Munich Reinsurance Am., Inc. v. Am. Nat'l Ins. Co.

• Citation: 893 F.Supp.2d 686
• Decision Date: 28 September 2012
• Docket Number: Civil Action No. 09–6435 (FLW).
• Parties: MUNICH REINSURANCE AMERICA, INC., Plaintiff, v. AMERICAN NATIONAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of New Jersey

893 F.Supp.2d 686

MUNICH REINSURANCE AMERICA, INC., Plaintiff,

v.AMERICAN NATIONAL INSURANCE COMPANY, Defendant.

Civil Action No. 09–6435 (FLW).

United States District Court, D. New Jersey.

Sept. 28, 2012.

Amy S. Kline, Sean Tracy O'Neill, Saul Ewing LLP, Philadelphia, PA, for Plaintiff.

Joel Max Eads, Trenk DiPasquale Webster Della Fera & Sodono, P.C., Ardmore, PA, for Defendant.

OPINION

WOLFSON, District Judge:

This case involves complex retrocessional agreements between Plaintiff Munich Reinsurance America Inc. (“Munich”) and Defendant American National Insurance Company (“ANICO”). Presently before the Court are two motions: Munich's motion for partial summary judgment, pursuant to Federal Rule of Civil Procedure 56(c), on its breach of contract and declaratory judgment claims against ANICO and on ANICO's rescission counterclaim, as well as ANICO's cross-motion for summary judgment. Each of Munich's claims, and the rescission counterclaim, relate to ANICO's refusal to pay certain claims submitted for payment by Munich under the parties' agreements.

Munich seeks partial summary judgment: (a) on ANICO's rescission counterclaim, arguing that ANICO has waived its right to rescind and, alternatively, that its rescission counterclaim should be dismissed on the merits; (b) on ANICO's untimely claim submission defense to Munich's breach of contract claim, arguing that ANICO waived its defense and for judgment on the merits; (c) that, under the agreements, Munich's “retention” is calculated on a “ground up” basis; (d) that claims issued by Everest Re ¹ are covered by the agreements; (e) that Munich's “roofer” claims are covered by the agreements; and (f) that Munich's use of bordereaux reporting did not breach the agreements. In its cross-motion, ANICO seeks summary judgment on its rescission counterclaim and, in the alternative, partial summary judgment on its untimely claim submission defense to payment.

The Court grants in part, and denies in part, Munich's partial motion for summary judgment. With respect to ANICO's rescission counterclaim, the Court denies Munich's motion on the merits because there exists a genuine issue of material fact. With respect to ANICO's untimely claim submission defense to payment, the Court grants Munich's motion on the merits. The Court grants Munich's motion on the retention issue, concluding that retention is calculated on a ground up basis. With respect to the Everest Re and roofer claims, Munich's motion is denied. Finally, in light of the aforesaid ruling on the untimely claim submission defense, the Court does not reach Munich's use of bordereaux reporting; hence summary judgment on that basis is denied. ANICO's cross-motion on the rescission counterclaim and untimely claim submission defense is denied.

I. FACTS AND PROCEDURAL HISTORY

Before delving into the facts of this case, a brief overview of reinsurance and retrocessional insurance is helpful. Of course, an overview of such complex intersections of insurance law must be taken with a grain a salt. As an attorney with fifty years of reinsurance practice experience has explained, “[t]he minds that run the insurance and reinsurance industries are very clever, intelligent, and sophisticated, and they have devised almost an infinite number of variations on [the] basic categories [of reinsurance]....” Interview with Eugene Wollan, Esq., in Zukerman, T., Environmental Ins. Litig.: Law and Practice Appx. 31A at 2 (2012) (“Wollan Interview”). Nevertheless, I provide a basic primer for the purpose of orienting the reader to this obtuse subject.

The Third Circuit, in Pacific Employers Ins. Co. v. Global Reinsurance Corp. of America, 693 F.3d 417, 421 (3d Cir.2012), describes reinsurance as

insurance for insurance companies. A reinsurer agrees to indemnify a reinsured for certain payments the latter makes under one or more of its issued policies. In return, the reinsurer receives a share of the underlying premiums. Ceding a portion of an insured risk prevents a single catastrophic loss from hurling the reinsured into insolvency. It also allows the reinsured to invest more capital or to insure more risks.

Id. at 421. In short, “[a] reinsurance contract is essentially a contract of indemnity....” Christiania General Ins. Corp. of New York v. Great American Ins. Co., 979 F.2d 268, 271 (2d Cir.1992).

“The reinsurance of reinsurance is called a retrocession, and the reinsurers of reinsurers—that is, reinsurers who assume retrocession risk through retrocessional agreements—are called retrocessionaires.” Century Indem. Co. v. Certain Underwriters at Lloyd's, London, subscribing to Retrocessional Agreement Nos. 950548, 950549, 950646, 584 F.3d 513, 519 (3d Cir.2009) (emphasis added). Such retrocession agreements present considerably more complex legal and factual scenarios because “there is another layer of coverage created and another party thrown into the mix.” Plitt, et al., 1A Couch on Insurance § 9:3.

There are two overarching categories of reinsurance and retrocession—treaty and facultative; and the agreement here is the former. Through treaty reinsurance,

the reinsurer [or retrocessionaire] agrees to accept an entire block of business from the reinsured. Once a treaty is written, a reinsurer is bound to accept all of the policies under the block of business, including those as yet unwritten. Because a treaty reinsurer accepts an entire block of business, it does not assess the individual risks being reinsured; rather, it evaluates the overall risk pool.

Pacific Employers, 693 F.3d at 421.

As with primary insurance, reinsurance comes in several basic types, including proportion and excess of loss policies. An “excess of loss” policy is one that obligates the retrocessionaire to pay up to its “retention” amount, i.e., the amount of “cover” the retrocessionaire agreed to provide the reinsurer, once the total claim amount has surpassed a set monetary limit or “layer” that the reinsurer must first pay. See Hartford Acc. and Indem. Co. v. Ace American Reinsurance Co., 284 Conn. 744, 750 n. 5, 936 A.2d 224 (2007).² Excess of loss policies come in three forms: “per risk,” “annual aggregate” or “per occurrence.” See Orpett, et al., 3 LAW AND PRAC. OF INS. COVERAGE LITIG. § 41:10 (2012). These three methods differ in the manner in which risks “attach” to the reinsurance agreement. Under a per occurrence policy, like that at issue here, the retrocessionaire's obligation is triggered by a particular incident, such as a personal injury. Id.

Turning now to the details of the retrocessional policy at hand, the following facts are undisputed unless otherwise noted. In this fact section, I also provide an outline of the parties' agreement. As there are additional facts that aid my analysis of the particular provisions that must be interpreted, I provide greater factual detail in the body of the Opinion where appropriate.

Munich entered into a reinsurance relationship with Everest National Insurance Company (“Everest”), whereby Munich agreed to reinsure Everest's workers compensation insurance program for the period of January 1, 1998 through December 31, 2001 under an excess of loss reinsurance agreement. The Munich–Everest relationship was governed by an agreement with limits of $750,000 excess of $250,000. This means that Munich had no liability for any claim of less than $250,000—the layer from $0 to $250,000 was Everest's responsibility. For claims that exceeded $250,000, Munich was liable only for that portion of the claim beyond the initial $250,000 attachment point and up to a limit of $750,000.

Munich purchased excess of loss retrocessional cover, i.e., reinsurance on its reinsurance policy with Everest, for the duration of the Munich–Everest reinsurance agreement. The retrocessional cover was purchased through an agent—IOA Re—that represented several retrocessionaires. One of the retrocessionaires IOA Re represented was ANICO. Munich contends that the retrocessional agreements it entered into with various retrocessionaires each attach at the $500,000 level, such that “on a million dollar claim, Everest would be responsible for the first $250,000, Munich [ ] would be responsible for the next $250,000 and the retrocessionare would be responsible for the final $500,000.” Pl. Stat. Mat. Facts at ¶ 20.

The ANICO–Munich retrocessional agreements at the center of the parties' dispute are for the periods of November 1, 1999 through December 31, 2000 (“the 2000 Retrocessional Agreement”), and January 1, 2001 through December 31, 2001 (“the 2001 Retrocessional Agreement”). For purposes of this motion, the parties agree that these two agreements are identical in substance.

Generally, the agreements provide that ANICO will indemnify Munich “for the amount of ultimate net loss ... which may accrue to [Munich] as a result of loss or losses occurring during the term of [the] Agreement[s] as a result of [Munich's] participating in the [Munich–Everest] Reinsurance Agreement....” LeBlanc Cert., Exh. 2 (“2001 Retrocessional Agreement”), Art. I(A). Ultimate net loss is defined by the agreements as “only such amounts as are actually paid or payable by [Munich] and [Everest] under the Underlying [Munich–Everest] Agreement....” Id. at Art. VII(A). The agreements further provide that ANICO indemnifies Munich for “each and every accident or occurrence or series of accidents or occurrences arising out of one event....” Id. at Art. VI. In short, ANICO agreed to indemnify Munich for the amount of ultimate net loss accruing under the Munich–Everest workers' compensation reinsurance agreement, on a per occurrence basis.

To be clear, and as suggested above, ANICO is not the only retrocessionaire that agreed to indemnify Munich. ANICO agreed to accept a 75.00% share of the retrocessionaire obligations under the 2000 retrocessional agreement. LeBlanc Cert., Exh. 1 (“2000 Retrocessional Agreement”), Interest and Liabilities Contract.³ This share of the...