Compagnie De Reassurance D'Ile de France v. New England Reinsurance Corp.
| Decision Date | 05 May 1994 |
| Docket Number | 93-2339,Nos. 93-2338,s. 93-2338 |
| Citation | 57 F.3d 56 |
| Parties | RICO Bus.Disp.Guide 8837 COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, et al., Plaintiffs, Appellants, v. NEW ENGLAND REINSURANCE CORPORATION, et al., Defendants, Appellees. COMPAGNIE DE REASSURANCE D'ILE DE FRANCE, et al., Plaintiffs, Appellees, v. NEW ENGLAND REINSURANCE CORPORATION, et al., Defendants, Appellants. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Robert S. Frank, Jr., with whom Cynthia T. MacLean, David A. Attisani, Choate, Hall & Stewart, David S. Mortensen and Tedeschi, Grasso & Mortensen, Boston, MA, were on brief for defendants.
Allan B. Taylor, with whom William Shields, Kenneth W. Ritt, Boston, MA, Matthew E. Winter, Stamford, CT, Mary Theresa Kaloupek and Day, Berry & Howard, Boston, MA, were on brief for plaintiffs.
Before TORRUELLA, Chief Judge, CAMPBELL, Senior Circuit Judge, and CARTER, District Judge. *
This is an appeal from a final judgment of the district court in an action brought by a number of foreign reinsurance syndicates, companies and pools against a domestic reinsurance company and related parties. At issue are reinsurance contracts (or "treaties," as they are known) under which plaintiffs, Compagnie De Reassurance D'Ile de France, et al., 1 agreed to reinsure portions of risks selected, and also reinsured, by defendant New England Reinsurance Corp. ("NERCO"). After sustaining heavy losses under these Treaties, plaintiffs sued defendants NERCO, First State Insurance Company ("First State"), and Cameron and Colby Co., Inc. ("Cameron & Colby"), alleging that they had been induced to enter into the reinsurance treaties by fraud, and further claiming breach of contract, violations of Mass.Gen.L. ch. 93A, Sec. 2, and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968. Defendants counterclaimed, alleging breach of contract and violations of Mass.Gen.L. ch. 93A, Sec. 2. Following a 30-day bench trial, the district court found for the plaintiffs on all but the RICO claims. The court ordered rescission of the challenged reinsurance Treaties and ordered defendants to pay plaintiffs $38,118,940.07, representing all sums plaintiffs had previously paid out on losses incurred under the Treaties with credit for premiums received, plus prejudgment interest at 12 percent. Defendants estimate that the net cost to them of the court's decision, adding together the court's judgment and the sums plaintiffs have been excused from paying out as reinsurers of various losses, is approximately $106 million.
Defendants have appealed from the judgments for plaintiffs on the fraud, contract and Mass.Gen.L. ch. 93A claims. Plaintiffs have cross-appealed from the district court's dismissal of their RICO claim. For the reasons set forth below, we sustain the district court's findings and rulings on certain matters; reverse others as being clearly erroneous or legally incorrect; and identify still others that require the district court to make findings and rulings now absent. We, therefore, vacate the district court's judgments and remand for further proceedings consistent herewith. Our specific dispositions are summarized on pages 93-94 of this opinion.
The following is an overview. More specific facts will be related as needed in our discussion of the various issues.
The defendants are all subsidiaries of the Hartford Group of Insurance Companies ("the Hartford"). 2 First State, based in Boston, Massachusetts, was a primary insurer. NERCO was a Boston-based reinsurer. Cameron & Colby, also based in Boston, provided management, marketing, underwriting, and other services to both First State and NERCO. Neither First State nor NERCO had employees of its own; their businesses were carried on by employees of Cameron & Colby. Graham Watson, Inc., 3 not a party, was created in 1979 as an unincorporated division of Cameron & Colby; it became the latter's wholly owned subsidiary in mid-1980. Graham Watson's role was to provide marketing and underwriting services The underlying casualty and property risks germane to this case were located in North America. Individuals and entities wishing to insure against these risks procured policies of insurance from primary insurers. The latter then purchased reinsurance from NERCO in order to indemnify themselves in whole or in part against losses sustained under the primary policies they had issued.
in the facultative 4 reinsurance venture that is the subject of this litigation.
Not wanting to keep all the exposure that it had assumed as a reinsurer, NERCO itself--often acting with and through Graham Watson--sought reinsurance on the London insurance market, resulting in the arrangements with which this lawsuit is concerned. Under these reinsuring agreements--the so-called System and Non-System ("SANS") Treaties--many syndicates at Lloyd's of London and other overseas reinsurance entities (some of whom are the plaintiffs in this case) agreed to provide continuing reinsurance to NERCO on a portion of each risk it reinsured. In industry terminology, NERCO, having been "ceded" the risks by the primary insurers, became a "retrocedent," the plaintiffs became "retrocessionaires," and the agreements between them were "retrocessional" treaties. The plaintiff retrocessionaires agreed to indemnify NERCO for a portion of any losses NERCO might sustain in its reinsurance of primary insurers. In return, NERCO promised to acquire ("produce"), evaluate ("underwrite"), and price ("rate") the risks and to share with plaintiff retrocessionaires, subject to its retention of certain commissions, a portion of the premium it received.
In 1979, NERCO retained a U.S. broker, G.L. Hodson, to assist it in arranging for this reinsurance on the London market. Towards this end, Graves Hewitt, the CEO of Cameron & Colby, and his associates drafted and circulated in late 1979 a document known as the Placing Information. This document stated that Cameron & Colby had established the Graham Watson division after studying facultative reinsurance operations in North America and after receiving the approval and support of the Hartford and ITT. 5 The stated purpose of the division was:
1. To participate in the property and casualty facultative reinsurance business which is currently dominated by the direct writers.
2. To rationalise [sic] the facultative placements of both the Hartford and the First State not only from an administration [sic] point of view but also to provide the retrocessionaires with a broad cross section of facultative reinsurance emanating from these two companies.
According to the Placing Information, Graham Watson was charged with penetrating the "non-brokered ... direct professional reinsurance market," leaving "[f]acultative reinsurance emanating from reinsurance intermediaries ... [to] continue to be written separately through NERFAC," the latter being an existing in-house entity that had, for some time, been writing reinsurance for the defendants. The Placing Information was circulated to, among others, several European sub-brokers retained by Hodson to act on NERCO's behalf in seeking potential retrocessionaires. 6
In late 1979, Hewitt traveled to London accompanied by Thomas Hearn, a Hodson employee. Aided by employees of sub-broker Sedgwick Payne, they approached Ralph Bailey, the head underwriter for plaintiff Terra Nova Insurance Company Limited, and described to him the proposed reinsurance plan. Sedgwick-Payne's brokers thereafter negotiated with Bailey the "slips" spelling out the terms of the treaties. With Bailey agreeing to act as "lead underwriter" for the London market companies, the brokers approached Ron Kellet, head underwriter for plaintiff B.P.D. Kellet & Others, a Lloyd's syndicate, with the request that he act as lead underwriter on behalf of all other Lloyd's syndicates. 7 After the leads had stamped and initialed the slips, indicating the proportion of the total risk they were bound to accept, the slips were separately presented for approval to the underwriters for each of the plaintiffs, 8 each of whom indicated his or her acceptance of a portion of the risks by initialing the slip. 9
These slips constituted, in abbreviated form, the contracts between the cedent NERCO and the various retrocessionaires. 10 Briefly summarized, the slips provided that the subject matter of the Treaties was "Business classified by the Reassured [NERCO] as Property and Casualty Facultative Assumed business produced and underwritten by the Graham Watson division of Cameron & Colby Co., Inc." They also stated that the Lead Underwriter had authority to require exclusion of certain types of risks, and to agree to the final wording of the formal contract. NERCO was to retain a minimum of $250,000 of each risk ceded, and as respects system business (i.e., risks written by First State and other Hartford entities, infra ), was not to cede more than 50 percent of the original reinsurance limit of any given risk to the Treaties, and was to co-reinsure for 10 percent participation on each such risk. The slips also specified the commission structure and various other conditions of the Treaties. The slips did not incorporate the Placing Information as such.
Each underwriter subsequently signed Treaty Wordings, formal contracts containing a more elaborate statement of the parties' agreements. These were based on the slips, and the parties agreed that, in the event of any inconsistency, the slips would control. The first set of SANS Treaties ran for the eleven month period from February 1 through December 31, 1980. Thereafter, those plaintiffs who desired to continue for another year indicated their willingness to join by initialling new slips and ultimately executing new Treaty Wordings for 1981. Successive...
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