Continental Cas. v. Northwestern Nat. Ins.

• Decision Date: 25 October 2005
• Docket Number: No. 04-3560.,04-3560.
• Citation: 427 F.3d 1038
• Parties: CONTINENTAL CASUALTY COMPANY and CONTINENTAL INSURANCE COMPANY, Plaintiffs-Appellees, v. NORTHWESTERN NATIONAL INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1038

427 F.3d 1038

CONTINENTAL CASUALTY COMPANY and CONTINENTAL INSURANCE COMPANY, Plaintiffs-Appellees, v. NORTHWESTERN NATIONAL INSURANCE COMPANY, Defendant-Appellant.

No. 04-3560.

United States Court of Appeals, Seventh Circuit.

Argued September 15, 2005.

Decided October 25, 2005.

Melville W. Washburn, Constantine L. Trela, Jr. (argued), Sidley Austin Brown & Wood, Chicago, IL, for Plaintiffs-Appellees.

Evan L. Smoak (argued), R. Steven Anderson, Barger & Wolen, New York, NY, for Defendant-Appellant.

Before FLAUM, Chief Judge, and RIPPLE and KANNE, Circuit Judges.

FLAUM, Chief Judge.

Continental Casualty Company ("CCC") and Continental Insurance Company ("CIC") brought a declaratory judgment action against Northwestern National Insurance Company ("NNIC"), seeking to clarify a 1996 Commutation and Release Agreement ("Agreement"). CCC and CIC are insurance companies. NNIC is also an insurance company, which provides reinsurance. NNIC's predecessor, Bellefonte Insurance Company ("Bellefonte"), entered into various reinsurance contracts with CCC and CIC from the 1960s to the 1980s, under which Bellefonte assumed the risks insured by CCC and CIC. NNIC assumed responsibility for those contracts. In 1996, CCC and NNIC negotiated to commute some of these contracts. The parties disagree as to which reinsurance contracts the 1996 Agreement commuted. CCC and CIC maintain that the Agreement covered three specific reinsurance contracts between CCC and NNIC, and those three contracts only. NNIC argues, however, that the Agreement also commuted all reinsurance contracts between NNIC and CIC. Before the district court, CCC and CIC moved for summary judgment and NNIC filed a cross motion for summary judgment. The district court granted CCC and CIC's motion and denied NNIC's cross motion. NNIC appeals. For the following reasons, we now affirm.

I. Background

CCC and CIC are both owned by CNA Financial Corporation ("CNA"), an insurance holding company. During all periods relevant to this litigation, CNA has directly owned CCC. CNA purchased the Continental Corporation, which directly owned CIC, on May 10, 1995. NNIC is an insurance company that provides reinsurance contracts.

Under a reinsurance contract, an insurance company, known as the "reinsurer," sells insurance to another insurance company, known as the "ceding company," "cedent," or "reinsured," covering some or all of the insured risk for which the cedent is responsible. There are two types of reinsurance contracts: "treaty reinsurance agreements," which cover an entire line or segment of the cedent company's business over a specified period of time, and "facultative reinsurance agreements," which apply to a single policy issued by the cedent and are negotiated on an individual basis.

From the 1960s to the 1980s, Bellefonte and CCC entered into various treaty reinsurance agreements and facultative reinsurance agreements. During this period, Bellefonte and CIC also entered into various facultative reinsurance agreements. NNIC, as Bellefonte's successor in interest, assumed these reinsurance agreements.

In May 1996, CCC and NNIC agreed to commute certain reinsurance agreements. Jack Diers, NNIC's President and CEO at the time of the transaction and NNIC's signatory to the Agreement, and Zina Cornelius, CNA's Account Executive, negotiated the deal. Under the Agreement, NNIC paid $6.1 million to CCC in exchange for releasing NNIC from its obligations to CCC under certain reinsurance agreements. The Agreement contains a choice of law clause, providing that Illinois law will govern disputes arising out of the Agreement.

The Agreement states in its first recital that "the Reinsured and Reinsurer are parties to the Treaty Reinsurance Agreements listed in Schedule A." The Agreement also states, in the second recital, that "the Reinsured and the Reinsurer now desire to fully and finally settle and commute all their respective past, present, and future obligations and liabilities, known and unknown, under the Reinsurance Agreements." The Agreement defines the term "Reinsured" as CCC and all of its affiliates. Because CIC was affiliated with CCC at the time the Agreement was made, the district court found, in an earlier proceeding that is not at issue in this appeal, that CIC is bound by the Agreement. Continental Cas. Co. v. Northwestern Nat'l Ins. Co., 2003 WL 21801022 (N.D.Ill. Aug. 4, 2003).

The Agreement defines "Reinsurance Agreements" as "Treaty Reinsurance Agreements listed in Schedule A." The first two pages of Schedule A are divided into two parts. First, under the title "Through Direct Placement with Intermediary," a number of treaties are listed by number, "program," "layer," and effective date. Second, under the title "Through Facultatively Placed," one entry is listed, "0709 Bellefonte Reins."

The central issue in this appeal is the meaning of the term "0709 Bellefonte Reins." The parties agree that this term is ambiguous. CCC and CIC argued before the district court that only three CCC facultative reinsurance agreements were commuted by the Agreement, because only these agreements were included within the category "0709 Bellefonte Reins." NNIC argued, however, that the Agreement commuted all facultative certificates issued by Bellefonte to all CNA entities, including CCC and CIC.

The district court granted summary judgment in favor of CCC and CIC. NNIC now appeals.

II. Discussion

We review the district court's grant of summary judgment de novo. See, e.g., Franklin v. City of Evanston, 384 F.3d 838, 843 (7th Cir.2004). We "draw all reasonable inferences from the evidence in the light most favorable to the nonmoving party," NNIC. Id. (quoting Williamson v. Ind. Univ., 345 F.3d 459, 462 (7th Cir.2003)) (internal quotation marks omitted). "This standard applies when cross motions for summary judgment are filed," as they were in this case. Id. (citing Metro. Life Ins. Co. v. Smith, 297 F.3d 558, 561 (7th Cir.2002)). To succeed on their motion for summary judgment, CCC and CIC "must show that there is no genuine issue of material fact and that [they are] entitled to judgment as a matter of law." Id.; see also FED. R. CIV. P. 56(c). Once CCC and CIC have met this burden, NNIC must show that there is "evidence on which the jury could reasonably find for" NNIC. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). We are "`not required to draw every conceivable inference from the record,' and `mere speculation or conjecture' will not defeat a summary judgment motion." McCoy v. Harrison, 341 F.3d 600, 604 (7th Cir.2003) (quoting Gleason v. Mesirow Fin., Inc., 118 F.3d 1134, 1139 (7th Cir.1997); and Estate of Phillips v. City of Milwaukee, 123 F.3d 586, 591 (7th Cir.1997)).

Under Illinois law, which controls here because of the Agreement's choice of law clause, it is the general rule that "questions of contractual ambiguity [are given] to the trier of fact, together with the evidence necessary to resolve them." Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139 F.Supp.2d 869, 891 (N.D.Ill.2001). An exception to this general rule is that "if a contract is ambiguous, its interpretation is a question of law for the court as long as the extrinsic evidence bearing on the interpretation is undisputed," and summary judgment is therefore appropriate in such cases. Baker v. America's Mortgage Servicing, Inc., 58 F.3d 321, 326 (7th Cir.1995). In sum, if a reasonable jury could not find for NNIC even when all reasonable inferences are drawn from the undisputed extrinsic evidence, summary judgment is appropriate.

In the underlying proceeding, the district court considered a variety of extrinsic evidence that the parties offered to show the meaning of the ambiguous term "0709 Bellefonte Reins." First, the district court examined facsimiles exchanged by Cornelius and Diers during the negotiation of the Agreement. These three facsimiles, dated October 2, December 14, and December 29, 1995, detail the reinsurance contracts to be commuted and were in "nearly the identical format as the Commutation Agreement." The October 2 facsimile, which the district court determined to be nearly identical to the December 14 and 29 facsimiles, lists "outstanding receivables by claims for Bellefonte, Universal Re., and Northwestern National Companies." The item "070 Bellefonte Reins." (which the parties agree should have read "0709 Bellefonte Reins.") is listed under the heading "Through Facultatively Placed." The "Paid Losses" column across from "070[9] Bellefonte Reins." contains the figure $22,783.35. The district court determined that "[t]his value corresponds with the summation of three claims listed on the next page for facultative claims...