Compagnie de Reassurance v. New England Reinsurance
| Decision Date | 07 November 1996 |
| Docket Number | Civil Action No. 87-27-NG. |
| Citation | 944 F.Supp. 986 |
| Parties | COMPAGNIE de REASSURANCE d'ILE de FRANCE, et al. Plaintiffs, v. NEW ENGLAND REINSURANCE CORP., et al., Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Kenneth W. Ritt, Day, Berry & Howard, Boston, MA, Debra A. deBastos, Katz, Fanger & Greeley, Boston, MA, for Universale Ruckversicherung AG.
Robert S. Frank, Jr., Bret A. Fausett, Cynthia T. MacLean, David A. Attisani, Choate, Hall & Stewart, Boston, MA, David S. Mortensen, Shafner, Gilleran & Mortensen, Boston, MA, for New England Reinsurance Corp., First State Insurance Co., Cameron & Colby Co., Inc.
FINDINGS OF FACT AND RULINGS OF LAW REGARDING STATUTE OF LIMITATIONS DEFENSES
This action was brought by numerous European insurance retrocessionaires against a Massachusetts based retrocedent, a primary insurer and an underwriter to recover for fraud, breach of contract, and for violations of the Massachusetts Consumer Protection Act, M.G.L. ch. 93A, § 11 and the civil RICO statute, 18 U.S.C. § 1964(c). It was originally tried before another judge of this Court without a jury, and, after a 30-day trial, judgment was entered for the plaintiffs. On June 19, 1995, the First Circuit Court of Appeals vacated that judgment and certain of the judge's factual findings. The Court of Appeals remanded the case with instructions for this Court to make additional factual findings, and to reconsider certain conclusions of law in light of those additional findings. The Court of Appeals expressed the view that the record should not be reopened unless this Court found "exigent circumstances" requiring the taking of additional evidence.
On remand, the parties agreed that subsequent briefing would be conducted in stages. Accordingly, and pursuant to the Court's order dated October 5, 1995, the parties have submitted briefs addressing only the statute of limitation defenses which were raised by the defendants at trial but not, in the view of the Court of Appeals, adequately addressed by the original trial judge.
The facts of this case are extensively discussed in the Court of Appeals' decision, Compagnie De Reassurance D'Ile de France v. New England Reinsurance Corp., 57 F.3d 56, 61-68 (1st Cir.) cert. denied, ___ U.S. ___, 116 S.Ct. 564, 133 L.Ed.2d 490 (1995). The reader of this opinion is assumed to be familiar with those facts, and additional facts will be referenced here only to the extent necessary to decide the issues at hand.
The plaintiffs in this action are thirty-one reinsurance syndicates and reinsurance companies which, in the early 1980s, entered into a series of reinsurance treaties with defendant New England Reinsurance Company ("NERCO").1 These treaties were known as the "System and Non-System Treaties" or "SANS Treaties." NERCO was in the business of reinsurance, whereby it would agree, in exchange for a premium, to share in risks which had been insured by other, "primary," insurance companies. Under the terms of the SANS treaties, defendant NERCO was permitted to "cede" to plaintiffs a percentage of the risk of certain of the insurance policies which had, in turn, been ceded to NERCO from primary insurers.2
After suffering greater than expected losses under the treaties, the plaintiffs brought this action which, after the complaint was amended on July 12, 1988, charged NERCO and certain of its affiliated companies with fraud, breach of contract, violation of M.G.L. ch. 93A, and violations of the RICO statute. The original trial judge found for plaintiffs on the contract, fraud and chapter 93A claims, and dismissed the RICO claims. On appeal, the Court of Appeals found that the Chapter 93A and RICO claims should have been dismissed, and remanded the fraud and contract claims for reconsideration by this Court.3
With respect to the fraud counts, plaintiffs claimed that NERCO misrepresented, in two respects, the types of risks that were to be ceded to them under the SANS treaties. First, plaintiffs alleged that NERCO had misrepresented that the reinsurance policies which were to be ceded under the SANS treaties were to be "facultative" reinsurance, which plaintiffs understood to mean reinsurance of policies specifically selected and underwritten by the reinsurer. Plaintiffs considered facultative reinsurance to be less risky than its alternative, "treaty" reinsurance, under which a reinsurer agrees to reinsure a whole category of policies without the right to pick and choose specific policies.4
Plaintiffs also alleged fraud in NERCO's representation of how the ceded reinsurance policies were to be obtained. According to plaintiffs, NERCO misrepresented that it would obtain reinsurance business directly from primary insurers when in fact it obtained a significant portion of its business through the use of so-called Managing General Agents ("MGAs") and brokers. Plaintiffs allege that policies underwritten through MGAs and brokers are generally of a lower quality than those obtained directly from primary insurers because MGAs and brokers do not bear any of the risk of the policies they underwrite, and thus have less incentive to underwrite carefully.
Although the original trial judge found for the plaintiffs on both of their fraud theories, the Court of Appeals found that the trial judge's findings were clearly erroneous. With respect to the issue of whether the ceded reinsurance was facultative, the Court concluded that the type of reinsurance ceded by NERCO was facultative as the term was understood in the American reinsurance industry, and thus it was not fraud for NERCO to have represented it as such.
With respect to the plaintiffs' claims regarding the use of MGAs and brokers, the Court affirmed the trial judge's finding that NERCO misrepresented its intentions concerning the use of MGAs and brokers when it first solicited the retrocessionaires in 1979 through a document known as a "Placing Information." The Court vacated the original trial judge's finding of fraud, however, for three reasons: a) because he failed to consider whether certain facts, which subsequently became known to at least some of the plaintiffs, limited the fraudulent effects of NERCO's initial misrepresentation in subsequent treaty years; b) because he failed to consider the effect of the disclosure of those facts on the running of the statute of limitations; and c) because he failed to determine whether any of the plaintiffs actually relied upon NERCO's misrepresentations.
The plaintiffs also alleged that NERCO breached its contractual obligations under the SANS treaties. They claimed that because the reinsurance ceded to them was not facultative, NERCO had breached a contractual requirement that it cede only facultative reinsurance. The Court of Appeals rejected this claim for substantially the same reason as it rejected the fraud claim relating to the facultative character of the ceded policies.
The Court did, however, find potential merit in two other contractual claims. In the first claim, plaintiffs alleged that NERCO had breached its contractual representation that all of the ceded business would be underwritten by Graham Watson, an underwriter affiliated with NERCO's parent company.5 The trial judge had found that NERCO breached this provision because, in his view, the supposedly facultative reinsurance which NERCO ceded was subject to the "automatic" or "semi-automatic" methods of underwriting. He concluded that these methods provided no meaningful opportunity for underwriting by Graham Watson and thus the ceded business was, effectively, not facultative at all. The Court of Appeals rejected this reasoning, finding that the "automatic" and "semi-automatic" methods of underwriting fit within the industry's definition of "facultative underwriting." It nonetheless expressed concern that Graham Watson's underwriting may have been more nominal than real. It thus directed this Court to reexamine "evidence ... of possible systematic inadequacies in the quality of the underwriting performed" and determine whether the underwriting was "so deficient as to be tantamount to a breach of the duty to underwrite."
Finally, the Court of Appeals sustained the trial judge's finding that NERCO had breached a contractual obligation (referred to as "Warranty No. 2") to "co-reinsure for 10 percent participation on all `System Business'" ceded under the treaties.6 It remanded the matter, however, for a determination of whether this claim is barred by "the statute of limitations or any other bar to recovery."
The parties agree that the date from which to measure the relevant limitations periods is July 12, 1988, when plaintiffs amended their complaint to assert the claims now at issue. The Court of Appeals held that the claims were to be decided under Massachusetts law, which provides for a six year limitations period for breach of contract actions, and a three year limitations period for claims of fraud. Compagnie, 57 F.3d at 88. Moreover, actions under M.G.L. ch. 93A have a four year limitations period. Cambridge Plating Co., Inc. v. Napco, Inc., 991 F.2d 21, 23, n. 1 (1st Cir.1993). Thus, defendants may avoid liability if they can show that plaintiffs' fraud claims accrued no later than July 12, 1985, that their...
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