Bellefonte Re Ins. Co. v. Argonaut Ins. Co.
| Decision Date | 18 March 1985 |
| Docket Number | Nos. 385,D,490,392,s. 385 |
| Citation | 757 F.2d 523 |
| Parties | BELLEFONTE RE INSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. ARGONAUT INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant. UNIVERSAL REINSURANCE COMPANY, Plaintiff-Appellant-Cross-Appellee, v. ARGONAUT INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant. ocket 84-7582, 84-7584 and 84-7590. |
| Court | U.S. Court of Appeals — Second Circuit |
Lawrence I. Brandes, New York City (Robert M. Raives, Clifford H. Schoenberg, Steven S. Honigman, Miller, Singer & Raives, P.C., New York City, on brief), for plaintiffs-appellants-cross-appellees.
James I. Rubin, Chicago, Ill. (Brigitte Schmidt Bell, Robert N. Hermes, Butler, Rubin, Newcomer, Saltarelli & Boyd, Harold C. Wheeler, Winston & Strawn, Chicago, Ill. Gibson, Dunn & Crutcher, New York City, on brief), for defendant-appellee-cross-appellant.
Before MESKILL, KEARSE and CARDAMONE, Circuit Judges.
Plaintiffs Bellefonte Re Insurance Company ("Bellefonte") and Universal Reinsurance Company ("Universal") appeal from final judgments of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, see 581 F.Supp. 241 (1984), dismissing their complaints seeking rescission of reinsurance contracts and settlement agreements entered into with defendant Argonaut Insurance Company ("Argonaut") on the ground that Argonaut procured the reinsurance and settlement agreements by means of fraudulent nondisclosures. The district court granted Argonaut's motion for summary judgment dismissing the complaints on the ground that the settlement agreements clearly barred plaintiffs from asserting their only alleged basis for rescission of either the reinsurance contracts or the settlement agreements. Id. at 244. The court dismissed Argonaut's counterclaims for damages for plaintiffs' breach of the covenants not to sue contained in the settlement agreements on the ground that the present actions had not been brought in bad faith or in obvious breach of the covenants. See 586 F.Supp. 1286 (1984).
On appeal, plaintiffs contend that they were induced to enter into both the reinsurance contracts and the settlement agreements by Argonaut's nondisclosures of material facts, and that under the custom and practice in the reinsurance industry, the settlement agreements cannot be read to bar rescission on grounds of fraud. In addition, Universal contends that the district court erred in not taking into account its evidence that the alleged fraudulent nondisclosures on the basis of which it sought rescission of its settlement agreement were not raised in its presettlement dispute with Argonaut. In its cross-appeal, Argonaut contends that the court should have upheld its counterclaims for the cost of defending the present actions because the covenants not to sue precluded plaintiffs from commencing litigation of any kind.
Finding no merit in any of the parties' contentions, we affirm.
In 1973, Argonaut entered into an agreement with Resources Facilities, Inc. ("RFI"), to act as a "front" company for the writing of insurance by RFI, i.e., to lend its name to the issuance of insurance policies written by RFI; RFI was to be considered Argonaut's managing general agent ("MGA") for such insurance. Pursuant to this agreement, RFI was to pay Argonaut 10% of the premiums obtained and was to obtain reinsurance; Argonaut was to retain 2 1/2% of the first $100,000 of exposure per risk. In 1974, Bellefonte and Universal, separately, entered into reinsurance contracts ("treaties") with Argonaut on the business written by RFI as Argonaut's MGA.
In February 1976, Argonaut sued RFI, charging it with a variety of contract violations and frauds. Soon thereafter, Universal and Bellefonte stopped making payments on losses to Argonaut arguably covered by the reinsurance contracts.
Bellefonte became involved in a dispute with Argonaut over the validity of the reinsurance contracts and the balances allegedly due to Argonaut from Bellefonte under those contracts. In January 1978, the two entered into a settlement agreement ("B/A Settlement Agreement") to resolve this dispute. In the B/A Settlement Agreement, which recited that Bellefonte and Argonaut were "involved in a dispute regarding the validity of [the RFI-related] contracts of reinsurance and the balances due to [Argonaut] thereunder," Bellefonte agreed to pay Argonaut a certain sum, and each party agreed not to sue the other in connection with, inter alia, "any and all matters arising out of the dispute regarding the [RFI-related] contracts of reinsurance." The covenant not to sue stated, in pertinent part, that Bellefonte and Argonaut agreed
not to demand arbitration or commence litigation of any kind anywhere in the world and agree[d] to refrain forever from instituting, prosecuting, collecting or in any way aiding or proceeding directly or indirectly ... upon any and all claims, demands and liability of every kind and nature known and unknown, 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 arising out of the dispute regarding the [RFI-related] contracts of reinsurance.
Following Argonaut's institution of suit against RFI, Universal also became involved in a dispute with Argonaut. In December 1976, Universal and Argonaut entered into a settlement agreement ("U/A Settlement Agreement") to resolve this dispute. The U/A Settlement Agreement recited that the parties were "involved in a dispute regarding [Universal's] liability to [Argonaut] under the [RFI-related] contract of reinsurance"; it did not expressly mention a dispute as to the validity of that contract. Under this agreement, Universal agreed to pay Argonaut a certain sum; and each party agreed not to sue the other in connection with, inter alia, "any and all matters arising out of the dispute regarding the [RFI-related] contract of reinsurance." The covenant not to sue was virtually identical to the one included in the B/A Settlement Agreement described and quoted above.
In December 1982, Bellefonte and Universal brought the present actions against Argonaut, each seeking rescission of its settlement agreement on the ground that Argonaut had fraudulently induced it to enter into the agreement by not disclosing relevant material facts that Argonaut had a duty to disclose. The complaints alleged that Argonaut had fraudulently induced plaintiffs to enter into the reinsurance contracts by failing to disclose, inter alia, that Argonaut had originally refused to do business Plaintiffs urged the court to rescind the settlement agreements and the reinsurance contracts. Each complaint stated that the plaintiff "and Argonaut became involved in a dispute regarding the validity of the treaties and the balances, if any, allegedly due to Argonaut from" the plaintiff under the RFI reinsurance contracts. (Bellefonte Complaint p 40; Universal Complaint p 37.) Each plaintiff alleged that its presettlement
with RFI because of the "unsatisfactory reputation" of RFI's president, and that Argonaut had no meaningful retention of risk in the RFI-generated business because it had demanded and received an indemnification against loss on that business. Plaintiffs contended that they would not have entered into the reinsurance contracts with Argonaut had they been given the undisclosed material information.
[d]ispute involved, inter alia, issues of mismanagement by RFI, late reporting of losses to [plaintiff] and Argonaut's failure to disclose the absence of a meaningful retention by it on the business written by RFI as its MGA, but the dispute did not "arise from or relate" in any way to Argonaut's failure to disclose the concealed material facts, which remained unknown to [plaintiff] at the time it executed the Settlement Agreement.
(Bellefonte Complaint p 41; Universal Complaint p 38.) Both plaintiffs and Argonaut moved for summary judgment.
In an opinion dealing with both actions, 581 F.Supp. 241, familiarity with which is assumed, the district court granted Argonaut's motion to dismiss the complaints, ruling that plaintiffs' actions were barred explicitly by the settlement agreements they had entered into with Argonaut. The court rejected Bellefonte's and Universal's arguments that Argonaut had procured the settlements by fraud. It noted that plaintiffs had alleged no new misrepresentations in connection with the negotiation and execution of the settlement agreements, but had alleged only "the same omission that underlies plaintiffs' suit to rescind the reinsurance contracts." Id. at 244. The court concluded that Bellefonte and Universal had settled their fraudulent nondisclosure claims:
In clear and unambiguous language of remarkable breadth, these agreements, which were negotiated and drafted by experienced insurance executives and their attorneys, prohibit the parties from commencing any and all litigation over their liability under [the reinsurance] contracts.
Id. at 242-43. Finding no ambiguity in the settlement agreements, the court refused to allow parol evidence to explain the agreements.
It rejected plaintiffs' contentions that considerations of public policy prevented the enforcement of such settlement agreements:
Plaintiffs cannot freely, and for consideration, promise not to sue for failure to disclose material facts and then claim that the promise was fraudulently induced because material information was, in fact, not disclosed. A claim for fraudulent non-disclosure, like any other claim, can be settled without litigation....
Here, ... experienced corporate executives, advised and assisted by sophisticated counsel, agreed to a settlement including a covenant...
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