American Employers' v. Swiss Reinsurance America

• Decision Date: 05 August 2003
• Docket Number: No. CIV.A.00-12266-JLT.,CIV.A.00-12266-JLT.
• Citation: 275 F.Supp.2d 29
• Parties: AMERICAN EMPLOYERS' INSURANCE COMPANY, Plaintiff, v. SWISS REINSURANCE AMERICA CORPORATION, formerly known as North American Reinsurance Corporation, Defendant.
• Court: U.S. District Court — District of Massachusetts

275 F.Supp.2d 29

AMERICAN EMPLOYERS' INSURANCE COMPANY, Plaintiff, v. SWISS REINSURANCE AMERICA CORPORATION, formerly known as North American Reinsurance Corporation, Defendant.

No. CIV.A.00-12266-JLT.

United States District Court, D. Massachusetts.

August 5, 2003.

Richard Appel, Cadwalader, Wickersham & Taft, New York City, Adam G.

Cohen, Cetrulo & Capone, LLP, Boston, MA, Mark S. Fragner, Rubin & Fiorella LLP, New York City, Bruce M. Friedman, Rubin & Fiorella LLP, New York City, Philip J. Loree, Jr., Cadwalader, Wickersham & Taft, New York City, Clifford H. Schoenberg, Cadwalader, New York City, CharCretia V. DiBartolo, Cetrulo & Capone LLP, Boston, MA, for American Employers Insurance Co., Plaintiff.

David A. Attisani, Choate, Eric B. Hermanson, Choate, John A. Nadas, Choate, Boston, MA, for Swiss Reinsurance America Corporation, Defendant.

MEMORANDUM

TAURO, District Judge.

Plaintiff American Employers' Insurance Company ("AEIC") brought suit against its reinsurer, Swiss Reinsurance America Corporation ("Swiss Re"), seeking a declaration that Swiss Re was obligated to indemnify it for certain claims it paid out. Before this court are AEIC and Swiss Re's cross-motions for Partial Summary Judgment. Swiss Re contends that, as a matter of law, it is not liable for $4,669,443 billed to it. AEIC, on the other hand, seeks a declaration that, as a matter of law, AEIC's request for indemnification was reasonable and consistent with the terms of the reinsurance contracts.

BACKGROUND

From January 1, 1964 to January 1, 1971, Plaintiff AEIC issued three multi-year umbrella insurance policies to Pennsalt Chemicals Corporation ("Pennsalt"), the predecessor of Elf Atochem North America, Inc. ("Elf").¹ Policy A15-8075-001 ("A15-001") was effective from January 1, 1964 to January 1, 1967, policy A15-8075-002 ("A15-002") was effective from January 1, 1967 to August 1, 1968, and policy A15-8075-003 ("A15-003") was effective from August 1, 1968 to January 1, 1971. Both A15-001 and A15-002 had stated limits of $2 million each occurrence, excess of primary limits². A15-003, however, had a stated limit of $5 million each occurrence, excess of primary limits.

AEIC, in turn, obtained reinsurance on the policies it had written for Pennsalt.³ North American Reinsurance Company, Defendant Swiss Re's predecessor in interest, issued three facultative reinsurance certificates ("Certificates") to AEIC.⁴ These facultative Certificates, each of which corresponds to one of the policies AEIC issued to Pennsalt, are quota share reinsurance certificates, which means that Swiss Re agrees to indemnify AEIC for a certain percentage of loss. Certificate 100216 corresponds to A15-001, and establishes a reinsurance coverage limit of 50% of $2 million each occurrence, in excess of underlying limits of primary insurance.⁵ Certificate 101665 corresponds to A15-002, and also establishes a reinsurance coverage limit of 50% of $2 million each occurrence, in excess of underlying limits of primary insurance.⁶ Lastly, Certificate 102852 corresponds to A15-003 and establishes a coverage limit of 40% of $5 million, in excess of underlying limits of primary insurance.⁷ In addition to establishing the limits of Swiss Re's liability, Certificates 101665 and 102852 each provide that Swiss Re's "liability . . . shall follow that of [AEIC], and except as otherwise specifically provided herein, shall be subject in all respects to all terms and conditions of [AEIC's] policy."⁸ These two Certificates further state that "[a]ll claims involving this reinsurance, when settled by [AEIC], shall be binding on the Reinsurer, which shall be bound to pay its proportion of such settlements promptly following receipt of proof of loss." These contractual clauses are commonly referred to as "follow form" clauses.

On August 29, 1994, AEIC filed a declaratory judgment action in New Jersey Superior Court against Elf. AEIC did so in response to Elf's demand for indemnification of property damage and bodily injury claims arising out of pollution at Elf's Bryan, Texas site. AEIC later amended its complaint to include additional insurers, parties and issues, and Elf cross-claimed against all named defendants and included claims for coverage of environmental damage and bodily injury at 82 sites throughout the United States.

Elf made a settlement demand of $95 million to AEIC on April 15, 1998, having estimated that AEIC's actual liability under the policies was at least $115 million.⁹ Elf believed that, of the 82 sites at issue in the declaratory judgment suit, AEIC's policies were implicated at 37 sites.¹⁰ As a result of Elf's attempt to settle with AEIC, AEIC prepared a presentation to its reinsurers to report to them the status of the settlement negotiations.¹¹ In that presentation, given on June 11, 1998, AEIC stated that "[a]lthough there is no definitive `annualization' language contained in any of these three multi-year policies . . . certain factors may support an argument that the limits should be annualized."¹² AEIC went on to say, however, that "[AEIC] will argue that there is one set of per-occurrence limits on these policies" and that Elf, in its $95 million settlement proposal, "has not annualized the [AEIC] policy limits."¹³ On March 31, 1999, AEIC and Elf attended a case management conference in the New Jersey declaratory judgment action. Apparently stemming from comments made by the presiding judge, Judge Weiss, at that conference, AEIC counsel believed "that the court would annualize the [policy] limits."¹⁴

On April 23, 1999, Elf and AEIC attended an initial mediation session, presided over by retired Judge Richard Cohen.¹⁵ Based on that mediation session, Elf tendered a second demand of $120 million on AEIC.¹⁶ Elf apparently did not suggest that the policy limits be annualized across the policy period.¹⁷ After a further mediation session, Elf made clear that its settlement offer of $120 million was not based on annualized policy limits.¹⁸ The third and final mediation session, conducted on December 16, 1999, also contained no mention of annualization.¹⁹ Despite Elf's apparent rejection of any annualization approach during settlement negotiations with AEIC, AEIC's counsel continued to conduct its settlement analysis using an annualization approach, believing that, if the declaratory judgment action proceeded, Judge Weiss would also do so.²⁰ AEIC advised Swiss Re of its annualization position on several occasions.²¹

A final settlement agreement between AEIC and Elf was executed in April 2000. Elf was to receive $44 million dollars in two installments. The settlement agreement did not mention annualization.²² Of the 82 sites at issue, only the ten sites comprising Elf's largest liability ("Top Ten Sites") were the focus of mediation. Even so, Elf continued to seek coverage for the additional twenty-seven sites it believed were covered by AEIC's policies. Despite the fact that no discovery was permitted on those twenty-seven sites, AEIC's settlement with Elf was based on all thirty-seven sites for which Elf sought coverage.²³

AEIC billed Swiss Re for a total of $27,867,401 ("Reinsurance Tender"), the amount AEIC believed was Swiss Re's share of the $44 million that AEIC paid to Elf.²⁴ Of this, $20,532,180 reflected AEIC's calculation of what was due under the Certificates.²⁵ The remainder was money due under certain reinsurance treaties not at issue here.²⁶ The Reinsurance Tender covered nine of the Top Ten Sites, and also allocated over $2.8 million to liabilities arising from the other twenty-seven sites that were the subject of the settlement agreement between Elf and AEIC.²⁷ AEIC's reinsurance billings were based on the exposure analysis it had developed throughout its negotiations with Elf, and therefore annualized both the Certificates and the underlying A-15 policies. To date, Swiss Re has paid $13,673,449, which is the amount it believes it owes AEIC under the Certificates.

Before this court are AEIC and Swiss Re's cross-motions for Partial Summary Judgment. AEIC seeks a declaration that, as a matter of law, AEIC's Reinsurance Tender was reasonable and consistent with the terms of the Certificates. Swiss Re, on the other hand, contends that the Certificates do not contemplate annualization, and thus argues that, as a matter of law, Swiss Re is not liable for $3,472,696 that resulted from AEIC's annualization approach. Swiss Re further seeks a declaration that it is not responsible for the $1,196,747 AEIC billed it under the Certificates for the twenty-seven sites on which AEIC did no investigation.

DISCUSSION

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."²⁸ The "party seeking summary judgment [must] make a preliminary showing that no genuine issue of material fact exists. Once the movant has made this showing, the nonmovant must contradict the showing by pointing to specific facts demonstrating that there is, indeed, a trialworthy issue."²⁹ The party opposing summary judgment must produce specific evidence of a material factual dispute. That the Parties have filed cross-motions for summary judgment makes no difference to this standard. "The happenstance that all parties seek summary judgment neither alters the yardstick nor empowers the trial court to resolve authentic disputes anent material facts."³⁰ A court considering cross-motions for summary judgment must consider "each motion separately, being careful to draw inferences against each movant in turn."³¹

A. Annualization of the Occurrence.

AEIC looks to the "follow the fortunes" doctrine³² to argue that Swiss Re is obligated to accept AEIC's reasonable determination of Swiss Re's liability under the Certificates....