Security Mut. Cas. Co. v. Century Cas. Co.

• Decision Date: 05 April 1976
• Docket Number: No. 74--1809,74--1809
• Citation: 531 F.2d 974
• Parties: SECURITY MUTUAL CASUALTY COMPANY, Plaintiff-Appellee, v. CENTURY CASUALTY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 974

531 F.2d 974

SECURITY MUTUAL CASUALTY COMPANY, Plaintiff-Appellee, v. CENTURY CASUALTY COMPANY, Defendant-Appellant.

No. 74--1809.

United States Court of Appeals, Tenth Circuit.

Argued Aug. 20, 1975.

Decided March 12, 1976.

Rehearing Denied April 5, 1976.

Michael F. Scott, Denver, Colo. (Roger D. Bush and James H. Mosley, Denver, Colo., on the brief), for defendant-appellant.

A. Denison Weaver, Chicago, Ill. (John E. Clough, Denver, Colo., on the brief), for plaintiff-appellee.

Before LEWIS, Chief Judge, and HILL and BARRETT, Circuit Judges.

HILL, Circuit Judge.

Security Mutual Casualty Company, the appellee, brought this action seeking a declaratory judgment determining its rights and liabilities under a reinsurance treaty with Century Casualty Company, the appellant. Security Mutual also sought to recover damages incurred as a result of a judgment against Century's insured, Anderson Aviation Sales Company, Inc.

Security Mutual claimed it had no liability as reinsurer because Century Casualty failed to give timely notice of the fatalities and resulting claims involved in the Anderson Aviation litigation. The trial court held that, under the reinsurance treaty, notice was a condition precedent to Security Mutual's liability to indemnify Century Casualty. The court found as a matter of fact that notice was not given and entered judgment for Security Mutual.

The two companies entered into the reinsurance treaty in March, 1966. Security Mutual agreed to reinsure a specified portion of Century Casualty's losses under its primary insurance contracts in return for a portion of the premiums. During 1969, Century Casualty insured Anderson Aviation, an Arizona corporation in the business of leasing airplanes to the public. The policy was within the scope of the reinsurance treaty. On September 3, 1969, an Anderson Aviation plane crashed in Blythe, California, killing the pilot and five passengers and destroying the plane. Suit was brought in the state court of Arizona on behalf of the passengers against the passengers' employer, the pilot, and Anderson Aviation. Anderson Aviation was held liable on the theory of negligent entrustment.

The judgment, in the amount of $385,000 plus costs and interests, was affirmed on appeal. Anderson Aviation Sales Co., Inc. v. Perez, 19 Ariz.App. 422, 508 P.2d 87 (1973).

Century Casualty received notice of the death claims and the claims for hull damage to the airplane shortly after September 8, 1969. Century paid the claim for damage to the airplane and submitted a reinsurance claim on December 1, 1969. Security Mutual paid the reinsurance claim two weeks later. Suit was filed on the death claims on September 12, 1970, but the trial court found Security Mutual received no notice of the deaths or the lawsuits until April 27, 1971, after the verdict had been returned against Century's insured and the post-trial motions had been denied. Century Casualty provided the defense in the Arizona trial court, but requested Security Mutual's assistance in the appeal. Security posted $308,000 and Anderson Aviation posted $82,000 on the supersedeas bond. Security Mutual and Century Casualty cooperated in the unsuccessful appeal.

In the present action Security Mutual seeks to establish that it is not liable under the reinsurance treaty for any part of the Arizona judgment against Century Casualty's insured. It also seeks to recover its expenses in prosecuting the appeal from that judgment. The trial court in this case determined, as a matter of fact, that notice was not given as required by the treaty. The sole question on appeal is whether notice of the deaths and subsequent claims is a condition precedent to Security Mutual's liability under the reinsurance treaty. If it is, the judgment must be affirmed. We conclude it is not and therefore reverse the judgment.

We have been cited to only one case deciding whether notice from the primary insurer to its reinsurer is a condition precedent to the reinsurer's liability. In Keehn v. Excess Insurance of America, 129 F.2d 503 (7th Cir. 1942), the court held notice of loss was a condition precedent under the terms of the contract there in dispute. Keehn was decided under Illinois law, and we do not believe Colorado law compels the same result. Moreover, every contract must be interpreted according to its own terms.

The Colorado cases cited by appellant involve primary insurance rather than reinsurance. In Colorado, notice of loss may be expressly made a condition precedent to an insurer's liability. Barclay v. London Guarantee & Accident Co., 46 Colo. 558, 105 P. 865 (1909); see Dairyland Insurance Co. v. Cunningham, 360 F.Supp. 139 (D.Colo.1973). However, a provision for notice will not be construed as a condition precedent unless that intention is clearly and unequivocally stated in the contract. Connecticut Fire Insurance Co. v. Colorado Leasing Mining & Milling Co., 50 Colo. 424, 116 P. 154 (1911); Preferred Accident Insurance Co. v. Fielding, 35 Colo. 19, 83 P. 1013 (1905). The same rule is stated in 13 Couch on Insurance 2d § 49:20 as follows: '(S) tipulations for notice will not be construed as conditions precedent if reasonably open to another construction.'

Before we may apply these rules of construction, however, we must attempt to determine the intent of the parties by interpreting the language of the contract. A court will not force an ambiguity in order to resolve it against an insurer. Massachusetts Mutual Life Insurance Co. v. DeSalvo, 482 P.2d 380 (Colo.1971); Southern Surety Co. v. MacMillan Co., 58 F.2d 541 (10th Cir. 1932), cert. denied, 287 U.S. 617, 53 S.Ct. 18, 77 L.Ed. 536. The notice provision of the Security Mutual-Century Casualty reinsurance treaty states:

The Company (Century) shall immediately give notice to the Reinsurer (Security) on all claims reserved in excess of the Company' (sic) retention and also shall give prompt notice to the Reinsurer on claims which, in the judgment of the Company could develop into losses involving reinsurance hereunder. Further, as respects bodily injuries, the Company shall report to the Reinsurer all claims involving fatalities, . . . regardless of liability, where the policy limits (or We do not believe this language plainly states a condition precedent. It is significant, in a contract as carefully drawn as an insurance contract, that none of the usual words indicating a condition precedent are present. See Southern Surety Co. v. MacMillan Co., supra. Perhaps more significant is the inclusion of language expressly designating compliance with another contract clause a condition precedent. The arbitration clause states, '(A)s a condition precedent to any right of action hereunder, the parties to this agreement shall submit the matter in dispute to arbitration.' Certainly the omission of similar language from the notice clause is some indication it was not considered a condition precedent.

Workmen's Compensation Benefits) applicable to such losses exceed the retention of the Company . . ..

Security Mutual argues that the notice provision is expressly made a condition precedent by the following clauses in page one of the reinsurance treaty:

Witnesseth:

That in consideration of the mutual covenants hereinafter contained and upon the terms and conditions hereinbelow set forth, the parties hereto agree as follows:

ARTICLE I

POLICIES COVERED:

The reinsurer hereby agrees to indemnify the Company in respect to the net excess liability which may accrue to the Company under its policies . . ..

subject to the terms, conditions and limitations of this Agreement and of the Exhibits . . ..

Security points out that a similar clause was considered sufficient to create an express condition precedent in Barclay v. London...