United Equitable Ins. Co. v. Reinsurance Co. of America, Inc.

• Decision Date: 29 May 1987
• Docket Number: No. 86-2834,86-2834
• Citation: 157 Ill.App.3d 724,109 Ill.Dec. 846,510 N.E.2d 914
• Parties: , 109 Ill.Dec. 846 UNITED EQUITABLE INSURANCE CO., Plaintiff-Appellee, v. REINSURANCE COMPANY OF AMERICA, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 914

510 N.E.2d 914

157 Ill.App.3d 724, 109 Ill.Dec. 846

UNITED EQUITABLE INSURANCE CO., Plaintiff-Appellee, v. REINSURANCE COMPANY OF AMERICA, INC., Defendant-Appellant.

No. 86-2834.

Appellate Court of Illinois,

First District, Fifth Division.

May 29, 1987.

Rehearing Denied July 23, 1987.

Michael P. Connelly, William E. Snyder, Chadwell & Kayser, Ltd., Chicago, for defendant-appellant.

Duane C. Quaini, Kirk R. Ruthenberg, Roger K. Heidenreich, Sonnenschein Carlin Nath & Rosenthal, Chicago, for plaintiff-appellee.

Presiding Justice SULLIVAN delivered the opinion of the court:

Defendant, Reinsurance Company of America, appeals from an order entering summary judgment in favor of plaintiff, United Equitable Insurance Company, on Count II of its complaint. Defendant contends that summary judgment was improper.

Prior to October 31, 1981, United Fire Insurance Company (United Fire) issued property and casualty insurance policies through Transco Insurance Services and Transre Insurance Services (collectively referred to as Transco). Transco acts as an underwriting managing agent on behalf of insurance companies, marketing and selling insurance policies, underwriting the risks represented by those policies, collecting premiums, providing accounting services and processing claims on behalf of the insurer.

Pursuant to two separate underwriting management agreements, Transco arranged and United Fire issued numerous insurance policies between 1977 and 1981 (the United Fire/Transco policies). In the fall of 1981, United Fire was directed by the New York Department of Insurance to cease writing property and casualty insurance policies. Under a reorganization plan, United Fire was required to dispose of these policies. Accordingly, United Fire asked defendant, Reinsurance Company of America (RCA), to reinsure the United Fire/Transco policies. ¹

United Fire submitted a reinsurance agreement between United Fire and RCA to the New York Department of Insurance for its approval (the United Fire/RCA Treaty). Under the terms of the United Fire/RCA Treaty, RCA agreed to reinsure United Fire for all of its liability under the United Fire/Transco policies. The New York Department of Insurance refused to approve the agreement, however, because RCA was not licensed as a primary insurance carrier in New York. ² United Fire then asked plaintiff, United Equitable Insurance Company (United Equitable), which was admitted as a primary carrier in New York, to reinsure the policies.

United Fire represented to United Equitable that RCA would reinsure United Equitable and that United Equitable would bear no liability. Subsequently, United Equitable and United Fire entered into a reinsurance and assumption agreement (the Treaty Agreement). Under the Treaty Agreement, United Equitable reinsured 100% of United Fire's liability for the United Fire/Transco policies as of October 31, 1981, and United Fire paid a $100,000 premium to United Equitable.

United Equitable and RCA then entered into a retrocessional agreement whereby RCA agreed to reinsure United Equitable for all of its risk under the Treaty Agreement, which was incorporated by reference. ³ In the retrocessional agreement, United Equitable expressed its "desire to be relieved of all liability emanating from any and all individual policy claims and allocated claims expenses as would be required to be paid by them under the above Treaty Agreement." RCA was "prepared to indemnify and reimburse as a reinsurer, United Equitable Insurance Company for all individual policy claims payments, including allocated claims expenses which United Equitable Insurance Company is obligated to pay on behalf of United Fire Insurance Company under the terms and conditions of the above Treaty Agreement."

United Equitable assigned "all rights and privileges for the settlement and investigation of individual policy claims" to RCA. RCA has the option of incurring settlement and investigation expenses directly or reimbursing United Equitable for such expenses. United Equitable is to be reimbursed for such expenses provided that it has "in advance received permission" from RCA.

United Equitable paid a premium of $100,000 to RCA which was the same amount United Equitable had received from United Fire. By its terms, the retrocessional agreement will expire "when all individual policy claims are settled or paid and fully reimbursed" by RCA to United Equitable.

United Fire was the primary insurance carrier on the United Fire/Transco policies. A substantial portion of the risk on these policies was backed by other reinsurance at the time the policies were transferred from United Fire to United Equitable. The only portion of United Fire's risk which was not covered by other reinsurance was 10% of the first $50,000 of loss on any one policy (the "net retention"). Thus, only $5,000 of the risk on any one policy was not backed by other reinsurance. As long as the reinsurers remained solvent and honored their obligations, United Fire ultimately would not pay more than $5,000 on any one insurance policy. United Fire, however, remained primarily liable to the policy holder for 100% of the claim amount in force on any one insurance policy. If the reinsurance previously contracted for was not available at the time of loss, United Fire was obligated to pay that reinsurer's share. United Equitable thereafter took over United Fire's risk and reinsured it through RCA.

The retrocessional agreement stated that RCA was reinsuring the full claim amount "in force" on each policy, specifically:

"The limit of liability herein for any one individual claim shall be the claim amount that Transco/Transre had in force on individual United Fire policies; all as outlined and further clarified in Paragraph 11 of Exhibits 'A' and 'B' attached to the Treaty Agreement."

Exhibits A and B are the two underwriting management agreements between United Fire and Transco. Paragraph 11 required Transco to obtain reinsurance covering all but 10% of the first $50,000 of United Fire's risk. It is undisputed that if this previously arranged reinsurance were not available, United Fire was obligated to pay that share.

Pursuant to reinsurance agreements arranged by Transco, the Dover Insurance Company, Ltd. (Dover) reinsured portions of the United Fire/Transco policies. In the fall of 1982, Dover became insolvent and presently is in liquidation proceedings. As a result of Dover's insolvency, the portions of the United Fire/Transco policies reinsured by Dover are no longer covered by collectible reinsurance. ⁴

Upon RCA's refusal to pay the portions of claims on the United Fire/Transco policies reinsured by Dover or to acknowledge its claims handling responsibilities, United Equitable filed a two-count complaint seeking injunctive and declaratory relief. The circuit court granted United Equitable's motion for summary judgment on Count II.

The court found that United Equitable and RCA had entered into a retrocessional agreement, effective October 31, 1981, by which RCA agreed to reinsure United Equitable for all of its liability under the Treaty Agreement, which was incorporated therein by reference. The court also found that the language of the retrocessional agreement was not ambiguous.

The court declared that RCA is obligated under the retrocessional agreement to reimburse and indemnify United Equitable for all losses for policy claims amounts under the United Fire/Transco policies plus allocated claims expenses, including, but not limited to, the following: (a) 10% of the first $50,000 of the policy claim amount and (b) the remaining portion of the policy claim amount not covered by other valid and collectible reinsurance.

The court declared further that RCA is obligated under the retrocessional agreement to advise and give consent to United Equitable on expenditures to be incurred in the settlement or investigation of individual policy claims and to reimburse United Equitable promptly for those expenditures or to incur those expenses on its own without reimbursement from United Equitable. RCA's motion for rehearing was denied. This appeal follows:

OPINION:

RCA contends that summary judgment was inappropriate because the retrocessional agreement was ambiguous regarding the extent of RCA's obligation to reimburse and indemnify United Equitable for policy claims payments made by United Equitable under the Treaty Agreement with United Fire. We dis...