Co. v. Gen. Reinsurance Corp., 949 F.2d 569, 572 (2d Cir.
1991) (internal quotation marks and citations omitted). Here, despite the initial facial
appeal of ANICO’s proposed interpretation, I conclude that it is not one that reflects
an objectively reasonable interpretation of the parties’ agreements.
This leaves
Munich’s proposed interpretation—that both Everest’s and Munich’s losses count
toward the ultimate net loss calculation—as the only viable interpretation that
harmonizes all relevant provisions. Accordingly, I conclude that summary judgment
in Munich’s favor is appropriate.
Moreover, even if I concluded that the ultimate net loss provisions were
ambiguous, New York case law makes clear that, “[t]o the extent the moving party’s
case hinges on ambiguous contract language, summary judgment may be granted
[where] the ambiguities may be resolved through extrinsic evidence that is itself
45
capable of only one interpretation, or where there is no extrinsic evidence that would
support a resolution of these ambiguities in favor of the nonmoving party’s case.”
Topps Co., Inc. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008).
Such a case is presented here. IOA Re underwriter Lisa Hoekstra testified that,
when she underwrote the loan, she intended that the Everest losses be included in the
ultimate net loss calculation. She states in her deposition that
Q:
. . . After you reviewed the file, did you remember
that the treaty retention point was intended to be
calculated on a ground-up basis?
A:
Yes.
Q:
And so that meant that . . . when [Munich and
Everest] collectively had paid a total of $500,000 on
a claim, everything above that was [ANICO’s]
responsibility?
A:
Yes.
*
*
*
Q:
Okay. And that’s the understanding you had when
you placed the treaty, right?
A:
Yes.
Oct. 18, 2010 Hoekstra Dep. at 18:22-19:1.
Although Hoekstra is not ANICO’s 30(b)(6) designee, she is nonetheless a fact
witness whose testimony supports Munich’s interpretation that Everest losses be
included. ANICO does not dispute Hoekstra’s testimony, nor does it present any
46
evidence
to
contradict
it.18
In
addition,
ANICO’s
own
expert—Richard
Waterman—testified that Everest losses were included in the ultimate net loss
calculus. He stated in his deposition that “in the ultimate net loss provisions in the
contract, it refers to the retention of Everest as being part of the ultimate net loss,”
hence the retrocessional agreements’ “$500,000 retention was on a ground-up basis.”
Feb. 18, 2012 Waterman Dep. 87:6-15. Waterman qualifies this statement by noting
that “[m]y opinion as an expert is that the contract is worded very poorly and is
ambiguous and could be misconstrued . . . I, as an expert in the industry, found it to
be very unusual and could see how people could interpret [the ultimate net loss
language] differently.” Id. at 86:10-24. This qualification, however, does not vitiate
his conclusion that the agreement included Everest’s losses in the ultimate net loss
calculus.19 The only record evidence that ANICO cites to is Munich’s reporting, for a
18
Rather, ANICO merely states in its Responsive Statement of Material
Facts to Munich’s motion that it “disagrees” that “such testimony, from a fact witness,
means that the attachment point does in fact apply on a ground up basis.” Def. Resp.
Stat. Mat. Facts, ¶ 108. ANICO, further, contends in its responsive statement that
Hoekstra was not the only underwriter involved in the underwriting of the
retrocessional agreements, yet ANICO did not point to testimony from any other
underwriter to contradict Hoekstra’s recollection of her intent.
19
To be clear, I do not treat Waterman’s testimony as an admission of a
party opponent. Several courts that have considered whether the deposition testimony
of an expert employed by a party was an admission under Federal Rule of Evidence
801(d)(2) have concluded that “[s]ince an expert witness is not subject to the control of
the party opponent with respect to consultation and testimony he or she is hired to
give, the expert witness cannot be deemed an agent” whose testimony can be treated
as an admission. Kirk v. Raymark Industries, Inc., 61 F.3d 147, 164 (3d Cir. 1995). See
also Smith v. U.S., No. 3:95-cv-445, 2012 WL 1453570 (S.D.Oh Apr. 26, 2012)
(following Kirk); Koch v. Koch Industries, Inc., 37 F.Supp.2d 1231 (D.Kan. 1998),
affirmed in part and reversed in part on other grounds, 203 F.3d 1202 (10th Cir.);
Condus v. Howard Sav. Bank, 986 F.Supp. 914, 915-17 (D.N.J. 1997). Compare Lear
47
time, of some of its claims on a net retained basis, i.e., based solely upon Munich’s
expenditures. But this evidence does not demonstrate Munich’s or ANICO’s intent at
the time of contracting—the pertinent question that must be answered for the Court
to resolve the contractual ambiguity.20 Accordingly, even viewing all the evidence in
the light most favorable to ANICO, there is no genuine issue of material fact as to the
parties’ intent. Rather, all the evidence points to one inescapable conclusion: that the
parties intended for Everest’s losses to be included in the ultimate net loss
determination.
Because I would conclude that the extrinsic evidence conclusively establishes the
parties’ intent, even if the ultimate net loss language were ambiguous, I would not
reach the question of whether the rule of contra proferentem (construing the policy
against the drafter) should apply here, as ANICO argues it should. New York case law
Automotive Dearborn, Inc. v. Johnson Controls, Inc., 789 F.Supp.2d 777, 785-86
(D.Mich.2011) (following Kirk and noting that Rule 801(d)(2) may be used to admit
facts presented by party to expert as opposed to expert’s opinion based upon those
facts). But see Collins v. Wayne Corp., 621 F.2d 777 (5th Cir. 1980) (holding that
deposition testimony of an expert employed by a bus manufacturer to investigate an
accident was an admission under 801(d)(2)). My ruling rests on ANICO’s failure to
create a genuine issue of material fact by pointing to record evidence contradicting
Hoekstra’s testimony. I discuss Waterman’s testimony to highlight the lack of record
evidence contradicting Hoekstra’s statements.
20
For this reason, the deposition testimony of Jeffrey Circuit, IOA Re’s
Executive Vice President of Marking and Rule 30(b)(6) designee, is also unhelpful to
ANICO. Circuit testified at his deposition that he reads documents in the IOA Re
underwriting file as indicating that the type of retention is not ground up. Circuit Nov.
29, 2011 Dep. 219:24-220:7. However, Hoekstra expressly rejected Circuit’s
interpretation, stating at her deposition that Circuit’s reading “is not the way I
intended [the contract to be interpreted] when it was underwritten.” Hoekstra Oct. 18,
2010 Dep. 82:22-24. More to the point, ANICO has not pointed to any deposition
testimony by Circuit about ANICO’s or IOA Re’s intent at the time of contracting.
48
describes contract interpretation as a three-part analysis: “First, the district court
must determine if the policy’s terms are reasonably susceptible to multiple
interpretations and therefore ambiguous as a matter of law. Second, the court must
determine if there was a genuine issue of material fact as to whether extrinsic evidence
resolves the ambiguity. Finally, if extrinsic evidence cannot resolve the ambiguity, the
district court must apply the rule of contra proferentem and construe the agreement
against the insurer.” Stern v. Cigna Group Ins., No. 07-0772-cv, 2008 WL 4950067, *
1 (2d Cir. Nov. 20, 2008) (emphasis added); see also id. at 2 (noting that contra
proferentem is a “principle[ ] of last resort, to be invoked [only] when efforts to fathom
the parties’ intent have proved fruitless.”) (quoting Record Club of Am., Inc. v. United
Artists Records, Inc., 890 F.2d 1264, 1271 (2d Cir. 1989)). Here, where the contract
language is susceptible to only one reasonable interpretation, and where the extrinsic
evidence supports only one construction, there is no basis for the Court to apply the
contra proferentem principle. Therefore, for the foregoing reasons, I conclude that
summary judgment in Munich’s favor on the construction of the retention provision is
appropriate.
E.
Everest Re Claims
Three of the claims presented by Munich to ANICO for indemnification were
allegedly issued by an Everest affiliate, Everest Re. ANICO contends that it is not
obligated to pay these claims because the retrocessional agreements cover only those
claims issued by Everest. Munich moves for partial summary judgment on this claim.
Article I of the agreements specifies which claims are covered:
49
ARTICLE I - Business Covered
A.
The Reinsurer hereby agrees to indemnify the
Company for the amount of ultimate net loss as herein
provided and specified which may accrue to the Company as
a result of loss or losses occurring during the term of this
Agreement as a result of its participation in the following
Reinsurance Agreement . . .
B. The Reinsurance Agreement listed above (hereinafter
referred to as the “Underlying Agreement”) is between the
Company and the following insurance company or group
(hereinafter referred to as the Original Ceding Company.):
EVEREST National Insurance Company
Phoenix, Arizona
(as identified in the Underlying Agreement)
2001 Agreement, Art. I (A)-(B) (emphasis added).
The gist of ANICO’s argument is that, because Article I specifically defines the
Original Ceding Company as “EVEREST National Insurance Company,” it is obligated
only to pay claims to that entity and not to any related entities. Moreover, ANICO
argues, Article VIII of the agreements specifically excluded “[r]einsurance assumed by
the Original Ceding Company.” Contrary to this position, Munich argues that Article
I’s reference to “the following insurance company or group” encompasses any
companies related to Everest and that, to adopt ANICO’s interpretation, would turn
“group” into unnecessary surplusage.
Summary judgment in Munich’s favor is inappropriate because the plain
language of the agreements does not unequivocally support Munich’s proposed
construction. As ANICO correctly argues, Article VIII expressly excludes reinsurance
50
claims: “This agreement does not apply to and specifically excludes . . . [r]einsurance
assumed by the Original Ceding Company ....” 2001 Retrocessional Agreement, Art.
VIII (7). In responding to this argument, Munich does not dispute that Everest Re is
a reinsurer. Rather, it merely deflects Article VIII by arguing that ANICO “does not
proffer any evidence that the claims it now seeks to exclude fall within that exclusion.”
Munich Reply at 14. Yet, the mere title of Everest’s affiliate—Everest Re—strongly
suggests that it is a reinsurer.21 As Munich has not presented any evidence that
Everest Re is not a reinsurer, the plain language of the parties’ agreements dictates
that its motion for partial summary judgment be denied.22 Furthermore, construing
the agreements in this way does not render the “group” language superfluous.
Insurers may take the form of an individual company or a group, such as “Argonaut
Insurance Group, Inc.,” Small v. Arch Capital Group, Ltd., 85 A.D.3d 625, 627
(N.Y.A.D. Jun. 23, 2011), or syndicates in the Lloyd’s of London insurance market, see
Global Reinsurance Corporation-U.S. Branch v. Equitas Ltd., 20 Misc.3d 1115(A), 867
N.Y.S.2d 16, 2008 WL 2676805 (N.Y. Sup. Jul. 3, 2008) (describing syndicates as a
21
See American Home Assur. Co. v. Everest Reinsurance Co., 936 N.Y.S.2d
20, 20-21 (N.Y.A.D. 2011) (describing Everest Re as a reinsurer).
22
Munich, further, argues that “ANICO’s prior conduct in paying an Everest
Re claim without reservation establishes the exclusion is inapposite.” Munich Reply
at 14-15. I disagree. It is inappropriate for a court to consider extrinsic evidence, such
as Munich’s conduct, where the plain language of the parties’ agreement is clear. To
the extent that Munich is attempting to raise another waiver claim, its one-paragraph
reference to ANICO’s prior conduct is so underdeveloped that the Court cannot engage
in a proper analysis of such an argument.
51
“group”).
Article I makes clear that the ceding insurer here is a single
company—Everest.
F.
Roofer Claims
Several of the claims challenged by ANICO are “roofer” claims. In the 1999
Munich-Everest reinsurance program, which is the subject of the 2000 Retrocessional
Agreement at issue in this case, Everest agreed to non-renew any existing roofing
contractors. In Hoekstra’s file—the IOA Re underwriter—there is a document titled
“Everest National Insurance Company 1999 Workers Compensation Excess of Loss
Program, Specific Retrocession of American Re-Insurance Company,” i.e., Munich.
Kline Cert. App. II, Exh. 110 at 5852. I refer to this document as the “Everest
Program” document. It appears that this document served as a sort of prospectus to
potential retrocessionaires, but this is not clear from the face of the document itself.23
This document includes a section entitled “Refinement Process” that describes
Everest’s book of business. Pertinent here is the following language
it was decided to non-renew any existing roofing contractors
and temporary or leasing agencies. These classes were
never a significant portion of the book but contributed a
disproportionate share of losses. It should be noted that
these were always subject to specific and more stringent
underwriting/risk selection criteria. Even so, these classes
are better left to those companies who specialize in them.
Id. at 5854 (emphasis added).
23
In its Statement of Material Facts, Munich refers to this document as
Everest’s “underwriting submission.” Pl. Stat. Mat. Facts at ¶ 119.
52
Based on this language, ANICO now seeks to deny coverage for employees
injured while working on a roof. Munich challenges the denial, arguing that nothing
in the plain language of the retrocessional agreements excluded “roofer” claims and,
furthermore, the denied policies were not issued to “roofing contractors” but to general
contractors whose employees happened to be working on a roof at the time of injury.24
Munich is not entitled to summary judgment on the roofer claims. As an initial
matter, the Court notes that while there is no roofer exclusion in the retrocessional or
reinsurance agreements, the parties have proceeded as if one exists. Indeed, Munich
does not dispute that a roofer exclusion exists, but instead challenges ANICO’s
interpretation of the scope of the roofer exclusion. Specifically, Munich argues that
ANICO’s Assistant Vice President of Group and MGU Operations, and Rule 30(b)(6)
designee on underwriting issues, Michael Paetz, conceded that the roofer exclusion did
not bar a claim involving someone employed by a general contractor who happened to
fall off a roof.25
Munich points to the following excerpt from Paetz’s deposition testimony:
24
Review of the record reveals that the Robin Bond claim was indeed filed
by a general contractor on behalf of a roofing subcontractor that did not carry
insurance. See LeBlanc Cert., Exh. 4 (email from Lisa Hoekstra to Arthur Giacobbe
dated October 23, 2003).
25
The Court notes that there additional facts relating to the roofer claims
asserted in Munich’s Statement of Material Facts. However, Munich did not argue the
relevance of these facts in its briefing. For example, while Munich states in its
Statement of Material Facts that IOA Re paid a claim submitted on behalf of a
construction worker who fell off of a roof, Munich does not argue that ANICO’s
payment constitutes a waiver of its right to deny payment under the roofer exclusion.
In my view, this fact does not alter the result here, and neither do the remaining facts
asserted in the Statement of Material Facts.
53
Q:
[I]f someone who worked for some other company, not
a roofing company, happened to fall off a roof, would
you regard that as an excluded roofer claim?
A:
The question would have to be what was the person
doing on the roof and if it was in relation to his or her
employment, you know, why was that person on the
roof. . . . There are companies that might not have
roofer in their name that might be construction
companies that might have people doing roofing type
of business. Beyond that I don’t know what to tell
you exactly.
Q:
Okay. From an underwriting perspective, if in the
context of worker’s compensation insurance if roofing
business is supposed to be excluded, do you
understand that to mean the insuring of roofing
companies, employers that are roofers?
A
I would.
Paetz Dep. 36:10-37:4.
Contrary to Munich’s argument, this testimony does not amount to a concession.
Paetz testified that the question of whether a claim should be denied is fact-sensitive:
“The question would have to be what was the person doing on the roof and if it was in
relation to his or her employment, you know, why was that person on the roof. . . . “
Id. at 36:14-17. He, further, suggested that a company that is not a roofing contractor
but is one that “might have people doing roofing type of business” could fall within the
roofer exclusion.
Id. at 36:19-21.
Thus, rather than supporting Munich’s
interpretation of the roofer exclusion, Paetz’s testimony supports ANICO’s view that
it is not obligated to indemnify Munich on a general contractor claim filed on behalf of
a roofing subcontractor that did not carry insurance.
54
Moreover, even if Paetz’s testimony substantively supported Munich’s
interpretation of the roofer exclusion, it is clear from the context surrounding Paetz’s
statement that he is not discussing the roofer exclusion language found in the Everest
Program document—which he, apparently, did not review—but is expressing his
opinion on roofer exclusions generally.
Q:
Now, you said there was an issue with respect to
coverages excluded. What’s your understanding of
that issue?
A:
Specifically roofer claims were not to be covered
under the contract.
Q:
And who told you that?
A:
Walt [Dorosz]26 and Cathy [Washburn]27.
*
*
*
Q:
Did they show you anything that substantiated this
position?
A:
No.
Q:
Did they tell you what a roofer claim was or how they
determined what a roofer claim was?
A:
They didn’t tell me. I would assume that it was on
people who would be involved in roofing.
*
Q:
*
*
. . . And, so, a roofer would be a roofing company,
right?
26
Chief Operating Officer of IOA Re.
27
Senior Auditor at IOA Re.
55
A:
That’s how I would interpret it.
Paetz Dep. 35:8-36:9. Accordingly, Paetz’s testimony does not serve as a concession
that the roofer exclusion found in the Everest Program document must be interpreted
to apply only to roofing contractors and, consequently, there are genuine issues of
material fact as to the scope of the roofer exclusion. Munich’s motion for summary
judgment on the roofer exclusion is denied.
IV.
CONCLUSION
For the foregoing reasons, the Court grants in part, and denies in part, Munich’s
partial motion for summary judgment.
With respect to ANICO’s rescission
counterclaim, the Court denies Munich’s motion on the merits because there exists a
genuine issue of material fact. With respect to ANICO’s untimely claim submission
defense to payment, the Court grants Munich’s motion on the merits. The Court
grants Munich’s motion on the retention issue, concluding that retention is calculated
on a ground up basis. With respect to the Everest Re and “roofer” claims, Munich’s
motion is denied. Finally, in light of the aforesaid ruling on the untimely claim
submission defense, the Court does not reach Munich’s use of bordereaux reporting;
hence summary judgment on that basis is denied. ANICO’s cross-motion is denied in
its entirety.
Dated:
September 28, 2012
/s/ Freda L. Wolfson
Freda L. Wolfson, U.S.D.J.
56
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