Calvert Fire Ins. Co. v. Unigard Mut. Ins. Co.
| Decision Date | 09 October 1980 |
| Docket Number | Civ. No. 77-0-272. |
| Citation | 526 F. Supp. 623 |
| Parties | CALVERT FIRE INSURANCE COMPANY, a corporation, and Central National Insurance Company, a corporation, Plaintiffs, v. UNIGARD MUTUAL INSURANCE COMPANY, Unigard Insurance Company, Unigard Carolina Insurance Company, Unigard Florida Insurance Company, Unigard Illinois Insurance Company, Unigard Ohio Insurance Company, Unigard Security Insurance Company, each a corporation, and Unigard Insurance Group Mutual, a joint venture, Defendants. |
| Court | U.S. District Court — District of Nebraska |
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Francis P. Matthews and Martin A. Cannon, Omaha, Neb., for plaintiffs.
John R. Douglas, Omaha, Neb., Mark Abrams and Alan Martin, New York City, for defendants.
This matter comes before the Court after trial to the Court and submission of final written arguments. Jurisdiction is established under 28 U.S.C. § 1332. In this action, the plaintiffs, Calvert Fire Insurance Company Calvert of Baltimore, Maryland, and Central National Insurance Company Central National of Omaha, Nebraska, have filed suit against the defendants, specifically Unigard Mutual Insurance Company Unigard of Seattle, Washington, seeking rescission of various reinsurance treaties. After long and careful deliberation, the Court is now ready to make the following findings of fact and conclusions of law.
At all times material to this lawsuit, there existed between Calvert and Central National agreements to share on a 50-50 basis the risks and profits of reinsurance1 accepted by either in their assumed reinsurance division.
On June 19, 1975, Michael Cooper, of Guy Carpenter and Company Guy Carpenter, San Francisco, California, a reinsurance intermediary,2 in writing, invited the plaintiffs to participate in a reinsurance program for the Unigard Insurance Group, Excess and Special Risks Department.3 Thereafter, on or about June 28, 1973, the plaintiffs executed four placement slips4 by which it agreed to accept and reinsure certain risks of the defendant, Unigard. Said placement slips were later replaced by formal reinsurance treaties5 executed by Calvert and Unigard on the following dates:
EXCESS CASUALTY REINSURANCE CALVERT — AUGUST 9, 1973
TREATY, FIRST UNIGARD — NOVEMBER 27, 1973
LAYER
EXCESS CASUALTY REINSURANCE CALVERT — AUGUST 9, 1973
TREATY, THIRD UNIGARD — NOVEMBER 27, 1973
LAYER
EXCESS PROPERTY REINSURANCE CALVERT — OCTOBER 1, 1973
TREATY UNIGARD — OCTOBER 11, 1973
QUOTA SHARE REINSURANCE CALVERT — JULY 2, 1974
TREATY UNIGARD — JULY 12, 1974
Filing # 66 at § 7.6
Through Pritchard & Baird, Inc., Morristown, New Jersey, another reinsurance intermediary, the parties entered into a fifth treaty known as the Special All Risk Reinsurance Agreement All Risk Treaty effective July 1, 1973. The formal agreement was executed by Unigard on March 8, 1974, and by Central National on January 28, 1974 Filing # 66 at § 9.
The parties operated under the Quota Share and Excess Layered Treaties until December, 1974, when the contracts were terminated as a result of cancellation notices exchanged by the parties in September, 1974. The All Risk Treaty was mutually terminated effective July 1, 1974 Filing # 66 at § 9, ¶ 10. Reports continued to be rendered by Unigard on the runoff of the business reinsured.
On August 22, 1977, the plaintiffs initiated this action seeking rescission of these reinsurance agreements. The basis of this action is twofold. First, the plaintiffs claim that Unigard, in the letter of June 19, 1973, from Michael Cooper of Guy Carpenter to the plaintiffs, made false and fraudulent representations regarding Unigard's reinsurance program in order to induce plaintiffs to enter into said program and that plaintiffs, relying thereon, did enter into this program to their detriment. Second, the plaintiffs claim that Unigard failed to render timely and accurate reports and keep accurate records as required under the terms of the reinsurance agreements, thereby materially breaching said agreements.
Unigard, by its answer, denies that it made any misrepresentations to the plaintiffs or materially breached the agreements and further contends that, even assuming that it did so, the plaintiffs' action is barred by the applicable statute of limitations and the doctrines of waiver and ratification. Unigard has also filed a counterclaim seeking the balance already allegedly due under the treaties, any payments which will subsequently become due, prejudgment interest and attorneys' fees.
In late 1971, Unigard became interested in establishing an Excess and Special Risks Department and obtaining reinsurance to protect that facility Tr. 365:17-24; 366:21-367:5. At about that same time, James W. (Bill) Allen was considering terminating his employment with C. V. Starr & Co., San Francisco, California, an excess and surplus lines underwriting management agency Tr. 367:24-368:2, and establishing his own independent firm to write excess and special risks business Tr. 367:13-14; Seery depo. (11/3/78) 11:22-12:6; see also Ex. # 1 and # 2. In September of 1971, officers of Unigard were introduced to Mr. Allen and after some negotiations an agency agreement was entered into between Mr. Allen's company, Allen, Miller & Associates Allen, Miller, San Francisco, California, and Unigard, effective March 15, 1972 Ex. # 13; Tr. 367:18-368:13. On May 30, 1972, Unigard issued a news release regarding the arrangement with Allen, Miller Ex. # 11; Tr. XXX-XX-XXX:5.
Under this arrangement, Allen, Miller was authorized, inter alia, to issue and terminate contracts of insurance, to have full underwriting authority, to collect premiums and pay claims, to negotiate reinsurance agreements by treaty, to place facultative reinsurance, to keep all necessary records, to issue quarterly reports, to keep all monies collected until rendering a report thereon 60 days after the close of each quarter, with the right to invest such sums in the interim and to retain the income therefrom, and generally to do everything necessary for the management of the insurance business conducted pursuant to the agreement. Ex. # 13; see also Ex. # 209 and # 256. Indeed, in discussing the nature of this arrangement, Robert Seery, Vice-President of Reinsurance Division at Unigard Tr. 364:8-17; Seery depo. (3/11/78) 7:11-16, explained that it was considered a managing general agency Tr. 368:14-17; Seery depo. (11/3/78) 38:16-39:1, as opposed to an ordinary agency.7
Around this period of time, Unigard was also in contact with Michael Cooper of Guy Carpenter, regarding the placement of reinsurance to protect the new Unigard excess and special risks facility Cooper depo. 18:25-19:3; 19:20-22; 20:15-21:15; 21:17-22:8; 31:28-33:13. On March 10, 1972, Unigard formally appointed Guy Carpenter as reinsurance intermediary, to negotiate certain reinsurance agreements for Unigard Ex. # 5; Tr. 377:15-20; Cooper depo. 18:7-17.
While the formal treaty documents had not been completely drafted at this time, it was essentially March 15, 1972, the effective date of Unigard's agency agreement with Allen, Miller, that Unigard's reinsurance program became operational Cooper depo. 37:13-16; 40:8-25.
As set up, the reinsurance program operated on a layered basis. The first layer was the Quota Share Treaty which covered the first $500,000.00 of risk Tr. 368:18-25. Under the Quota Share Treaty, a reinsurer has a certain percentage share of the risk and a certain percentage share of the premium Tr. 438:13-18; Cooper depo. 20:4-7. For example, when the program began, Unigard retained a 20% position in the Quota Share, placed 20% directly without the use of an intermediary, and had the remaining 60% placed by Guy Carpenter Tr. 369:4-6; Cooper depo. 37:13-38:1.
The next layer consisted of the Excess Layered Treaties. These treaties covered risks in excess of the $500,000.00 Quota Share Treaty limit up to a maximum of $5,000,000.00 Tr. 369:6-18. These treaties were also placed by Guy Carpenter, and, like the Quota Share Treaty, the reinsurers on these treaties had a percentage of the risk and a percentage of the premiums Cooper depo. 38:17-39:1.
As mentioned earlier, Unigard and the plaintiffs also entered into an All Risk Treaty through Pritchard & Baird, Inc. Tr. 369:19-22. This treaty provided coverage up to $500,000.00 Seery depo. (9/26/79) 34:4-7 and could be used interchangeably with the Quota Share Treaty to provide coverage for those insurance lines excluded by that treaty as the All Risk Treaty had fewer exclusions Tr. 369:25-270:1; Seery depo. (9/26/79) 36:10-37:9.
The last layer consisted of facultative reinsurance.8 This reinsurance provided coverage over and above the Quota Share, Excess Layered and All Risk Treaties, thereby permitting Allen, Miller, who could place this reinsurance itself pursuant to its agreement with Unigard Ex. # 13, to further increase the size of the risk it could write Tr. 370:3-9.
Shortly before June of 1973, one of the original reinsurers on the Quota Share and Excess Layered Treaties, New England Reinsurance Corporation NERCO which had a 35% position in the Quota Share, informed Mr. Cooper that it desired to terminate its contracts as of July 1, 1973 Tr. 388:14-18; Cooper depo. 41:1-11. Informed of NERCO's decision, Unigard instructed Mr. Cooper to increase its participation on the Quota Share Treaty by 10% and replace the remaining 25% Cooper depo. 45:21-22; 46:21-24; Tr. 388:14-389:7.
Thereafter, Mr. Cooper, in order to replace the remaining 25% on the Quota Share Treaty, wrote Robert Sias,...
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