North River Ins. v. Philadelphia Reinsurance Corp.

• Decision Date: 20 September 1993
• Docket Number: Civ. A. No. 91-1323(WGB).
• Citation: 831 F. Supp. 1132
• Parties: The NORTH RIVER INSURANCE COMPANY, Plaintiff, v. PHILADELPHIA REINSURANCE CORPORATION and CIGNA Reinsurance Company, successor to INA Reinsurance Company, Defendants.
• Court: U.S. District Court — District of New Jersey

831 F. Supp. 1132

The NORTH RIVER INSURANCE COMPANY, Plaintiff, v. PHILADELPHIA REINSURANCE CORPORATION and CIGNA Reinsurance Company, successor to INA Reinsurance Company, Defendants.

Civ. A. No. 91-1323(WGB).

United States District Court, D. New Jersey.

September 20, 1993.

COPYRIGHT MATERIAL OMITTED

McElroy, Deutsch & Mulvaney by Vincent E. Reilly, Morristown, NJ, Simpson, Thatcher & Bartlett by Mary Kay Vyskocil, Joseph Wayland, Brian G. Snover, Robert R. Pollowitz, New York City, for plaintiff.

White & Williams by Thomas A. Allen, Ellen K. Burrows, William E. Cox, Marion R. Hubing, Westmont, NJ, for defendant, CIGNA Reinsurance Co.

OPINION

BASSLER, District Judge:

The plaintiff, The North River Insurance Co., "North River" and the defendant, CIGNA Reinsurance Co., "CIGNA Re" make cross motions for summary judgment under Fed.R.Civ.P. 56. For the following reasons, the Court grants CIGNA Re's motion for summary judgment and denies North River's summary judgment motion.

I. BACKGROUND

These summary judgment motions concern whether a reinsurer, CIGNA Re, must reimburse its reinsured, North River, for certain defense cost payments made in settling personal injury claims against the underlying insured, Owens-Corning Fiberglass Corporation. "Owens-Corning". North River paid those defense costs to Owens-Corning after losing an arbitration conducted under the terms of the "Wellington Agreement," an agreement among asbestos producers and insurers that CIGNA Re did not sign.

North River filed a four-count diversity action in this Court on March 29, 1991, seeking: (1) reimbursement on four facultative reinsurance certificates involving CIGNA Re; and (2) a declaratory judgment obligating CIGNA Re to reimburse North River for future losses involving the four certificates. North River also sought reimbursement and declaratory relief against Philadelphia Reinsurance Corporation, "Philadelphia Re". However, by a joint stipulation and order, filed March 17, 1993, the claims against Philadelphia Re have been dismissed.

A. The Parties

North River, a shell corporation (see Appendix 1 to CIGNA Re's Support Brief, July 26, 1989 ADR opinion, at 1.) wholly owned by Crum & Forster, Inc., "Crum & Forster" is a New Jersey corporation with its principal place of business in Morristown, N.J. CIGNA Re, an independently operated subsidiary of CIGNA Property & Casualty Insurance Companies, is a Delaware corporation with its principal place of business in Philadelphia, Pa. Before June 30, 1987, CIGNA Re was known as INA Insurance Company.

B. The Underlying Insurance

North River, through another Crum & Forster subsidiary, L.W. Biegler & Co., issued several excess insurance policies to Owens-Corning, including three at issue here, numbered XS-3619, XS-4073 and XS-4423, involving liability coverage from 1974-78. These policies use the same form language and provide, among other things, coverage for asbestos-related bodily injury claims.

XS-3619 provided to Owens-Corning $25 million in liability coverage, as part of a $50 million layer in excess of $26 million in underlying coverage, during each of the following policy periods: (a) June 18, 1974 through October 22, 1974 "XS-3619(A)"; (b) October 22, 1974 through October 22, 1975 "XS-3619(B)"; and (c) October 22, 1975 through October 22, 1976 "XS-3619(C)".

XS-4073 provided to Owens-Corning $30 million in liability coverage, as part of a $50 million layer in excess of $26 million in underlying coverage, for the policy period October 22, 1976 through October 22, 1977.

XS-4423 provided to Owens-Corning $40 million in liability coverage, as part of a $50 million layer in excess of $26 million in underlying coverage, for the policy period October 22, 1977 through September 1, 1978.

Paragraph 1 of each policy provides that "North River hereby indemnifies Owens-Corning against ultimate net loss." (Appendix 2 to CIGNA Re's Support Brief.) Paragraph 13 provides, in relevant part:

13. Ultimate net loss, as used herein, shall be understood to mean the sums paid in settlement of losses ... and shall exclude all "Costs."

(Id.)

"Costs," in turn, are defined in paragraph 14:

14. The word "costs", as used herein, shall be understood to mean interest on judgments, investigation, adjustment and legal expenses....

(Id.)

In paragraphs 8 and 9, the policies discuss the basis under which North River might consent to provide defense of claims:

8. ... At no time shall North River be called upon to assume charge of the settlement or defense of any claims made or suits brought or proceedings instituted against Owens-Corning, but North River shall have the right and shall be given the opportunity to associate with Owens-Corning or its underlying insurer or insurers, or both, in the control, defense and/or trial of any claims, suits or proceedings, which, in the opinion of North River, involves or appears reasonably to involve North River....

9. Owens-Corning shall be solely responsible for the investigation, settlement, defense and final disposition of any claim made or suit brought or proceeding instituted against Owens-Corning to which this Certificate would apply and which no underlying insurer or insurers is obligated to defend.....

(Id.)

In paragraph 15, the policies specify that, "with the written consent of North River," costs incurred by Owens-Corning could be apportioned under a formula described in that paragraph. (Id.)

North River and another Crum & Forster company, International Surplus Lines Insurance Company, issued a total of 28 insurance contracts to Owens-Corning for the period June 18, 1974 to September 1, 1985, which afford more than $700 million in indemnity coverage, excluding defense costs. (See Appendix 27 to CIGNA Re's Support Brief, at 5.) To date, North River has paid more than $300 million to Owens-Corning in indemnity payments and more than $250 million in defense costs under these insurance contracts. (See Steven A. Falk Affidavit at 3.)

C. The Reinsurance Certificates

North River bought reinsurance for its risk under the Owens-Corning policies from many reinsurers. CIGNA Re agreed to reinsure North River's risk under several certificates of facultative reinsurance, including four at issue here, bearing policy numbers FRC-01817, FRC-016186, FRC-019062 and V01078. In exchange for a portion of the premium paid by Owens-Corning, CIGNA Re agreed to indemnify North River for a stated share of North River's risk under the three Owens-Corning policies.

CIGNA Re in 1974 joined a reinsurance pool, established by broker Towers, Perrin, Forster & Crosby, Inc. "TPF & C", which issued to North River a typed "Memorandum of Reinsurance," attached to a pre-printed, standard form certificate of reinsurance, drafted by TPF & C, bearing policy number V01078. Under V01078, CIGNA Re provided an 18.5 percent share of the pool's reinsurance coverage of $1 million, as part of North River's $25 million share of excess liability coverage under XS-3619.

CIGNA Re in June 1974 issued to North River a pre-printed, standard form certificate of facultative reinsurance, drafted by CIGNA Re, bearing policy number FRC-01817. Under FRC-01817, CIGNA Re provided reinsurance coverage to North River for $5 million of North River's $25 million share of excess liability coverage under XS-3619.

CIGNA Re in March 1977 issued to North River a pre-printed, standard form certificate of reinsurance, again drafted by CIGNA Re and similar in most respects to the form of FRC-01817, bearing policy number FRC-016186. Under FRC-016186, CIGNA Re provided reinsurance coverage to North River for $5 million of North River's $30 million share of excess liability coverage under XS-4073.

CIGNA Re in March 1978 issued to North River a pre-printed, standard form certificate of reinsurance, using exactly the same form as FRC-016186, this one bearing policy number FRC-019062. Under FRC-019062, CIGNA Re provided reinsurance coverage to North River for $5 million as part of North River's $40 million share of excess liability coverage under XS-4423.

All four of these CIGNA Re certificates contain pre-printed coverage provisions commonly known in the reinsurance industry as a "following form" clause and a "follow the fortunes" clause. For the purposes of these motions, the variation in language among the four certificates is not material to these clauses.

For example, the "following form" clause of FRC-016186, included in Section 1, "Application of Certificate," provides in relevant part:

... The liability of CIGNA Re shall follow that of North River and, except as otherwise specifically provided herein ... shall be subject in all respects to all of the terms and conditions of XS-4073, except such as may purport to create a direct obligation of CIGNA Re to the original insured or anyone other than North River....

(Appendix 5B to CIGNA Re's Support Brief.)

The "follow the fortunes" clause of FRC-01686, included in Section 4, "Loss Settlement," provides in relevant part:

... All claims involving this reinsurance, when settled by North River, shall be binding on CIGNA Re, which shall be bound to pay its proportion of such settlements, and in addition thereto, ... its proportion of expenses, ....

(Id.)

The four certificates also include a provision, whose language does not vary significantly among the different certificates, under which CIGNA Re must give its consent to any modification of the certificates. For example, FRC-01686, in Section 11, "Amendments," provides:

The terms of this Certificate shall not be waived, amended or in any way modified unless contained in an endorsement to this Certificate, executed by a duly authorized representative of CIGNA Re.

(Id.)

There are at least three other reinsurance certificates under which CIGNA Re agreed to reinsure North River for policies involving Owens-Corning, in addition to the four certificates identified in the complaint. CIGNA Re has previously paid more than $30...