Bellefonte Reinsurance Co. v. Aetna Cas. and Sur. Co.

• Decision Date: 05 July 1984
• Docket Number: No. 83 Civ. 8613(RJW).,83 Civ. 8613(RJW).
• Citation: 590 F. Supp. 187
• Parties: BELLEFONTE REINSURANCE COMPANY, Mission Insurance Company, the Insurance Company of the State of Pennsylvania, North American Company for Property and Casualty Insurance and Constitution Reinsurance Corporation, Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

590 F. Supp. 187

BELLEFONTE REINSURANCE COMPANY, Mission Insurance Company, the Insurance Company of the State of Pennsylvania, North American Company for Property and Casualty Insurance and Constitution Reinsurance Corporation, Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.

No. 83 Civ. 8613(RJW).

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

July 5, 1984.

Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, New York City, for plaintiffs; C. Raymond Nelson, Stacey E. Athans, New York City, of counsel.

Kornstein Meister & Veisz, New York City, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for defendant; Daniel J. Kornstein, Howard S. Veisz, New York City and John G. Harkins, Jr., Marion K. Littman, Robert L. Hickok, James Lawless IV, Philadelphia, Pa., of counsel.

OPINION

ROBERT J. WARD, District Judge.

Plaintiffs, various reinsurers of defendant, Aetna Casualty and Surety Company ("Aetna"), instituted this action under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 (the "Act"),¹ for a declaratory judgment determining the rights and obligations of the parties pursuant to a series of reinsurance contracts. Aetna moves to dismiss the amended complaint pursuant to Rule 12(b), Fed.R.Civ.P., on the ground that it fails to state a claim upon which relief can be granted.² Aetna argues that the instant action does not present an "actual controversy" between the parties within the meaning of the Act, and that therefore this case is not properly within the jurisdiction of this Court. For the reasons hereinafter stated, Aetna's motion is granted, and the action is dismissed.

BACKGROUND

In or before 1971, and continuing at least until 1977, Aetna issued policies of primary and excess liability insurance to A.H. Robins Company, Inc. ("Robins") insuring Robins against the risk of certain liability arising out of the use of the products manufactured, sold or distributed by Robins, including an intrauterine contraceptive device known as the Dalkon Shield. Individual policies were issued for consecutive one-year terms throughout this period with excess coverage in the amount of $30,000,000 for the years 1971 and 1972 and $50,000,000, thereafter, per occurrence and in the aggregate, attaching at the $5,000,000 limit of the underlying primary policy.

Aetna elected to spread the risks insured under its excess policies by ceding such risks to reinsurers who accepted liability for specified percentages of the risks with various layers of reinsurance participation. Each layer, in turn, was divided into shares of differing sizes. Plaintiffs were among these reinsurers, and issued to Aetna written certificates of facultative reinsurance. Each reinsurer participated in this reinsurance scheme in unique patterns and amounts — reinsuring Aetna's excess insurance risks in some years but not in others, on only certain layers, and for only certain percentages.

At various times commencing in 1971 and continuing to the present, numerous claims and lawsuits were filed against Robins to recover damages for personal injuries allegedly resulting from the use of the Dalkon Shield. Aetna undertook to defend and indemnify Robins under the insurance policies in effect for payments made upon judgment or in settlement of these lawsuits, assigning the date of loss to the policy in effect on the date that the injury became manifest, and charging defense costs and claims expenses against the limits of the applicable policy.

In or about 1977, coverage under the then existing insurance scheme was modified with respect to the Dalkon Shield.³ At that time, Robins objected to Aetna's assignment of the date of loss under the "manifestation theory" of occurrence as well as the allocation of defense costs and claims expenses as applied by Aetna. Robins demanded that such claims and suits be administered on an "exposure theory" of occurrence and that all defense costs and claims expenses be assumed by Aetna in addition to the liability limitations provided in the applicable policies of insurance. Both of these demands could significantly increase Aetna's liability under the insurance policies. Aetna refused to comply with Robins' demands, and continued both to pay the relevant costs and expenses and to include them in determining whether the limit of Aetna's liability under the insurance policies have been exhausted.

In 1979, Robins instituted an action against Aetna in the Circuit Court of the City of Richmond, Virginia, seeking a declaratory judgment construing various agreements and insurance policies between Robins and Aetna in a manner consistent with the demands described above. See A.H. Robins Co., Inc. v. Aetna Casualty & Sur. Co., No. G-3321-3 (the "Virginia litigation"). This action is still pending although several attempts at settlement have apparently been undertaken.⁴

According to plaintiffs, from early 1982 until the present, Aetna has solicited its reinsurers to consent to various proposals of settlement with Robins, and has expressed the intention to sue those reinsurers that do not consent and that fail to pay their respective shares of any increased costs and expenses resulting from such a settlement. Plaintiffs have resisted such attempts at settlement by Aetna. They contend that the language of the individual facultative reinsurance certificates as well as certain correspondence between plaintiffs and their reinsurance intermediaries indicate that it had always been intended that the costs of defending and settling Robins' product liability suits would be included in determining whether the liability limits of the insurance policies had been exhausted. Plaintiffs assert that the reinsurance certificates were issued and the reinsurance premiums computed on the basis of this understanding.

Plaintiffs fear that an agreement between Aetna and Robins settling the Virginia litigation that differed in its terms from plaintiffs' understanding of their reinsurance obligations could substantially increase plaintiffs' reinsurance risks. On December 5, 1983, plaintiffs commenced the instant action, apprehending that Aetna would settle the Virginia litigation with Robins despite plaintiffs' opposition to such efforts, and that Aetna would then sue the reinsurers that refused to pay over any additional reinsurance liability created or reaffirmed by such settlement. The amended complaint seeks judgment against Aetna "determining the rights and obligations of the parties under facultative reinsurance of defendant by plaintiffs in respect of the risks of A.H. Robins Company, Inc.," and declaring that there is no obligation on the part of plaintiffs to reimburse Aetna in respect of any defense costs and claims expenses or other sums in addition to the dollar amounts specified as the liability limits of the policies of insurance reinsured by the various certificates of facultative reinsurance.

DISCUSSION

Aetna moves to dismiss the instant action, arguing that it is not justiciable in federal court because it fails to present an "actual controversy" necessary for the issuance of declaratory relief. See 28 U.S.C. § 2201. A federal court's authority to grant such relief under the Act "extends to the article III limits on the court's power to adjudicate disputes." AC and S, Inc. v. Aetna Casualty & Sur. Co., 666 F.2d 819, 822 (3d Cir.1981).⁵ Federal courts are precluded by Article III from rendering advisory opinions. Rather, for adjudication of issues in federal court, "concrete legal issues, presented in actual cases, not abstractions are requisite. This is as true of declaratory judgments as any other field." Golden v. Zwickler, supra, 394 U.S. at 108, 89 S.Ct. at 959 quoting United Pub. Workers of Am. v. Mitchell, supra, 330 U.S. at 89, 67 S.Ct. at 564.⁶ A justiciable controversy, as distinguished from a dispute that is hypothetical or abstract, "must be definite and concrete, touching the legal relations of parties having adverse legal interests.... It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." Aetna Life Ins. Co. v. Haworth, supra, 300 U.S. at 240-41, 57 S.Ct. at 263-64. This standard was elaborated upon by the Supreme Court in Maryland Casualty Co. v. Pac. Coal & Oil Co., supra, 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826, as follows:

The difference between an abstract question and a "controversy" contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-242, 57 S.Ct. 461, 463-64, 81 L.Ed. 617.

Id. at 273, 61 S.Ct. at 512. See generally 10A C. Wright & A. Miller, Federal Practice and Procedure, § 2757 (2d ed. 1983). In short, a controversy is justiciable under the Act only if it presents the plaintiff with a present danger or dilemma, and not a danger or dilemma which is contingent upon the happening of certain future or hypothetical events. See, e.g., Golden v. Zwickler, supra, 394 U.S. at 108, 89 S.Ct. at 959.⁷

In the instant case, plaintiffs seek a declaratory judgment with respect to their potential liability to reimburse Aetna for expenses and costs in excess of the limits established by the certificates of facultative insurance issued by plaintiffs to Aetna. Such liability, however, depends upon a determination of Aetna's liability to reimburse Robins for such costs and expenses pursuant to the primary and excess policies of insurance issued by Aetna....