Trenwick Am. Reinsurance Corp.. v. Irc Inc. (individually, Civ. Action No. 07cv12160–NG.

• Court: United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
• Writing for the Court: MEMORANDUM AND ORDER
• Citation: 764 F.Supp.2d 274
• Parties: TRENWICK AMERICA REINSURANCE CORPORATION and Unum Life Insurance Company of America, Plaintiffs,v.IRC, INC. (individually and as successor by merger of IRC, Inc. and Occupational Health Underwriters, Inc.), IRC Re Limited (individually and as successor by merger of IRC Re, Limited and Managed Compensation Insurance Co. Ltd.), and Malcolm C. Swasey, Defendants.
• Docket Number: Civ. Action No. 07cv12160–NG.
• Decision Date: 16 February 2011

764 F.Supp.2d 274

TRENWICK AMERICA REINSURANCE CORPORATION and Unum Life Insurance Company of America, Plaintiffs,
v.
IRC, INC. (individually and as successor by merger of IRC, Inc. and Occupational Health Underwriters, Inc.), IRC Re Limited (individually and as successor by merger of IRC Re, Limited and Managed Compensation Insurance Co. Ltd.), and Malcolm C. Swasey, Defendants.

Civ. Action No. 07cv12160–NG.

United States District Court, D. Massachusetts.

Feb. 16, 2011.

[764 F.Supp.2d 279]

Michael P. Angelini, Bowditch & Dewey, LLP, Worcester, MA, for Defendants.Christopher P. Anton, David A. Niles, Jeffrey S. Leonard, Joseph J. Schiavone, Krystal D. Conway, Budd Larner, Short Hills, NJ, Lawrence G. Cetrulo, Michael J. Cahalane, III, Rory J. Fitzpatrick, Cetrulo & Capone LLP, Boston, MA, for Plaintiffs.Michael P. Angelini, Douglas T. Radigan, Louis M. Ciavarra, Vincent F. O'Rourke, Jr., Bowditch & Dewey LLP, Worcester, MA, for Defendants.

MEMORANDUM AND ORDER GERTNER, District Judge.

TABLE OF CONTENTSI.

INTRODUCTION

280

II.

FINDINGS OF FACT

282

A.

The Hanover Compcare 2000 Program

282

B.

Background of the Reliance Compcare 2000 Program

283

C.

Disavowal of the Trenwick–IRC Re Contract

284

1.

Attempts to Collect IRC Re's Alleged Outstanding Balances Relative to the Reliance Compcare 2000 Program

284

2.

IRC Re's and Swasey's Disavowal of the Contract

285

D.

The Evidence of a Contract Is Overwhelming

286

1.

Admissions and Testimony of the Participants

286

2.

Swasey's Conduct

287

3.

Trial Exhibits

289

E.

Defendants' Position That There Was Merely an Agreement to Agree Is Not Remotely Credible

289

III.

CONCLUSIONS OF LAW

292

A.

Defendants Have Waived Their Right to Claim That Trenwick or UNUM Are Not the Proper Plaintiffs in this Suit

292

B.

The “Follow the Fortune” Doctrine Applies to the Case at Bar

294

1.

The “Follow the Fortunes” Doctrine

295

2.

Application of “Follow the Fortunes” to the Case at Bar

296

3.

The Case Law

296

4.

Expert Testimony that “Follow the Fortunes” is Custom in the Reinsurance

297

C.

The Defendants Have Waived Their Right to Demand Arbitration

297

D.

The Statute of Frauds Does Not Bar Plaintiffs' Breach of Contract Claim

298

1.

Standard of Review

298

2.

Application of the Statute of Frauds to Reinsurance Contracts

299

3.

Trustmark Insurance Company Case

300

4.

The Statute of Frauds Writing Requirement is Satisfied

300

E.

There Is Not Enough Evidence to Support a Finding of Fraud or Negligent Misrepresentation Against All Defendants

301

F.

Piercing the Corporate Veil

302

1.

Massachusetts Law Applies to Plaintiffs' Veil–Piercing Claims

302

G.

Chapter 93A Liability

305

1.

IRC Re

306

2.

Malcolm Swasey

306

3.

IRC, Inc

306

IV.

DAMAGES

309

[764 F.Supp.2d 280]

I. INTRODUCTION

Trenwick America Reinsurance Corporation (“Trenwick”) and Unum Life Insurance Company of America (“UNUM”) are suing IRC, Inc. (“IRC, Inc.”), IRC Re, Limited (“IRC Re”) and Malcolm Swasey (“Swasey”) for fraud and breach of contract in connection with a managed workers' compensation insurance and employers liability insurance program known as Compcare 2000. Compl. ¶ 1 (document# 1). The dispute centers on the plaintiffs' claim that IRC Re and Swasey breached a reinsurance contract under which IRC Re was to provide retrocessional coverage for the Compcare 200 program.

While the underlying program, its insurance and reinsurance arrangements were complex, defendant Swasey's fingerprints are all over it. Indeed, he founded all of the defendant companies and their predecessors; in each case, he was the company's ultimate decisionmaker. Swasey created, administered and underwrote the Compcare 2000 program in 1994 through two separate corporations that he started and controlled. (Both companies have since merged into defendant IRC, Inc.). Cifuni Dep. 19:11–12, Jan. 21, 2009; Trial Tr. vol. 8, 140, July 1, 2010. The original arrangement as Swasey envisioned it was as follows: Hanover Insurance Company (“Hanover”) was the direct insurer for the Compare 2000 program. Joint Pretrial Mem. 14, Stip. Fact No. 31 (document # 95). Hanover was then reinsured by the American Accident Reinsurance Group (“AARG”). Id. at Stip. Fact No. 32. A portion of the risk ceded to AARG was in turn retroceded to Managed Compensation Insurance Company, Ltd. (“MCIC”), another entity owned and controlled by Swasey, id. at Stip. Fact No. 33, which then merged with and is now known as IRC Re. Id. at 13, Stip. Fact No. 17. Swasey continued as CEO of IRC Re and its majority stock holder. Id. at 14, Stip. Fact No. 27, 29. In effect, a Swasey company was at

[764 F.Supp.2d 281]

the beginning of the chain, IRC, Inc. which administered the program, and at the end of the chain, IRC Re which participated in reinsuring it.

In 1996, Swasey changed the direct insurer of the program from Hanover to Reliance National Insurance Company (“Reliance”). Id. at 15, Stip. Fact No. 37. Swasey procured reinsurance for the Reliance Compcare 2000 program, using a structure similar to what existed under the Hanover program. This time, plaintiff Trenwick America Reinsurance Corp. (“Trenwick”) was to provide reinsurance, Id., at Stip. Fact No. 33, and according to the plaintiffs, 19% of the risk was retroceded to IRC Re (“the Contract”). The latter arrangement is the subject of this lawsuit.

In early 2006, a dispute arose regarding the existence of a retrocessional agreement between Trenwick and IRC Re. When Trenwick's agents tried to collect IRC Re's share of the liabilities arising from the Compare 2000 program, IRC Re insisted—through Swasey and at the 11th hour—that it would not pay unless a copy of the written contract between Trenwick and IRC Re was produced. Trial Ex. 92, at 2. For the very first time in their dealings, Swasey claimed that if any type of agreement existed between IRC Re and Trenwick, it was merely an “agreement to agree.” Swasey Dep. 376:13–377:12, 396:19–23, 443:10–15, 501:2–3, 513:6–13, 517:19–20, 524:19–525:13, 541:12–24, Sept. 17, 2008. A reinsurance contract may have been contemplated, he contended, but was never actually prepared. Joint Pretrial Mem. 9.

Plaintiffs insist that there was a contract with IRC Re that it is indeed reflected in the documents, conduct and statements of all the parties, including Swasey, and if there were not, defendants who were charged with managing the program, were negligent for failing to prepare it. Compl. ¶¶ 100–03.¹ Specifically, with respect to IRC Re, plaintiffs sue to recover $4,182,057.52 plus interest in unpaid losses and loss expenses that they claim is due on the Contract. See Trial Ex. 240, at TREN 13683. Since IRC Re apparently does not have the assets to cover the claimed losses, plaintiffs also seek to pierce the corporate veil and recover damages against IRC, Inc. and Swasey. Compl. ¶¶ 116–24.

Finally, plaintiffs seek damages and attorneys fees under Mass. Gen. L. Ch. 93A against all defendants relative to the alleged fraud and negligent misrepresentation, as well as for disavowing the contract in bad faith and engaging in a “moving target” strategy of constantly shifting positions throughout this litigation. Compl. ¶¶ 110–15.

The Court heard nine days of testimony, both through witnesses and depositions, and admitted hundreds of pages of exhibits documenting the reinsurance relationships between plaintiffs and all three defendants under both the Hanover and Reliance programs, as well as the corporate relationships between Mr. Swasey, IRC, Inc. and IRC Re.²

[764 F.Supp.2d 282]

There were two preliminary matters raised by the defendants at the last minute, ostensibly to keep this Court from addressing the merits of plaintiffs claim. First, the defendants claimed for the first time at trial that Trenwick and UNUM were not proper parties. Rather, SARF was the proper party and since one of the SARF members was a Massachusetts corporation, there was no diversity. As I describe below, that claim was waived by the defendants because it was not raised in a timely fashion. Second, the defendants that any contract between the parties required they arbitrate their claims. This claim was also waived because of timeliness.

I find that a contract did exist between IRC Re and the plaintiffs, and that the contract provided that 19% of the plaintiffs' risk was retroceded to IRC Re. I make this finding notwithstanding the statute of frauds, based on the extensive record before me. I further find that IRC Re cannot escape liability here by raising the defenses that Reliance raised against the initial parties, because the “follow the fortunes” or the “follow the settlements” doctrine applies to the case at bar. This doctrine does not allow a reinsurer to raise defenses that the reinsured has already decided to waive in good faith.

I decline to pierce the corporate veil with respect to the defendants' breach of contract claim against IRC Re; none of the factors for piercing are met in the case at bar.

And because I have found that a contract exists as between IRC Re and the defendants, a contract that has been breached, I do not have to address the other claims against IRC Inc. and Swasey that are predicated upon the failure to execute a written contract.

Nevertheless, neither Swasey nor IRC Inc. escape liability here. All of the defendants violated Chapter 93A in myriad ways. Swasey's conduct and that of the companies he created, controlled and administered, pre-, post- and during litigation was simply outrageous, turning what should have been a routine claim against a reinsurer into a tortuous marathon.

II. FINDINGS OF FACT ³A. The Hanover Compcare 2000 Program

Swasey created the Compcare 2000 program in 1994. He and managed and underwrote

[764 F.Supp.2d 283]

the program through IRC, Inc. and Occupational Health Underwriters, Inc. (“OHU”), two companies he founded and controlled. Cifuni Dep. Tr. 19:11–12; Trial Tr. vol. 8, 140. At first, Swasey used Hanover as the direct insurer for the Compcare 2000 program. Joint Pretrial...