Munich Reinsurance America, Inc. v. Tower Ins. Co. of New York
| Decision Date | 22 December 2011 |
| Docket Number | Civil Action No. 09-2598 (FLW) |
| Parties | MUNICH REINSURANCE AMERICA, INC., Plaintiff, v. TOWER INSURANCE COMPANY OF NEW YORK, Defendant |
| Court | U.S. District Court — District of New Jersey |
*NOT FOR PUBLICATION
This complex coverage dispute arises out of multiple reinsurance agreements between Plaintiff Munich Reinsurance American, Inc., formerly known as American Re-Insurance Company ("Plaintiff" or "Munich") and Tower Insurance Co. of New York ("Defendant" and "Tower"). In this suit, the parties have asserted claims against one another under these reinsurance and retrocessional agreements, wherein they essentially agreed to indemnify each other against all or a portion of the loss sustained under certain standard insurance policies. In the instant matter, Munich and Tower both move for partial summary judgment. Pursuant to the agreements, Munich seeks a past due payment of $3,287,597 and prejudgment interest. Tower seeks summary judgment on Munich's claims with respect to the Quota Share Agreements and Tower's counterclaim relating to the Multiple Line Excess of Loss Reinsurance Agreement ("XOL Agreement"). For the reasons that follow, Plaintiff's motion is granted in part and denied in part; in that, (1) the issue regarding the pastdue payment is moot since Tower has already remitted payment; (2) Plaintiff is directed to submit a certification setting forth the appropriate prejudgment interest regarding the past due payment; and (3) Plaintiff's request for prospective relief in the form of an order directing Tower to cease its practice of withholding undisputed net balances due is denied.
Defendant's motion is also granted in part and denied in part; in that, (1) Munich's claim for recoupment of lead losses arising from the Quota Share Agreements is limited only to those claims that arise under polices issued after October 27, 1992; (2) summary judgment is denied with respect to the Baez Policy; (3) summary judgment on the loss adjustment expenses arising out of the Quota Share Agreements is denied; and (4) summary judgment on the Ling Ping claim is granted.
I. BACKGROUND
Before the Court recounts the facts of this case, due to the complexity of the reinsurance arrangement between the parties, I find it helpful to briefly summarize the structure of reinsurance in general:
[P]rimary insurers themselves usually purchase insurance to cover a portion of the risk they assume from the consumer. This so-called "reinsurance" may serve at least two purposes, protecting the primary insurer from catastrophic loss, and allowing the primary insurer to sell more insurance than its own financial capacity might otherwise permit. Thus, "the availability of reinsurance affects the ability and willingness of primary insurers to provide insurance to their customers." Insurers who sell reinsurance themselves often purchase insurance to cover part of the risk they assume from the primary insurer; such "retrocessional reinsurance" does for reinsurers what reinsurance does for primary insurers.
Hartford Fire Ins. Co. v. Cal., 509 U.S. 764, 772-73 (1993). Because these partial summary judgment motions only involve certain agreements between the parties, the Court will only providefacts and the parties' respective positions relevant to those agreements.
In this case, Tower and Munich are domestic property and casualty insurance and reinsurance companies. These two companies are parties to a series of reinsurance and retrocessional agreements. Specifically, relevant to these motions, Munich reinsured Tower's underlying insurance obligations under a Quota Share Reinsurance Agreement covering the period 1992 through 1993 ("92/93 Quota Agreement"), see Contract No. 3812-0007, a Quota Share Reinsurance Agreement covering the period from 1994 to 2000 ("94/00 Quota Agreement") (collectively, "Quota Agreements"), see Contract No. 3812-0014, and XOL Agreement.
Each of the agreements between the parties explicitly provides that "[e]ach party [] has the right . . . to offset any amounts, whether on account of premiums or losses or otherwise, due from such party to another party," under either the same agreement or any other reinsurance agreement between them. See, e.g., 94/00 Quota Agreement, Article XVI(a). This type of "net" accounting was the way the parties reconciled their financial obligations to each other. See Frawley Decl., ¶ 4.
In the reinsurance industry, it is common practice for parties to prepare an outline of the terms of the agreed upon reinsurance, known as a "slip", with the expectation that the slip will be replaced with a more comprehensive contract.1 See Betiz Decl., ¶ 7. Consistent with such practice, Munich and Tower prepared a slip for the 92/93 Quota Agreement and later replaced that slip with a written contract. Notably, the 1992 slip did not contain a warranty requiring Tower to attach a lead exclusion to any policy it issued. See Bell Dep., at 22-23. In January 1993, the parties executedanother insurance slip, which contained all of the terms and conditions for the insurance agreement that the parties had agreed to as of that date. Id. at p. 22. Similar to the 1992 slip, the 1993 slip did not contain any provision requiring Tower to attach a lead exclusion to any policy it issued. Id. From 1992 through 1993, the parties' reinsurance relationship was governed by the 1992 and 1993 slips; the 92/93 Quota Agreement was not drafted and executed until August 2000. However, unlike the 1992 and 1993 slips, the 92/93 Quota Agreement contained a lead warranty provision which required Tower to include a lead exclusion endorsement to every commercial general liability ("CGL") liability it issued.
In or around 1993, Tower began reporting lead claims to Munich. However, Munich took the position that its reinsurance contracts generally did not provide coverage for lead claims. See Lee Aff., ¶ 3. Munich insisted that it has a long-standing policy against reinsuring an insurer's exposure for lead claims. See Beitz Dep., p. 197. However, according to Tower, the parties resolved their dispute and agreed that, on a going forward basis, Tower would include the lead exclusion in every CGL policy it issued. See Lee Aff., ¶ 3. In that regard, it is Tower's position that "at no time did [Tower] every knowingly warrant that it had attached and/or would continue to attach the Lead Exclusion to CGL policies issued prior to October 27, 1992 . . . ."2 Id. at ¶ 5. At issue here is whether the inclusion of the lead warranty provision in the 92/93 Quota Agreement was the result of a mutual mistake.
On September 28, 1994, the parties entered into the 94/00 Quota Agreement, which was in effect from 1994 to 2000. This agreement included a lead warranty. See 94/00 Quota Agreement, Art. XII(b) ().3 Munich alleges that Tower breached the lead warranty provision of the 94/00 Quota Agreement by issuing a policy that provided lead coverage to Freddy and Zeneda Baez in 1999 (the "Baez Policy"). Tower contends that the Baez Policy is a commercial package peril policy ("CPP"), not a CGL policy. Therefore, Tower insists that the lead warranty provision does not preclude coverage on this policy.
In the early 1990s, Munich agreed to pay its proportionate share of the costs associated with Tower's claims and legal departments, i.e., Tower's loss adjustment expenses ("LAE") under the Quota Agreements. Fauth Decl., ¶ 3. Throughout the 1990s, Tower billed Munich and Munich paid its proportionate share of Tower's LAE under the Quota Agreements.
In or about 1996, Tower Group, Inc. ("Tower Group"), parent company of Tower, formed Tower Risk Management ("TRM") to write insurance policies on behalf of certain companies (the "Front Companies") and to handle claims arising out of Tower policies that were reinsured underthe Quota Agreements. See Fauth Decl., ¶¶ 1,4. The same claims adjusters and attorneys who handled the claims under the Front Companies policies also handled claims under the Tower policies. Id. at ¶ 4. Because Munich reinsured the Front Companies with respect to the business underwritten by TRM, the TRM billings for insurance claims associated with that business were passed through to Munich. See Frawley Dec., at ¶¶ 2, 5. In the aggregate, the TRM billings, which included loss adjustment expenses TRM handled for Tower and the Front Companies, purportedly represented the total claim expenses ofTower Group. Fauth Dep., pp. 146-48; 157-58; 165-66; 190-92.
In the 92/93 and 94/00 Quota Agreements, the parties initially agreed in Article VII(b) that Munich will pay "in proportion to its participation expenses incurred by [Tower] in the investigation, adjustment and litigation of all claims under its policies, excluding the office expenses of Tower and the salaries and expenses of its officials and employees except for salaries of staff attorneys and claim personnel." In 2001, Tower Group asked Munich to amend this provision in order for Tower Group to better allocate TRM's billings between costs associated with the Front Companies and Tower. See Fauth Decl., ¶ 6. Munich agreed to the following alteration: Munich "shall bear in proportion to its participation expenses incurred by [Tower] in the investigation, adjustment and litigation of all claims under its policies, excluding the office expenses of the Company and the salaries and expenses of its officials and employees, except for the hourly billing of attorneys and claim personnel." Endorsement 008 to 94/00 Quota Agreement. In addition to the endorsement, the parties...
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