Commercial Union Ins. v. Seven Provinces Ins.

• Decision Date: 10 February 2000
• Docket Number: No. 99-1258,99-1258
• Parties: (1st Cir. 2000) COMMERCIAL UNION INSURANCE COMPANY, AS SUCCESSOR IN INTEREST TO EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, PLAINTIFF, APPELLEE, V. SEVEN PROVINCES INSURANCE COMPANY, LTD., DEFENDANT, APPELLANT. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 33

217 F.3d 33 (1st Cir. 2000)

COMMERCIAL UNION INSURANCE COMPANY, AS SUCCESSOR IN INTEREST TO EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, PLAINTIFF, APPELLEE,

V.

SEVEN PROVINCES INSURANCE COMPANY, LTD., DEFENDANT, APPELLANT.

No. 99-1258

United States Court of Appeals For the First Circuit

Heard February 10, 2000

Decided July 6, 2000

[Copyrighted Material Omitted] Mark V. Dugan, with whom H. Fred Northcraft, Blackwell Sanders Peper Martin Llp, Jason W. Morgan, and Day, Berry & Howard were on brief, for appellant.

Bruce M. Friedman, with whom Lori M. Meyers, Kroll, Rubin & Fiorella Llp, Rodney S. Dowell, and Berman & Dowell were on brief, for appellee.

Before Selya, Stahl and Lipez, Circuit Judges.

LIPEZ, Circuit Judge.

Seven Provinces Insurance Company, Ltd., appeals from a judgment in favor of the Commercial Union Insurance Company. The district court found for Commercial Union on its claims that Seven Provinces breached a reinsurance contract and committed an unfair trade practice in violation of Massachusetts General Laws Chapter 93A ("93A"). See Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 9 F. Supp. 2d 49 (D. Mass. 1998). We affirm.

I.

In the 1960s, Employers' Surplus Lines Insurance Company ("ESLIC") issued several insurance policies to Teledyne, Inc. ("Teledyne"), a California manufacturing company. ESLIC covered a portion of the risk that it faced from one of those policies ("the semiconductor policy") by purchasing a facultative reinsurance certificate from Seven Provinces.¹

Although the particulars are somewhat more complicated, the facultative reinsurance certificate essentially provided that if Teledyne filed a valid claim with ESLIC under the semiconductor policy for up to $450,000 in excess of the first $50,000 of loss, Seven Provinces would reimburse ESLIC for half of the covered amount, up to $225,000. The policy also contained a "net retention" provision that restricted ESLIC's ability to purchase additional reinsurance to cover the other half of the potential exposure--that is, the remaining $225,000 of a $450,000 loss:

Being a reinsurance of and warranted same NETT rate, terms and conditions as and to follow the settlements of the EMPLOYERS' SURPLUS LINES INSURANCE COMPANY and that the local office of the said Company retains during the currency of this insurance at least $225,000.00 BEING 50% OF $450,000.00 EXCESS $50,000.00 COMBINED SINGLE LIMIT (subject to reduction by any general excess loss or excess catastrophe reinsurance whether effected by the head office or local office of the Company) on the identical subject matter and risk and in identically the same proportion on each separate part thereof, but in the event of the retained line being less than as above, [ESLIC's] lines to be proportionally reduced.

In 1982, Teledyne discovered environmental contamination at several of its plants and filed claims with its insurers to cover the resulting liability. In 1993, ESLIC's successor in interest, Commercial Union, settled its share of these claims for $2.2 million.² After concluding that $843,000 of the $2.2 million settlement pertained to environmental contamination at the site that was covered by the semiconductor policy, Commercial Union billed Seven Provinces for $225,000 as its half of the first $450,000 of the loss in excess of $50,000. Of the remaining $225,000 of the $450,000 portion of the loss, Commercial Union billed $180,000 to a pool of reinsurers from whom it had purchased quota share treaty reinsurance.

Because Commercial Union could not produce a copy of the reinsurance certificate, Seven Provinces initially questioned whether a reinsurance agreement existed between them at all. Once proof of a reinsurance relationship was discovered, Seven Provinces raised other defenses to coverage, including the argument that by ceding $180,000 of its potential exposure through quota share treaty reinsurance rather than retaining its entire share of the risk, Commercial Union violated the net retention provision in the policy.

Frustrated at its inability to obtain redress, Commercial Union filed this lawsuit in May 1995, alleging that Seven Provinces was obligated to provide $225,000 in reinsurance coverage and that its conduct constituted an unfair or deceptive business practice under Chapter 93A. After a bench trial, the district court ruled in Commercial Union's favor, finding (1) that Seven Provinces should have provided coverage; and (2) that its bad-faith conduct in failing to do so violated 93A and warranted the imposition of double damages and attorneys' fees. See 9 F. Supp. 2d at 66, 70. This appeal followed.

II.

Before reaching the merits, we must consider Commercial Union's claim that Seven Provinces' appeal is untimely.

Under Rule 4 of the Federal Rules of Appellate Procedure, "a notice of appeal in a civil case must be filed within thirty days of entry of the judgment or order from which the appeal is taken." See Piazza v. Aponte Roque, 909 F.2d 35, 38 (1st Cir. 1990). Commercial Union contends that we lack jurisdiction to hear this case because the district court ruled in its favor on June 15, 1998, and Seven Provinces failed to note its appeal until February 24, 1999. See Scola v. Beaulieu Wielsbeke, N.V., 131 F.3d 1073, 1074 (1st Cir. 1997) (observing that the "30-day time limit is mandatory and jurisdictional" (internal quotation marks omitted)).

Generally speaking, appellate review is available only for "final decisions" from the lower federal courts. 28 U.S.C. § 1291. In all but a few situations, see, e.g., id. § 1292 (granting limited jurisdiction to hear interlocutory appeals); Fed. R. Civ. P. 23(f) (authorizing discretionary appeals of class certification orders), a party cannot initiate an appeal until a "final decision" has been rendered--that is, "'one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Budinich v. Becton Dickinson & Co., 486 U.S. 196, 199 (1988) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)). The timeliness of the instant appeal, therefore, turns on whether the district court's entry of judgment on June 15, 1998, constituted a "final decision" within the meaning of § 1291. We conclude that it did not.

Although the district court's entry of judgment resolved most of the issues in the case, its opinion and order specified that there was more to be done before the lawsuit was over. The court reserved jurisdiction to decide "the appropriate date and rate for calculating pre-judgment interest" and ordered the parties to submit further briefs on these issues. Unlike a collateral calculation of costs or attorneys' fees at the end of a case,³ the determination of when pre-judgment interest began to run required the court to determine when Seven Provinces should have recognized its contractual obligation to provide Commercial Union with reinsurance coverage. Because "[t]hese considerations [were] intertwined in a significant way with the merits of [Commercial Union's] primary case as well as the extent of [its] damages," the district court's June 15, 1998 decision to rule in Commercial Union's favor could not be considered a "final decision," and an appeal could not be filed, until pre-judgment interest had been decided. Osterneck, 489 U.S. at 176.

It was not until October 16, 1998, that the district court ruled on the question of pre-judgment interest and issued an amended judgment that conclusively resolved the merits of the case. Seven Provinces responded by filing a timely motion for reconsideration pursuant to Rules 52(b) and 59(e) of the Federal Rules of Civil Procedure. The court denied that motion on January 26, 1999, and Seven Provinces noted its appeal within thirty days thereafter, on February 24, 1999. As such, the case is properly before us.

III.

On the merits, we must first address the district court's conclusion that Seven Provinces should have provided Commercial Union with reinsurance coverage. The district court's interpretation of the reinsurance agreement requires de novo review. See Ferrara & DiMercurio, Inc. v. St. Paul Mercury Ins. Co., 169 F.3d 43, 49 (1st Cir. 1999). If the policy is ambiguous, we must consider the intentions of the parties, see Marston v. American Employers Ins. Co., 439 F.2d 1035, 1040 (1st Cir. 1971), based on the facts as the district court found them, see United States Liab. Ins. Co. v. Selman, 70 F.3d 684, 687 (1st Cir. 1995). We will defer to those factual findings unless they were clearly erroneous. See id.

Under Massachusetts law, Commercial Union had the initial burden to prove that it had suffered a loss within the scope of its reinsurance coverage. See id. at 688. This prima facie case was easily established because (1) Commercial Union paid Teledyne $2.2 million to settle environmental contamination claims under a number of different insurance policies; and (2) at least a portion of the settlement covered losses under the semiconductor policy that Seven Provinces had agreed to reinsure. Under these circumstances, a threshold basis for reinsurance coverage was sufficiently clear. As a result, Seven Provinces had to raise a valid defense to coverage by, for example, showing that an exclusion in the reinsurance agreement applied or that Commercial Union had failed to fulfill a condition precedent to its recovery under the terms of the policy. See id.

Seven Provinces claimed that its obligation to provide coverage should have been reduced because Commercial Union violated the net retention provision in the reinsurance agreement by ceding part of its share of the potential exposure to quota share treaty reinsurers.⁴ More specifically, because Commercial Union had obtained additional reinsurance to cover $180,000 of its $225,000 share of the risk from the Teledyne semiconductor policy, Seven Provinces sought to have its own liability lowered by the same amount, for a resulting obligation of...