Insurance Co. of State of Pennsylvania v. Associated Intern. Ins. Co.
| Decision Date | 13 February 1991 |
| Docket Number | No. 89-55639,89-55639 |
| Citation | 922 F.2d 516 |
| Parties | INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Plaintiff-Appellant, v. ASSOCIATED INTERNATIONAL INSURANCE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Charles A. Lynberg, argued, R. Jeff Carlisle, and Lisa T. Mathies, on briefs, Lynberg & Watkins, Los Angeles, Cal., for plaintiff-appellant.
Mark W. Flory, Jennifer N. Pahre, Harrington, Foxx, Dubrow & Canter, Los Angeles, Cal., for defendant-appellee.
Appeal from the United States District Court for the Central District of California.
Before REINHARDT and HALL, Circuit Judges, and RE, * Chief Judge.
In this diversity action for breach of contract and declaratory relief, plaintiff-appellant, Insurance Company of the State of Pennsylvania (ICP), appeals from a decision in favor of defendant-appellee, Associated International Insurance Company (Associated), entered in the United States District Court for the Central District of California after a trial without a jury.
In essence, ICP is seeking damages and a determination of its rights and liabilities under a reinsurance contract with Associated. ICP contends that Associated breached its duty to indemnify ICP under the reinsurance contract. Associated alleges that ICP did not comply with the notice provision of the reinsurance contract and that Associated was prejudiced by the noncompliance. Hence, Associated contends that, under California law, it is relieved of liability under the reinsurance contract. Associated also submits that, regardless of whether ICP breached the notice clause, the settlement for which ICP seeks to be indemnified is beyond the scope of the reinsurance contract.
The questions presented on this appeal are: (1) whether the district court erred in holding that the notice by ICP to Associated in 1987 was not timely under the notice provision in the reinsurance contract; (2) whether California decisional law, which requires a primary insurer to demonstrate actual and substantial prejudice in order to establish a late notice defense, applies to Associated, a reinsurer; (3) whether, having found a breach of the notice clause by ICP, the district court erred in finding actual and substantial prejudice; and (4) whether ICP's settlement with Fibreboard falls within the indemnity obligation of Associated under the reinsurance contract.
We hold that: (1) the district court did not err in finding that ICP breached the notice requirement in the reinsurance contract; (2) Associated, a reinsurer, must show actual and substantial prejudice to maintain a late notice defense against ICP,
its reinsured; (3) the district court erred in concluding that Associated demonstrated actual and substantial prejudice; and (4) the settlement between ICP and Fibreboard is covered under the reinsurance contract between ICP and Associated. Accordingly, the judgment of the district court is reversed.
In 1976, the Insurance Company for the State of Pennsylvania issued an excess umbrella liability insurance policy providing $20 million coverage to Louisiana-Pacific Corporation. ICP ceded to Associated International Insurance Company and Associated agreed to reinsure the ICP-Louisiana-Pacific policy up to $2.25 million. The certificate of reinsurance, i.e., the reinsurance contract between ICP and Associated, contained a notice provision requiring ICP to:
notify [Associated] promptly of any occurrence which in [ICP]'s estimate of the value of injuries or damages sought, without regard to liability, might result in judgment in an amount sufficient to involve this certificate of reinsurance.
The reinsurance contract also required ICP to "notify [Associated] promptly ... when notice of claim is received by [ICP]." The reinsurance contract specified that Associated had "the right and shall be given the opportunity, with the full cooperation of [ICP], to associate counsel at its own expense and to join with [ICP] and its representatives in the defense and control of any claim, suit or proceeding involving this certificate of reinsurance." It also provided that Associated must indemnify ICP if ICP pays a claim covered by the reinsured insurance policy.
In 1978, Louisiana-Pacific acquired the stock of Fibreboard Corporation, a company which, prior to 1972, manufactured products containing asbestos. Upon the acquisition, Fibreboard automatically became insured under the ICP-Louisiana-Pacific policy. Subsequently, Louisiana-Pacific's premiums were increased by ten percent. Shortly thereafter, Associated received a document from ICP indicating the additional premium collected, however, no mention was made of Louisiana-Pacific's acquisition of Fibreboard.
During the late 1970's thousands of personal injury claims arising from exposure to asbestos were brought against Fibreboard. As a result, in February 1979, a letter was sent to ICP from Louisiana-Pacific's insurance brokers informing ICP of the outstanding claims. The letter warned ICP of "an increasing possibility of eventual potential claims against policies issued by excess underwriters." A similar letter was sent in October, 1980. A third letter, dated December 18, 1980, explained to ICP that "due to the sheer number of claims involved, we believe and expect that your excess policies will be penetrated." ICP did not relate this information to Associated.
In May 1979, the Fireman's Fund Insurance Company, one of Fibreboard's primary insurers, commenced an action in the California state courts seeking declaratory relief against Fibreboard and several of Fibreboard's insurers to resolve a coverage dispute as to the asbestos claims. Fibreboard cross-claimed against all of its insurers, including ICP. The cross-complaint sought declaratory relief and compensatory and punitive damages for breach of contract, breach of the insurer's duty of good faith and fair dealing, and deceptive and unfair acts and practices. Specifically, the cross-complaint alleged "that the potential liability of Fibreboard in the underlying action exceeds Fibreboard's underlying primary and other insurance coverage." These developments were not conveyed to Associated.
In July 1986, Fibreboard notified ICP and other companies affiliated with ICP (AIG companies) of the forthcoming depletion of the layers of insurance below its excess policies for certain years, and requested payment on these policies. In late 1986, negotiations for a complete settlement were commenced during which Fibreboard and AIG companies, including ICP, agreed to include the policy reinsured by Associated.
In a document dated April 15, 1987, entitled "First Notice of Loss," ICP formally On May 6, 1988, asserting diversity jurisdiction, ICP sued Associated in the United States District Court for the Central District of California. The case proceeded to a bench trial and, on April 28, 1989, judgment was entered for Associated.
informed Associated of the asbestos claims. In May 1987, Fibreboard and various AIG companies, including ICP, entered into a settlement agreement in which the insurers promised to pay $102.4 million in structured payments between May 15, 1987, and December 15, 1991. It was agreed that the funds paid in settlement would be used by Fibreboard to pay actual asbestos claims. It was also agreed that the $102.4 million in payments would be deemed to exhaust ICP's policy and the policies of the other AIG companies. Under this settlement, ICP was not required to pay out the full policy limit. Hence, ICP requested only $1.85 million of the $2.25 million reinsurance contract from Associated. In a letter dated June 19, 1987, Associated refused to comply with ICP's demand for payment stating that "[t]he recent late notice is in direct violation of the terms and conditions of our reinsurance certificate."
Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous...." The Rule, however, does not apply to a district court's interpretation of law, which is reviewed de novo. Pullman-Standard v. Swint, 456 U.S. 273, 287, 102 S.Ct. 1781, 1789, 72 L.Ed.2d 66 (1982); State Farm Fire and Casualty Co. v. Abraio, 874 F.2d 619, 621 (9th Cir.1989). Furthermore, the district court's conclusions may be set aside if they are based upon an erroneous interpretation of the law. Pullman-Standard, 456 U.S. at 287, 102 S.Ct. at 1789.
Generally, the interpretation of a contract is considered a mixed question of law and fact. James B. Lansing Sound, Inc. v. National Union Fire Ins. Co., 801 F.2d 1560, 1564 (9th Cir.1986). Hence, we review de novo "[w]hen the district court's interpretation is based on an analysis of the contractual language and the principles of contract interpretation," and we review under a clearly erroneous standard "when the [district court's] interpretation focuses on extrinsic evidence of related facts...." Lawyers Title Ins. Corp. v. Honolulu Fed. Sav. and Loan Ass'n, 900 F.2d 159, 162 (9th Cir.1990).
In this case, the district court concluded that ICP breached the notice clause or requirement in the reinsurance contract, and that Associated was prejudiced. Since the district court's findings were based upon "an analysis of the contractual language" and its conclusions of California law, they are subject to de novo review. Lansing Sound, 801 F.2d at 1564.
In this diversity case governed by the substantive law of insurance of California, we are required to "ascertain from all the available data what the state law is and apply it...." West v. American Telephone and Telegraph Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940). In the absence of a decision by the state's highest court, "this court looks to decisions by intermediate appellate state...
To continue reading
Request your trial
-
BILEZIKJIAN v. UNUM LIFE INS. CO. OF AMERICA, Case No.: SA CV 07-1438 AHS (ANX).
...Id. Diversity cases in federal court are governed by the substantive law of the forum state. See Ins. Co. of the State of Penn. v. Assoc'd Int'l Ins. Co., 922 F.2d 516, 520 (9th Cir.1990). Courts are required to "`approximate state law as closely as possible' and are bound by the pronouncem......
-
United States v. Am. Home Assurance Co.
...Texas E. Transmission Corp. PCB Contamination Ins. Coverage Litig., 15 F.3d 1249, 1253–54 (3d Cir.1994) ; Ins. Co. of Pa. v. Associated Int'l Ins. Co., 922 F.2d 516, 524 (9th Cir.1991) ; Unigard Sec. Ins. Co. v. N. River Ins. Co., 4 F.3d 1049, 1068–69 (2d Cir.1993) ; Granite State Ins. Co. ......
-
The Flintkote v. General Acc. Assur. Co. of Canada
...defeat summary judgment because Aviva must show prejudice from any failure to provide notice. See Insurance Co. of State of Penn. v. Assoc. Int'l Ins. Co., 922 F.2d 516, 523 (9th Cir.1990) (applying California law). And, according to Flintkote, Aviva cannot make a showing of prejudice. Aviv......
-
Heighley v. J.C. Penney Life Ins. Co.
...This court's jurisdiction is based on diversity. Therefore California substantive law applies. Insurance Co. of Pennsylvania v. Associated Int'l Ins. Co., 922 F.2d 516, 520 (9th Cir.1990) (as amended 1991); Continental Casualty Co. v. City of Richmond 763 F.2d 1076, 1079 (9th Cir.1985). The......
-
CHAPTER 7 CONDITIONS, WARRANTIES, AND EXCLUSIONS
...should be clear and explicit, and should not involve an absurdity. In Insurance Co. of State of Pennsylvania v. Associated Int'l Ins. Co., 922 F.2d 516 (9th Cir. 1990), the notice clause in a policy issued by the Insurance Company of the State of Pennsylvania (ICP) read: "The insured is req......
-
Notice to an Insurance Company After Hecla Mining
...Pennsylvania) Opening Brief, dated Nov. 9, 1989, at 17, 22, Insurance Company of the State of Penn. v. Associated International Ins. Co., 922 F.2d 516 (9th Cir. 1990) (No. 89-55639). 25. Appellant's (New England Reinsurance Corporation and First State Insurance Company) Opening Brief, filed......