Old Republic Ins. Co. v. Employers Reinsurance Corp.

• Decision Date: 22 May 1998
• Docket Number: No. 97-2449,97-2449
• Citation: 144 F.3d 1077
• Parties: OLD REPUBLIC INSURANCE COMPANY, Plaintiff-Appellant, v. EMPLOYERS REINSURANCE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1077

144 F.3d 1077

OLD REPUBLIC INSURANCE COMPANY, Plaintiff-Appellant, v. EMPLOYERS REINSURANCE CORPORATION, Defendant-Appellee.

No. 97-2449.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 23, 1998.

Decided May 22, 1998.

Michael R. Hassan (argued), Albert E. Fowerbaugh, Jr., Lord, Bissell & Brook, Chicago, IL, for Plaintiff-Appellant.

David E. Stevenson (argued), Williams & Montgomery, Chicago, IL, for Defendant-Appellee.

Before BAUER, KANNE, and DIANE P. WOOD, Circuit Judges.

KANNE, Circuit Judge.

Old Republic Insurance Company ("Old Republic") sued Employers Reinsurance Corporation ("ERC") for a declaratory judgment to determine whether portions of Old Republic's letter of intent or whether ERC's facultative certificates formed the contract that bound their reinsurance agreement. ¹ Old Republic also sued for breach of that contract. The district court held that the facultative certificates formed the contract. Old Republic challenges the court's refusal to award it monetary damages, its order compelling Old Republic to comply with the facultative certificates, and one of its evidentiary rulings. We affirm the district court's judgment to the extent it orders that the facultative certificates govern the obligations of the parties and vacate the portion that compels Old Republic to comply with those certificates. Any evidentiary error the district court may have made was harmless.

I. HISTORY

In 1986, Old Republic agreed to participate in an insurance program covering ARA Services, Inc. ("the ARA Program"). As part of this program, Old Republic agreed to provide worker's compensation, employer's liability, auto liability, and general liability coverage to ARA Services. ERC agreed to provide facultative reinsurance to Old Republic for this program. ERC's reinsurance at issue in Old Republic's lawsuit covered two policy periods, March 1, 1986 to May 1, 1987 ("the 1986-1987 policy year") and May 1, 1987 to May 1, 1988 ("the 1987-1988 policy year").

After meetings on January 7, 1986 and January 22, 1986 between Old Republic, ERC, and other parties participating in the ARA Program, Old Republic prepared and sent a letter of intent setting forth the terms of the ARA Program for the 1986-1987 policy year. After Old Republic sent the letter of intent, the parties revised it at least nine times. In 1987, Old Republic attempted to convince ERC to sign another letter of intent which covered both the 1986-1987 policy year and the 1987-1988 policy year. ERC refused to sign since its facultative certificates had already been issued. The terms of the facultative certificates relating to the coverage of certain expenses differed from the terms of the letter of intent.

On October 18, 1995, Old Republic initiated this action against ERC. Old Republic sought a declaration that Old Republic's letter of intent covered the terms of ERC's reinsurance coverage rather than the facultative certificates which ERC issued. Old Republic also sought $1,700,000 for ERC's failure to provide reinsurance coverage to Old Republic for payments made in the ARA Program. In its amended answer, ERC denied that the letter of intent was a binding contract, and through an affirmative defense, ERC alleged that its facultative certificates were the controlling reinsurance contract.

The case was tried in Chicago, with a visiting judge from the District of North Dakota presiding. At trial, Old Republic introduced two charts to prove damages for breach of the letter of intent. Applying a coverage formula based on that document, Old Republic calculated the total amount ERC owed Old Republic. According to its calculations, ERC was obligated to pay Old Republic for 100% of all loss adjustment expenses and 98% for worker's compensation claims. ERC argued that it owed a proportionate share of loss adjustment expenses as set forth in the facultative certificates. To rebut Old Republic's damage claim, it introduced a chart showing coverage under the terms of the facultative certificates. Both Old Republic and ERC presented evidence that ERC owed Old Republic money if either set of documents governed.

On March 5, 1997, the district court held that Old Republic accepted ERC's facultative certificates as the contract and that the terms of the facultative certificates were binding on Old Republic. See Old Republic Ins. Co. v. Employers Reins. Corp., No. 95 C 5983, slip op. at 13 (N.D.Ill. Mar. 5, 1997). The court awarded ERC reasonable costs and "compelled [Old Republic] to comply with the facultative certificates" in its settlement with ERC. Id. at 14. On March 19, 1997, Old Republic filed a motion to alter and amend the judgment, requesting, in part, that the district court determine the amount of money ERC owed Old Republic and vacate that part of the judgment "compelling" Old Republic to comply with the facultative certificates and instead to issue a declaration to that effect. On May 14, 1998, the district court denied Old Republic's motion.

Old Republic appealed.

II. ANALYSIS

Old Republic challenges the district court's refusal to award it monetary damages, its order compelling Old Republic to comply with the facultative certificates, and one of its evidentiary rulings. Old Republic does not challenge the district court's decision that the facultative certificates contain the controlling terms of the contract.

A.

Old Republic's first and second arguments center on Federal Rule of Civil Procedure 54(c) ("Rule 54(c)"). Rule 54(c) provides in pertinent part:

Except as to a party against whom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings.

The purpose of this rule is to make "clear that a judgment should give the relief to which a party is entitled, regardless of whether it is legal or equitable or both." Fed.R.Civ.P. 54(c) advisory committee's notes; see also Williamson v. Handy Button Mach. Co., 817 F.2d 1290, 1298 (7th Cir.1987) ("[T]he court is to determine, and award, the right relief in each case even if the complaint is silent on the question."). As this decision is within the sound discretion of the district court, we review it for an abuse of that discretion. See Albemarle Paper Co. v. Moody, 422 U.S. 405, 424, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975); North Alamo Water Supply Corp. v. City of San Juan, 90 F.3d 910, 918 (5th Cir.), cert. denied, --- U.S. ----, 117 S.Ct. 586, 136 L.Ed.2d 515 (1996); Kaszuk v. Bakery and Confectionery Union and Indus. Int'l Pension Fund, 791 F.2d 548, 559 (7th Cir.1986).

1.

Old Republic claims that the district court erred by not awarding it damages for ERC's failure to reimburse it. According to Old Republic, it presented evidence showing that ERC owed it $818,544.07 under its breach of contract claim if the court decided that the facultative certificates controlled. Since Old Republic believes that it raised this relief request in its complaint, during the trial, and in its post-trial motion, it views the court's failure to award damages to be an abuse of its discretion under Rule 54(c). In response, ERC contends that Rule 54(c) does not aid Old Republic because Old Republic is not a prevailing party.

Rule 54(c) states that "every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled." Fed.R.Civ.P. 54(c) (emphasis added). While it is undoubtedly true that district courts should afford the prevailing party the relief to which it is entitled without regard to errors in the pleadings, see Valona v. United States, 138 F.3d 693, 695 (7th Cir.1998), Rule 54(c) does not allow the district court to award relief based on a theory that was not properly raised at trial, see Rivinius, Inc. v. Cross Mfg., Inc. (In re Rivinius, Inc.), 977 F.2d 1171, 1177 (7th Cir.1992), or to a party that has not prevailed, see Pearson v. Fair, 935 F.2d 401, 414 (1st Cir.1991).

Old Republic argues that it presented two theories to the district court in support of its breach of contract claim: one based on the letter of intent and another on the facultative certificates. Without the assistance of a pretrial order which focused the issues for trial ² and without an argument on appeal that the parties impliedly consented to amending the pleadings pursuant to Fed.R.Civ.P. 15(b), we turn to Old Republic's complaint to determine whether the district court abused its discretion in not awarding damages.

Old Republic's breach of contract claim asserted that the letter of intent is a binding, valid, and enforceable contract, that the facultative certificates did not conform to the terms of the letter of intent, that Old Republic never agreed to the terms of the reinsurance program as set forth in the facultative certificates, and that ERC's refusal to provide reinsurance to Old Republic pursuant to the terms of the letter of intent is a breach of the letter of intent. See Complaint pp 16-17, 25-26, Old Republic Ins. Co., No. 95 C 5983 (N.D.Ill. Oct. 13, 1995). After demanding that ERC honor its obligations under the letter of intent, Old Republic stated that it "has performed all conditions required on its part to be performed as specified in the Letter of Intent and in the facultative reinsurance certificates." Id. p 28. Old Republic requested a judgment, money damages, prejudgment interest, and any other relief that the court deemed appropriate and just.

Even construing this pleading liberally, we cannot accept Old Republic's contention that it stated a breach of contract claim under both the letter of intent and the facultative certificates. Old Republic placed all of its eggs in the letter of intent basket. The claim's single reference to the facultative certificates is not an assertion that ERC also breached the contract if the district court determined that the facultative certificates collectively formed the...