Granite State Ins. Co. v. Clearwater Ins. Co.

• Decision Date: 31 March 2014
• Docket Number: 09 Civ. 10607 (RKE)
• Parties: GRANITE STATE INSURANCE CO., Plaintiff, v. CLEARWATER INSURANCE CO., Defendant.
• Court: U.S. District Court — Southern District of New York

GRANITE STATE INSURANCE CO., Plaintiff, v. CLEARWATER INSURANCE CO., Defendant.

09 Civ. 10607 (RKE)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Dated: March 31, 2014

Before: Richard K. Eaton, Judge^*

OPINION

Eaton, Judge: This case involves an effort by plaintiff Granite State Insurance Company ("Granite State") to recover under certain facultative reinsurance¹ contracts entered into with Skandia America Reinsurance Corporation, now known as Clearwater Insurance Company("defendant" or "Clearwater").² Plaintiff seeks money damages and a declaration that defendant is obligated to make future payments billed to it under the policies at issue.³ Before the court are the parties' cross-motions for summary judgment and cross-motions to strike. The parties are citizens of different states, and the court exercises subject matter jurisdiction pursuant to 28 U.S.C. § 1332 (2006). Because Granite State failed to give Clearwater adequate notice of claims made under the policies, the court holds that Granite State is not entitled to recover under those policies. Therefore, Granite State's motion for summary judgment is denied, and Clearwater's cross motion for summary judgment is granted.

FACTUAL BACKGROUND⁴

Clearwater's alleged reinsurance obligations to Granite State arise under two reinsurance policies (collectively, "the Granite State Policies"). Those policies reinsured Granite State's losses under two excess of loss policies issued by Granite State to McGraw Edison Company ("McGraw") in the early 1980s.

The Parties and Policies

Granite State is a Pennsylvania corporation with its principal place of business in New York. Pl.'s Statement of Undisputed Facts ¶ 1 ("Pl.'s 56.1"). Plaintiff is a subsidiary of American International Group, Inc. ("AIG"), which also has its principal place of business in New York. Pl.'s 56.1 ¶ 2-3.

Granite State issued two excess of loss policies to McGraw. Pl.'s 56.1 ¶ 11. The first policy covered the period of March 1, 1980 to March 1, 1981 ("1980 Granite State Policy"). Pl.'s 56.1 ¶ 12. The 1980 Granite State Policy provided excess coverage above the limits of the underlying insurance policies issued to McGraw by Northbrook Insurance Company and U.S. Fire Insurance Co. (collectively, "1980 Primary Underlying Policies"). Pl.'s 56.1 ¶¶ 12-13. Specifically, under the 1980 McGraw Policy, if McGraw incurred liability between $25,000,000 and $50,000,000, Granite State would be required reimburse McGraw up to $10,000,000, depending on the total amount of McGraw's liability. The second policy issued to McGraw covered the period of March 1, 1981 to March 1, 1982 ("1981 Granite State Policy"). Pl.'s 56.1 ¶ 14. The 1981 Granite State Policy provided excess coverage above the limits of the underlying insurance policies issued to McGraw by First State Insurance Company and U.S. Fire Insurance Co. (collectively, "1981 Primary Underlying Policies"). Pl.'s 56.1 ¶¶ 14-15. Specifically, under the 1981 McGraw Policy, if McGraw incurred liability between $25,000,000 and $50,000,000, Granite State would be required to reimburse McGraw up to $15,000,000, depending on the total amount of McGraw's liability.

C.V. Starr & Co. ("C.V. Starr") was an underwriting manager for Granite State and an AIG affiliate at the time the policies were issued. Pl.'s 56.1 ¶¶ 6-7. C.V. Starr issued the 1980and 1981 Granite State Policies on behalf of Granite State through its office in Chicago, Illinois. Def.'s Statement of Undisputed Facts ¶ 3 ("Def.'s 56.1").

Clearwater is a Delaware company with its principal place of business in Connecticut. Pl.'s 56.1 ¶ 4. Clearwater issued, from its Chicago office, two facultative certificates to Granite State, reinsuring the 1980 Granite State Policy and the 1981 Granite State Policy ("the Clearwater Certificates" or "the certificates"). Pl.'s 56.1 ¶ 17. C.V. Starr procured those certificates for Granite State through its Chicago, Illinois office. Def.'s 56.1 ¶ 5. In each of the Clearwater Certificates, Clearwater agreed to provide reinsurance in an amount equal to 20% of Granite State's payments made under the 1980 and 1981 Granite State Policies, respectively. Pl.'s 56.1 ¶¶ 18, 19.

Each of the Clearwater Certificates contains the following identical General Conditions language:

3. CLAIMS (a) [Granite State] agrees that it will promptly investigate and will settle or defend all claims under the policy reinsured hereunder and that it will notify [Clearwater] promptly of any event or development which [Granite State] reasonably believes might result in a claim against [Clearwater]. [Granite State] further agrees to forward to [Clearwater] copies of such pleadings and reports of investigations as are pertinent to the claim and/or as may be requested by [Clearwater];

(b) [Clearwater] shall have the right at its own expense to be associated with [Granite State] in the defense or control of any claim, suit or proceeding involving or which may involve the reinsurance provided under this Certificate and [Granite State] and [Clearwater] agree to cooperate in every respect in the defense and control of such claim, suit or proceeding.

(c) Upon receipt by [Clearwater] of satisfactory evidence of payment of a loss for which reinsurance is provided hereunder, [Clearwater] shall promptly reimburse [Granite State] for its share of the loss and loss expenses . . .

(d) The term "loss" shall mean only such amounts as are actually paid by [Granite State] in settlement of claims or in satisfaction of awards or judgments. The term "loss" shall not include loss expenses.

(e) [Clearwater]'s liability for its proportion of a "loss" incurred by [Granite State] shall be determined as follows . . . (ii) if the reinsurance provided hereunder is on a pro rata basis, [Clearwater] shall be liable for the proportion of a "loss", after application of any reinsurance, excess or pro rata, inuring to the benefit of [Clearwater]. . . .

Both Granite State Policies, which are partially incorporated by reference into their corresponding Clearwater Certificates, contain the following language:

I. COVERAGE

[Granite State] agrees . . . to indemnify the [McGraw] for all sums which the [McGraw] shall be obligated to pay by reason of the liability (a) imposed upon the [McGraw] by law, or (b) assumed under contract or agreement by the [McGraw] . . . for damages, direct or consequential and expenses . . . arising out of the hazards covered by and as defined in the Underlying Umbrella Policies stated in item 2 of the Declarations . . .

II. LIMIT OF LIABILITY, UNDERLYING LIMITS

It is expressly agreed that liability shall attach to the [Granite State] only after the Underlying Umbrella insurers have paid or have been held liable to pay the full amount of their respective ultimate net loss liability . . . .

As of 1979, McGraw had as direct or indirect subsidiaries, Studebaker-Worthington Co. ("SW"), Atlantic Locomotive Company ("ALCO"), and Wagner Electric ("Wagner"). Pl.'s 56.1 ¶¶ 25-26; Def.'s 56.1 ¶ 27. In 1984 and 1985, McGraw sold SW and ALCO to Dresser Industries ("Dresser"). Def.'s 56.1 ¶ 28. Cooper Industries purchased McGraw in 1985, thereby also acquiring Wagner. Def.'s 56.1 ¶ 26. Wagner was then merged into Cooper's subsidiary Moog Automotive, and in 1998 the merged company was sold to Federal Mogul Products ("Federal Mogul"). Def.'s 56.1 ¶ 26.

By 2001, Federal Mogul faced tens of thousands of asbestos bodily injury claims resulting from products sold by McGraw and the McGraw subsidiaries it had acquired, and thereafter, it began making coverage demands under potentially applicable policies, including, but not limited to, the 1980 and 1981 Granite State Policies. Def.' 56.1 ¶¶ 29, 31. At around the same time, Dresser also faced large potential liability, and made claims under the 1980 and 1981 Granite State Policies and others. Def.'s 56.1 ¶¶ 32, 33. Federal Mogul filed for bankruptcy protection in 2001, and by 2003, Dresser had followed suit. Def.'s 56.1 ¶¶ 30, 38.

Beginning in 2002, because of the large number of asbestos related claims being asserted against AIG subsidiary companies, AIG "centralized the claims handling and adjusting activities for all asbestos claims," including those asserted against Granite State, under one managerial group ("AIG Toxic Tort Group"). Decl. of Simon Yoon ¶ 7 (ECF Dkt. No. 48-11) ("Yoon Decl."). Thus, despite being separate corporate entities, Granite State and multiple other AIG companies negotiated as one unit controlled by AIG and eventually entered into settlement agreements that treated them as one unit for purposes of payment. See Dresser Settlement Agreement, Yoon Decl. at Ex. 9 (referring to Granite State and ten other entities collectively as the "AIG companies"); Federal Mogul Settlement Agreement, Decl. of Jeffrey Wactlar at Ex. 8 (ECF Dkt. No. 49-9) (referring to Granite State and seven other entities collectively as the "AIG Companies").

By the end of October 2003, declaratory judgment actions and bankruptcy proceedings making claims against Granite State and other AIG companies were in full swing and the AIG companies, Dresser, and Federal Mogul were involved in discussions, formal or informal, to resolve the coverage disputes. Yoon Dep. 53:22-54:25, 57:19-60:9, Decl. of Stephen M. Kennedy at Ex. 5 (ECF Dkt. No. 65-5). In 2004, Dresser and Federal Mogul agreed that they would evenly split the limits of the policies issued to McGraw by Granite State in a Partitioning Agreement. Pl.'s 56.1 ¶ 27; Def.'s 56.1 ¶ 66. In other words, Dresser and Federal Mogul agreed that each would be entitled to half of the available limits under each of the Granite State policies and other policies not at issue in this case.

The Dresser Settlement

At the time of Dresser's bankruptcy filing in 2003, the company estimated that its liabilities traceable to SW and ALCO would be at least $412,000,000. Def.'s 56.1 ¶ 39. The AIG Toxic Tort Group was "aware of the existence of potential coverage defenses,"...