Odyssey Reinsurance Co. v. Cal-Regent Ins. Servs. Corp.

123 F.Supp.3d 343

Odyssey Reinsurance Company f/k/a Odyssey America Reinsurance Corporation, Plaintiff,

v.Cal–Regent Insurance Services Corporation, Defendant.

CIVIL ACTION NO. 3:14–cv–00458–VAB

United States District Court, D. Connecticut.

Signed August 20, 2015

James J. Reardon, Jr., Reardon Scanlon Vodola Barnes LLP, West Hartford, CT, for Plaintiff.

Clifford E. Nichols, III, Day Pitney LLP, Stamford, CT, Daniel Joseph Raccuia, Thomas O. Farrish, Day PitneY LLP, Sylvia Marisa Ho, Law Offices of Sylvia Ho, LLC, Hartford, CT, James Webster Oliver, Simsbury, CT, for Defendant.

RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

VICTOR A. BOLDEN, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

This diversity action arises out of a series of reinsurance agreements to which Plaintiff Odyssey Reinsurance Company ("Odyssey"), Defendant Cal–Regent Insurance Services Corporation ("Cal–Regent"), and State National Insurance Company, Inc. ("State National") were party. Odyssey alleges that Cal–Regent failed to remit commission adjustment payments to Odyssey, and now seeks summary judgment on its breach of contract and declaratory judgment claims. Cal–Regent maintains that summary judgment is inappropriate because (i) Odyssey has not proved its own performance, (ii) Odyssey incorrectly calculates a commission adjustment, and (iii) Cal–Regent has not had a full and fair opportunity to conduct discovery into an alleged possible breach by Odyssey.

Because the potential breach raised by Cal–Regent may raise a genuine dispute of material fact, Odyssey's motion for summary judgment is DENIED WITHOUT PREJUDICE TO RENEWAL. On the limited grounds discussed in this Ruling, the Court will allow Cal–Regent an opportunity to amend its pleading to allege this potential breach properly. Odyssey then will have an opportunity to renew its motion for summary judgment at the appropriate time.

II. FACTS

A. The Parties

Odyssey is a Connecticut corporation engaged in the business of reinsurance¹ . (Pl.'s L.R. 56(a)(1) Stmt. [hereinafter "Pl.'s Stmt."] ¶ 2, ECF No. 69; Def.'s L.R. 56(a)(2) Stmt. [hereinafter "Def.'s Stmt."] ¶ 2, ECF No. 72.) Cal–Regent is a California corporation that underwrote commercial automobile and garage liability insurance on behalf of State National, an insurance company that is not a party to this action. (Pl.'s Stmt. ¶ 7; Def.'s Stmt. ¶ 7; Nagby Aff. ¶¶ 6–7, ECF No. 73.) State National purchased reinsurance from Odyssey to reinsure a percentage of the risks that Cal–Regent underwrote on State National's behalf. (Pl.'s Stmt. ¶ 7; Def.'s Stmt. ¶ 7.)

B. The Reinsurance Agreements

Odyssey, Cal–Regent, and State National first entered into the above-described arrangement under a Garage Liability Quota Share Reinsurance Agreement effective April 1, 2002 (the "2002 Agreement"). (Def.'s Mem. Opp. Summ. J. [hereinafter "Def.'s Opp."] Ex. 2 at 2, ECF No. 71–2.) The parties terminated the 2002 Agreement effective April 1, 2004, and on that day entered into a second reinsurance agreement that was substantively the same as the 2002 Agreement (the "2004 Agreement"). (Id. at 23; Def.'s Opp. Ex. 3 [hereinafter "2004 Agmt."] at 2, ECF No. 71–3.) Similarly, the parties terminated the 2004 Agreement effective April 1, 2006, and on that day entered into a third reinsurance agreement that was substantively the same as the 2002 and 2004 Agreements (the "2006 Agreement"). (2004 Agmt. at 25; Def.'s Opp. Ex. 4 [hereinafter "2006 Agmt."] at 2, ECF No. 71–4.) Finally, the parties terminated the 2006 Agreement effective April 1, 2007, and on that day entered into a fourth reinsurance agreement that was substantively the same as the 2002, 2004, and 2006 Agreements (the "2007 Agreement"). (Nagby Aff. ¶ 16; Def.'s Opp. Ex. 5 at 2, ECF No. 71–5.) The 2007 Agreement terminated effective July 13, 2009. (Def.'s Opp. Ex. 5 at 26.) Each of the four reinsurance agreements (collectively, the "Reinsurance Agreements") contained the following provisions that are relevant to this dispute.

1. Commissions and Adjustments

Article XI provided that Cal–Regent would receive a provisional commission on all premiums that it underwrote on State National's behalf, and that Odyssey was responsible for paying its share of Cal–Regent's provisional commission directly to Cal–Regent. (2004 Agmt. ¶ 11.2.) Cal–Regent's provisional commission was adjusted for each "Underwriting Year" depending on the ratio of losses incurred to premiums earned ("loss ratio") for the business underwritten by Cal–Regent. (Id. ¶ 11.4.) "Underwriting Year" was defined:

"Underwriting Year" as used herein shall mean those Policies with inception, renewal or anniversary date during each 12–month period commencing with each April 1 and all premium attributable to, and all loss arising out of such Policies from such inception, renewal or anniversary date until expiration, cancellation, or next anniversary, whichever occurs first, will be ascribed to the Underwriting Year.

(Id. ¶ 11.4(h).)

Cal–Regent's commission increased if the loss ratio for a given year fell below certain designated percentages, and decreased if the loss ratio exceeded certain designated percentages. (See id. ¶ 11.4(a).) Cal–Regent's commission was adjusted even further if the loss ratio for a given year fell outside the range of designated percentages. (See id. ¶ 11.4(b).) In that case, the difference in percentage points between the loss ratio and the highest or lowest (whatever the case may be) designated percentage was multiplied by premiums earned for the period, and the product was carried forward to the "next adjustment period" as a debit or credit (whatever the case may be) to "losses incurred" ("carry forward"). (Id. ) "Losses incurred" was defined to include:

As respects second and each Underwriting Year hereunder, plus (minus) the debit (credit) from the preceding Underwriting Year....

(Id. ¶ 11.4(f)(iii).)

As to the timing of commission calculations and payments, each agreement provided:

[Cal–Regent] shall calculate and report the adjusted commission on ceded premiums within 60 days after 36 months² after the inception of the first Underwriting Year, and within 60 days after the end of each 12–month period thereafter until all losses subject hereto have been fully settled. If the adjusted commission on ceded premiums earned is less than commissions previously allowed on premiums earned for the Agreement, [Cal–Regent] shall remit the difference to [Odyssey] and [State National] with its report."

(Id. ¶ 11.4(c).)

2. Survival

Article III provided for termination on a "run-off basis." (Id. ¶ 3.7.) Specifically, each agreement provided that when it terminated for any reason, reinsurance continued to apply to business in force at the time of termination, (id. ¶ 3.3), and that the parties were not "relieved of or released from any obligation created by or under this Agreement in relation to payment, expenses, reports, accounting or handling, which relate to outstanding insurance business under this Agreement existing on the date of termination," (id. ¶ 3.4). Each agreement contained the following provision:

This Agreement provides for termination on a run-off basis. The relevant provisions of this Agreement shall apply to the business being run off. It is expressly agreed that the terms, conditions and obligations of the Preamble; Sections 3.3, 3.4, 3.6 and 3.7; Articles IV–XIX; Sections 20.2, 20.3, 20.5, 20.7, 20.8; and Articles XXI and XXII shall survive termination of this Agreement.

(Id. ¶ 3.7.)

3. Loss Settlement

Paragraph 5.3 addressed loss settlement and provided in relevant part:

[State National] hereby empowers [Odyssey], and [Odyssey] may, in its discretion, and under its supervision appoint [Cal–Regent], to accept notice of and investigate any claim arising under any of the Policies, to pay, adjust, settle, resist or compromise any such claim, unless [State National] specifically directs to the contrary with respect to any individual claim. In the latter event, [Odyssey] and/or [Cal–Regent] shall follow the instructions of [State National] as respects such claim. All such loss settlements, whether under strict Policy conditions or by the way of compromise, shall be unconditionally binding upon [Odyssey]....

(Id. ¶ 5.3.)

C. The Parties' Performance

1. Payment of Commissions and Commission Adjustments

On or about June 24, 2013, Cal–Regent, through an intermediary, sent Odyssey a report calculating the commission adjustments due from Cal–Regent to Odyssey for Underwriting Years 2003 through 2007 (the "Report"). (See Pl.'s Stmt. ¶ 24; Def.'s Stmt. ¶ 24.) The Report indicated that commission adjustments were due as follows:

• $14,828.04 for Underwriting Year 2003;

• $83,861.36 for Underwriting Year 2004;

• $895,956.92 for Underwriting Year 2005;

• $453,733.65 for Underwriting Year 2006; and

• $246,581.44 for Underwriting Year 2007.

(Pl.'s Stmt. ¶ 25; Def.'s Stmt. ¶ 25; Razzaia Aff. Ex. 3.)

It is undisputed that for each of Underwriting Years 2003 through 2007, Cal–Regent's adjusted commission was less than commissions previously allowed. (Pl.'s Stmt. ¶ 17; Def.'s Stmt. ¶ 17.) Further, it is undisputed that Odyssey paid its share of Cal–Regent's provisional commissions directly to Cal–Regent for all relevant years. (Compl. ¶ 16; Ans. ¶ 16; Pl.'s Stmt. ¶ 16; Def.'s Stmt. ¶ 16.) However, Cal–Regent has not paid Odyssey any commission adjustments. (Pl.'s Stmt. ¶ 18; Def.'s Stmt. ¶ 18.)

Cal–Regent denies any obligation to pay commission adjustments on the ground that Odyssey has not proved its performance of all terms of the Reinsurance Agreements and, in particular, has not demonstrated its compliance with paragraph 5.3 in connection with the settlement of a particular claim, as discussed next. (Def.'s Stmt. ¶ 35.)

2. The Waldersen Claim

Cal–Regent alleges that it issued, on behalf of State National, a garage liability insurance policy to Sullivan Car Company, an Arizona-based car dealership. (Nagby Aff. ¶ 20.) The dealership owner's son and his passenger, Brian...