586 F.Supp. 1286 (S.D.N.Y. 1984), 82 Civ. 8068, Bellefonte Re Ins. Co. v. Argonaut Ins. Co.

Docket Nº:82 Civ. 8068, 82 Civ. 8069.
Citation:586 F.Supp. 1286
Party Name:BELLEFONTE RE INSURANCE COMPANY, Plaintiff, v. ARGONAUT INSURANCE COMPANY, Defendant. UNIVERSAL REINSURANCE COMPANY, Plaintiff, v. ARGONAUT INSURANCE COMPANY, Defendant.
Case Date:May 04, 1984
Court:United States District Courts, 2nd Circuit, Southern District of New York
 
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Page 1286

586 F.Supp. 1286 (S.D.N.Y. 1984)

BELLEFONTE RE INSURANCE COMPANY, Plaintiff,

v.

ARGONAUT INSURANCE COMPANY, Defendant.

UNIVERSAL REINSURANCE COMPANY, Plaintiff,

v.

ARGONAUT INSURANCE COMPANY, Defendant.

Nos. 82 Civ. 8068, 82 Civ. 8069.

United States District Court, S.D. New York.

May 4, 1984

Miller, Singer, Michaelson & Raives, P.C., New York City, for plaintiffs; Robert M. Raives, Lawrence I. Brandes, Clifford H. Schoenberg, Steven S. Honigman, New York City, of counsel.

Butler, Rubin, Newcomer, Saltarelli & Boyd, Winston & Strawn, Chicago, Ill., Donovan Leisure Newton & Irvine, New York City, for defendants; James J. Rubin, of counsel.

OPINION

ROBERT L. CARTER, District Judge.

Both plaintiffs in these consolidated actions, Bellefonte Re Insurance Company ("Bellefonte") and Universal Reinsurance Company ("Universal"), contracted separately to reinsure defendant, Argonaut Insurance Company ("Argonaut"), on business generated by one of defendant's managing general agents, Resources Facilities, Inc. ("RFI"). Subsequently, the parties became embroiled in a controversy over the validity of the reinsurance contracts and over plaintiffs' liability to defendant under those contracts. These disputes were settled by written agreements, 1 both of which contained substantially identical mutual covenants not to sue. The parties promised not to commence any litigation on claims

arising from or relating to any act, omission to act or transaction which occurred prior to the execution of this Agreement in connection with any and all matters

Page 1287

arising out of the dispute regarding the ... contracts of reinsurance. 2

Nevertheless, five years after the Bellefonte-Argonaut settlement and six years after the Universal-Argonaut settlement, plaintiffs brought suit to rescind the reinsurance contracts ab initio on the ground that information material to the risks reinsured was not disclosed at the time the contracts were negotiated. Specifically, plaintiffs alleged that defendant had not informed them that Argonaut had employed RFI only after soliciting a letter from a third party that purported to indemnify Argonaut for any loss which resulted from the business generated by RFI. Plaintiffs also alleged that defendant had failed to disclose that Argonaut vice-president, Frank Rovere, recommended that Argonaut not contract with RFI because the honesty of RFI's president was suspect.

Acknowledging the apparent bar of the covenants not to sue, plaintiffs sought, in the same complaints, judgment rescinding the settlement agreements or, alternatively, a holding that the covenants did not bar suits premised on the non-disclosure of material facts. Plaintiffs argued, first, that the settlements had been fraudulently induced. They alleged no new misrepresentation in connection with the negotiation or execution of the agreements, but contended that the same failure to disclose material information which entitled them to recission of the reinsurance contracts tainted the settlement agreements as well. In addition, plaintiffs argued that the "dispute regarding the ... contracts of reinsurance" did not concern defendant's alleged failure to disclose the indemnification letter or the Rovere recommendation, and therefore that the covenants not to sue did...

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