Employers Reinsurance v. Mid-Continent Cas. Co.
| Decision Date | 23 May 2002 |
| Docket Number | No. CIV.A. 01-2058-KHV.,CIV.A. 01-2058-KHV. |
| Citation | 202 F.Supp.2d 1221 |
| Parties | EMPLOYERS REINSURANCE CORPORATION, Plaintiff, v. MID-CONTINENT CASUALTY COMPANY, Defendant. |
| Court | U.S. District Court — District of Kansas |
Douglas R. Richmond, Gerald A. King, Carlton D. Callenbach, Armstrong Teasdale LLP, Kansas City, MO, for Plaintiff.
Vincent F. O'Flaherty, Christopher J. Carpenter, Niewald, Waldeck& Brown, P.C., Kansas City, MO, for Defendant.
Employers Reinsurance Corporation ("ERC") brings suit against Mid-Continent Casualty Company ("MCCC") to determine whether the parties' reinsurance agreement requires it to reimburse MCCC for certain fees and expenses which MCCC incurred in declaratory judgment actions with its insureds. This matter comes before the Court on Defendant Mid-Continent Casualty Company's Motion For Summary Judgment ("MCCC Motion For Summary Judgment") (Doc. # 71) and Plaintiff Employers Reinsurance Corporation's Motion For Summary Judgment ("ERC Motion For Summary Judgment") (Doc. # 74), both filed February 8, 2002, Defendant's Motion To Strike New Material In Plaintiff's Reply Memorandum In Support Of Its Motion For Summary Judgment Or, In The Alternative, For Leave To File A Surreply (Doc. # 91) filed April 3, 2002, Defendant's Motion For Leave To Supplement Summary Judgment Pleadings ("MCCC's Motion For Leave") (Doc. # 105) and Defendant's Motion To Shorten Time For Plaintiff To Respond To Defendant's Motion For Leave To Supplement Summary Judgment Pleadings And Defendant's Supplement To Summary Judgment Memoranda (Doc. # 104), both filed May 22, 2002. As a preliminary matter, the Court allows MCCC leave to file a surreply. For reasons set forth below, the Court sustains in part MCCC's motion for summary judgment, overrules ERC's motion for summary judgment and overrules as moot MCCC's motions for leave to supplement and to shorten the time for ERC to respond.
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Rule 56(c), Fed.R.Civ.P.; accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. at 252, 106 S.Ct. 2505.
The moving party bears the initial burden of showing the absence of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, Okla., 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Secs., Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. See Applied Genetics, 912 F.2d at 1241.
The Court must view the record in a light most favorable to the party opposing the motion for summary judgment. See Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). Summary judgment may be granted if the non-moving party's evidence is merely colorable or is not significantly probative. See Anderson, 477 U.S. at 250-51, 106 S.Ct. 2505. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.
The following facts are either undisputed or, where disputed, each party's factual contention is stated.1
MCCC is an Oklahoma corporation with its principal place of business in Tulsa, Oklahoma. MCCC is a small regional insurance company. It is a member and/or subsidiary of the Great American Insurance Group ("GAIG"), which is one of the 30 largest property and casualty groups in the United States. GAIG is a financially strong insurance group. MCCC writes approximately $200 million per year in gross property and casualty insurance premiums.
For 30 years, from December 31, 1970 through April 1, 2000, MCCC purchased reinsurance coverage from ERC, a Missouri corporation with its principal place of business in Overland Park, Kansas. From January 1, 1994 through April 1, 2000, ERC and MCCC operated under the Liability Excess Reinsurance Agreement (the "Agreement").2 ERC drafted and signed the Agreement and amendments thereto. MCCC accepted and signed the Agreement and amendments in Tulsa, Oklahoma. The wording of the 1994 Agreement closely resembles the wording of previous reinsurance agreements between ERC and MCCC.
Reinsureds typically negotiate the terms, conditions, provisions and rates in their reinsurance agreements. Unlike standard insurance policies, reinsurance agreements result from negotiations and are not offered on a take it or leave it basis. ERC maintains that reinsurers and reinsureds have equal bargaining power to determine the language in their reinsurance agreements. MCCC's expert witness, Robert F. Hall, testified that beginning in 1982, reinsurers changed their position with respect to payment of declaratory judgment expenses and, without informing reinsureds of the change in position, began a concerted effort to avoid paying such expenses.3
MCCC had an opportunity to negotiate specific terms of the Agreement, to review the language and to make any changes before executing it. MCCC president Jimmy L. Pierce negotiated the Agreement for MCCC. Pierce had negotiated two other reinsurance agreements with ERC. Pierce did not believe that he needed to include any key terms or provisions in the Agreement. He does not recall any discussions about the definitions of "loss" or "claim expenses," or whether the definitions were broad enough to include fees and expenses which MCCC incurred in declaratory judgment actions. MCCC did not believe that ERC took unfair advantage in negotiating the Agreement.
Under the Agreement, ERC agreed to indemnify MCCC for all "losses" in excess of $300,000 for each occurrence, with a reinsurance limit of $1,000,000 for each occurrence. With respect to "losses," the Agreement states:
DEFINITIONS OF LOSS AND CLAIM EXPENSES. The word "loss" shall mean only such amounts:
(a) within applicable policy limits as are actually paid by [MCCC] in settlement of claims or in satisfaction of awards or judgments (including pre-judgment interest and plaintiff's costs included in the judgment and subject with the judgment to the applicable policy limit);
(b) equal to 80% of the amount paid by [MCCC] in excess of applicable third party liability coverage policy limits occasioned by liability imposed upon [MCCC] on account of the failure of [MCCC] to settle a claim for an amount within such policy limits;
(c)(1) equal to 80% of the amount paid by [MCCC] for punitive, exemplary, or compensatory damages awarded to the insured and arising out of the conduct of [MCCC] in the investigation, trial or settlement of any claim or failure to pay or delay in payment of any benefits under any policy if [ERC] has not, in advance of any such conduct by [MCCC], counseled with [MCCC] and concurred in [MCCC's] course of conduct; or
(c)(2) equal to 100% of the amount paid by [MCCC] for punitive, exemplary, or compensatory damages awarded to the insured and arising out of the conduct of [MCCC] in the investigation, trial or settlement of any claim for failure to pay or delay in payment of any benefits under any policy if [ERC] has, in advance of any such conduct by [MCCC], counseled with [MCCC] and concurred in [MCCC's] course of conduct;
Agreement, Article VII, Exhibit 1, Exhibits To Plaintiff Employer Reinsurance Corporation's Motion For Summary Judgment ("ERC Exhibits") (Doc. # 76) filed February 8, 2002. ERC maintains that MCCC negotiated provisions (c)(1) and (c)(2) in attempt to obtain reinsurance for extra-contractual liability or bad faith liability. MCCC agrees with the purpose of the provisions, but states that ERC offered the additional language and coverage.
The Agreement requires ERC to indemnify MCCC for proportional claim expenses:
INDEMNITY FOR CLAIM EXPENSES. [ERC] hereby agrees that, as respects reinsurance afforded by the other terms of this agreement, [ERC] will, with respect to each occurrence, indemnify [MCCC] against that proportion of claim expenses paid by [MCCC] that the amount of loss ultimately borne by [ERC] bears to the total amount of loss: Provided, however, that in the event a verdict, award or judgment is reduced by compromise settlement or an award or judgment is reduced or reversed by appeal taken by [MCCC] from an award or judgment, [ERC] shall indemnify [MCCC] against claim expenses paid by [MCCC] connected with such settlement or appeal in the same ratio that the benefit derived by [ERC] from such reduction or reversal bears to the total benefit resulting from such reduction or reversal.
Agreement, Article IX.
The Agreement defines "claim expenses"...
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