Northwestern Mut. Fire Ass'n v. Union Mut. Fire Ins. Co.

Decision Date04 August 1944
Docket NumberNo. 10584.,10584.
Citation144 F.2d 274
CourtU.S. Court of Appeals — Ninth Circuit

Corwin S. Shank, Jo D. Cook, H. C. Belt, and Shank, Belt, Rode & Cook, all of Seattle, Wash., for appellant.

Bogle, Bogle & Gates, Lawrence Bogle, Cassius E. Gates, and Ray Dumett, all of Seattle, Wash. (Duncan & Mont, of New York City, of counsel), for appellee.

Before MATHEWS, STEPHENS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

This case involves a dispute concerning the interpretation of a contract of reinsurance.

The contract, termed in the insurance world a "treaty," was entered into between the parties in January 1940. Appellant was the reinsured company and appellee the reinsuring company. In the first article of the treaty appellant agreed to cede reinsurance to appellee, and the latter agreed to accept such reinsurance, on account of liability arising under policies written by appellant on property located anywhere in the United States or the Dominion of Canada. Reinsurance was to be ceded on the "daily report and account current plan," liability to be made effective by the specific written designation of the reinsuring company by the reinsured company.1 A vital article (referred to as the "net retention clause") provided that cessions of reinsurance "shall in no case and at no time exceed the amount retained net without reinsurance by the reinsured company at its own risk and liability on the same property." A succeeding article provided that if in case of loss it should appear that the amount ceded to the reinsuring company was in excess of the amount authorized in the net retention clause, then the amount was to be reduced so that the liability of the reinsuring company would not be greater than it would have been had the clause been complied with.

During the year 1940 the Washington Toll Bridge Authority constructed a single-span suspension bridge across Puget Sound at the Tacoma Narrows. Appellant wrote $350,000 of insurance on this bridge, insuring the Authority against loss or damage by various risks, including windstorm and collapse, upon the bridge and approaches. Of this amount appellant specifically reinsured $300,000 with various companies, including appellee. On June 10, 1940 appellant wired appellee, in confirmation of a letter written ten days earlier, stating among other things: "Further information just received indicates P.M.L. probable maximum loss about 50%.2 We will retain $50,000. Please wire your authorization." Next day appellee wired appellant authorizing the cession of $50,000 of reinsurance under the treaty, and simultaneously confirmed its wire by letter. About the same time appellant transmitted to appellee its daily report stating that, pursuant to the treaty, it had placed reinsurance with appellee on the Tacoma Narrows Bridge, effective July 1, 1940, in the sum of $50,000. The report stated that appellant was retaining "identical $50,000 * * * in accordance with your authorization."

In November 1940 the bridge collapsed. Of the whole amount of insurance carried thereon by the Toll Bridge Authority approximately 77% was paid by the various insurers in full settlement of the loss. Appellant advised appellee that the net loss sustained by the former, after deducting all reinsurance, was $38,416.54 "prior to excess." In response to appellee's inquiry as to the meaning of the phrase "prior to excess," appellant explained that it had in effect a "catastrophe excess reinsurance contract" with Lloyds whereby it was reinsured to the extent of 90% of all loss in excess of $30,000 in any one catastrophe. No consideration, it said, had been given to this catastrophe excess reinsurance in figuring net retention because of the indicated probable maximum loss of 50%. Appellee thereupon took the position that appellant had really retained net only $32,000 (that is to say, $30,000 plus 10% of $20,000) and that in consequence appellee's liability under the treaty was subject to a corresponding adjustment. Appellant sued for the full sum claimed. In its...

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3 cases
  • Stonewall Ins. Co. v. Argonaut Ins. Co.
    • United States
    • U.S. District Court — Northern District of Illinois
    • December 3, 1999 "often characterized as one of `utmost good faith.'" Unigard, 4 F.3d at 1054; see also Northwestern Mut. Fire Ass'n. v. Union Mut. Fire Ins. Co., 144 F.2d 274, 276 (9th Cir. 1944). For example, under a "follow the fortunes" clause typically found in a reinsurance contract, "[a] reinsurer......
  • Fortress Re, Inc. v. Jefferson Ins. Co. of NY, 78-0092-CIV-5.
    • United States
    • U.S. District Court — Eastern District of North Carolina
    • December 20, 1978
    ...See 13A Appleman, supra, § 7681 at 83 n. 4 (1976). This distinction is well illustrated in Northwestern Mutual Fire Association v. Union Mutual Fire Insurance Company, 144 F.2d 274 (9th Cir. 1944), and Security Mutual Casualty Company, Within the context of a reinsurance policy, the instant......
    • United States
    • U.S. Court of Appeals — Second Circuit
    • August 8, 1944

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