Amerisure Mut. Ins. Co. v. Everest Reinsurance Co.

109 F.Supp.3d 969

AMERISURE MUTUAL INSURANCE COMPANY (f/k/a Michigan Mutual Insurance Company), Movant,

v.EVEREST REINSURANCE COMPANY (f/k/a Prudential Reinsurance Company), Respondent.

Case No. 14–cv–13060.

United States District Court, E.D. Michigan, Southern Division.

Signed March 18, 2015.

Aaron L. Vorce, Lori M. McAllister, Dykema Gossett, Lansing, MI, Christopher Michael Assise, Daniel Joseph Neppl, Susan Ann Stone, Sidley Austin LLP, Chicago, IL, for Movant.

Joseph J. Schiavone, Mark D. Hoerrner, Vincent John Proto, Budd Larner, P.C., Short Hills, NJ, Michael J. Sheehan, Robert E. Graziani, Howard & Howard Attorneys, PLLC, Royal Oak, MI, for Respondent.

OPINION AND ORDER GRANTING MOVANT'S MOTION TO CONFIRM ARBITRATION AWARD (ECF # 2) AND DENYING RESPONDENT'S MOTION TO VACATE ARBITRATION AWARD (ECF # 23)

MATTHEW F. LEITMAN, District Judge.

INTRODUCTION

This is a reinsurance coverage dispute between Movant Amerisure Mutual Insurance Company ("Amerisure"), and its reinsurer, Respondent Everest Reinsurance Company ("Everest"). After a nine-day, highly-contentious arbitration hearing, an arbitration panel awarded Amerisure over $14 million. Amerisure now moves to confirm the arbitration award (see ECF # 2); Everest moves to vacate it. (See ECF # 23.) For all of the reasons stated below, the Court GRANTS Amerisure's motion and DENIES Everest's motion.

RELEVANT FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. The Parties and the Direct Access Treaty

Amerisure is a property and casualty insurance company. In 1979, Amerisure purchased "reinsurance" from Everest. " 'In essence, reinsurance is insurance for insurance companies,' whereby a reinsured (here, [Amerisure] ), cedes some of its risk to a reinsurer (in this case, [Everest] ), and shares its premium with the reinsurer." Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580, 582 n. 1 (3d Cir.2007) (quoting Cont'l Cas. Co. v. American Nat'l Ins. Co., 417 F.3d 727, 729 n. 1 (7th Cir.2005) ). Amerisure purchased its reinsurance from Everest under a series of treaties.

The treaty in place between July 1979 and July 1988 is referred to as the "Direct Access Treaty." (See ECF # 28–1.) This treaty was amended several times while it was in force. (See the "Endorsements," id. at 3–27, Pg. ID 242–266.)

The Direct Access Treaty provided that "with respect to each occurrence," Everest would indemnify Amerisure for the amount of "net loss under [the] casualty business of [Amerisure] ... in excess of the 'Company Retention.' " (Id. at 40, Pg. ID 279.) The Direct Access Treaty defined an "occurrence" as "each accident or occurrence or series of accidents or occurrences arising out of one event." (Id. at 43, Pg. ID 282.) The "Company Retention" was a $500,000 "per occurrence" deductible that Amerisure had to satisfy before it was entitled to indemnification from Everest. (Id. at 40, Pg. ID 279.)

B. The Direct Access Treaty Contained Exclusions From Coverage and Exceptions to Those Exclusions

The original version of the Direct Access Treaty included five specifically-numbered exclusions from coverage.¹ (Id. at 40–41, Pg. ID 279–280.) These exclusions provided that Everest would not indemnify Amerisure for losses arising out of, among other things, "insurance written by [Amerisure's] aviation unit," insurance related to the "handling and shipping" of explosives, and bodily injuries arising out of riots. (Id. )

The original version of the Direct Access Treaty also contained an exception to the listed exclusions. This exception provided that an otherwise-applicable exclusion would not bar indemnification if the trigger for the exclusion was merely an incidental part of the insured's overall operations:

If [Amerisure] provide[s] insurance for an insured with respect to any premises, operations or products listed in one or more of the exclusions and such premises, operations or products constitute only a minor and incidental part of the total premises, operations or products of the insured such exclusion(s) shall not apply.

(The "Generally–Applicable Incidental Exception to the Treaties' Exclusions," id. at 41, Pg. ID 280.)

Effective July 1, 1987, the parties adopted an endorsement to the Direct Access Treaty. (See the "1987 Endorsement," id. at 6–7, Pg. ID 245–246.) The 1987 Endorsement added four new specifically-numbered coverage exclusions beyond the five exclusions listed in the original treaty. The newly-added ninth exclusion precluded indemnification for certain asbestos-related losses if either (1) Amerisure knew that its insured's operations presented a risk of asbestos exposure or (2) the insured's asbestos exposure was generally recognized (the "Asbestos Exclusion"). But this new exclusion provided that it did not apply to (and would not preclude indemnification for) certain specified asbestos-related activities if those activities were merely incidental to an insured's operations (the "Incidental Exception Language in the Asbestos Exclusion"). The entire text of this exclusion was as follows:

SECTION 2—EXCLUSIONS, is amended to include the following:

[....]

9. Bodily injury (including occupational disease) and/or property damage arising from the manufacture, removal, installation, storage, mining, handling or transportation of asbestos if the insured's operations, at the time of the policy issuance, present known and/or generally recognizable asbestos exposures; however, this exclusion shall not apply to the removal, installation, storage, handling or transportation of asbestos if such removal, installation, storage, handling or transportation is incidental to the insured's operations:

The term "incidental" as used in this exclusion is intended to recognize the fact that certain insureds (such as, but not limited to, plumbing, carpentry, etc.) will infrequently, but regularly, encounter asbestos within the scope of their operations—even though their operations, as such, do not involve the manufacture, removal, installation, storage, mining, handling, or transportation of asbestos. This Exclusion does not apply to such "incidental" operations.

(Id. at 6–7, Pg. ID 245–246.)

The 1987 Endorsement expressly provided that all of the Direct Access Treaty's "other terms and conditions"—i.e., those not specifically modified or deleted in the endorsement—"shall remain unchanged." (Id. at 9, Pg. ID 248.) The 1987 Endorsement did not purport to modify or delete the Generally–Applicable Incidental Exception to the Treaties' Exclusions. Thus, the modified version of the Direct Access Treaty contained both the Incidental Exception Language in the Asbestos Exclusion and the Generally–Applicable Incidental Exception to the Treaties' Exclusions.

C. The Woods Treaties

In 1988 and 1989, Everest provided reinsurance to Amerisure under a series of six additional contracts that the parties refer to as the "Woods Treaties" (together with the Direct Access Treaty, the "Treaties"). (See ECF 28–2—287.) The Woods Treaties expressly stated that Amerisure was permitted to aggregate individual losses in order to satisfy its $500,000 deductible. (See, e.g., ECF # 28–2 at 13, Pg. ID 307.) Except for this difference, the Woods Treaties and the Direct Access Treaty were similar in all respects relevant to this dispute. For example, the Woods Treaties contained virtually the same Asbestos Exclusion included in the 1987 Endorsement to the Direct Access Treaty.² The Woods Treaties also contained the Incidental Exception Language in the Asbestos Exclusion and the Generally–Applicable Incidental Exception to the Treaties' Exclusions. (See id. at 7–8, Pg. ID 301–302.)

D. The Treaties' Arbitration and Choice of Law Provisions

The Treaties all contained arbitration provisions that required the parties to submit "any dispute arising out of [the treaties] ... to the decision of a board comprised of two arbitrators and an umpire...." (Direct Access Treaty at 34–35, Pg. ID 273–274; see also the Woods Treaties at ECF # 28–2 at 19–20, Pg. ID 313–314.) The arbitration provision in the Direct Access Treaty stated that "the laws of the State of Michigan shall govern any arbitration proceedings." (Direct Access Treaty at 34, Pg. ID 273.) The Woods Treaties did not contain any choice-of-law provision. (See, e.g., ECF # 28–2 at 19–20, Pg. ID 313–314; ECF # 28–3 at 18, Pg. ID 343; ECF # 28–4 at 19–20, Pg. ID 373–374; ECF # 28–5 at 17–18, Pg. ID 402403; ECF # 28–6 at 18–19, Pg. ID 432–433; ECF # 28–7 at 17–18, Pg. ID 461–462.)

E. Everest Denied Indemnification for Amerisure's Asbestos–Related Losses, and Amerisure Demanded Arbitration

During the terms of the Treaties, Amerisure provided insurance coverage to a steam trap manufacturer, [Company X ] ("[Company X ]"). [Company X ] and one of its affiliates, [Company Y ], manufactured products that included parts containing asbestos. Certain individuals made claims against [Company X ] and [Company Y ] for asbestos-related injuries that were allegedly caused by these products.

In 2006, Amerisure notified Everest that [Company X ] and [Company Y ] had received these claims. (See ECF # 32–17, Pg. ID 1996–1197.) Over the course of several years, Amerisure indemnified [Company X ] and [Company Y ] for some of these claims (the "Amerisure Asbestos Losses"). When considered in the aggregate, the dollar amount of the Amerisure Asbestos Losses far exceeded the $500,000 Company Retention under the Treaties. (See, e.g., ECF # 32–20, Pg. ID 1221–1222.) But it appears that the dollar amount of each individual claim for which Amerisure indemnified [Company X ] and [Company Y ] was less than the Company Retention.

In 2009, Amerisure sought indemnification from Everest for the Amerisure Asbestos Losses. Everest rejected Amerisure's claim on May 3, 2010. (See the "Denial Letter," ECF # 32–19 at 3–4, Pg. ID 1218–1219.) In the Denial Letter, Everest asserted that the Direct Access Treaty "required" Amerisure to satisfy its $500,000 deductible "on a per occurrence" basis. (Id. at 3, Pg. ID 1218.) In...