Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co.

UTICA MUTUAL INSURANCE COMPANY, Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant.

6:09-CV-853

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK

February 9, 2015

APPEARANCES:

HUNTON & WILLIAMS LLP

Attorneys for Plaintiff

1751 Pinnacle Drive

Suite 1700

McLean, VA 22102

WILLIAMS LOPATTO PLLC

Attorneys for Defendant

1776 K Street NW

Suite 800

Washington, DC 20006

OF COUNSEL:

SYED S. AHMAD, ESQ.

WALTER J. ANDREWS, ESQ.

PATRICK M. MCDERMOTT, ESQ.

JOHN B. WILLIAMS, ESQ.

MARY A. LOPATTO, ESQ.

DAVID N. HURD United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff Utica Mutual Insurance Company ("Utica" or "plaintiff") filed this action on July 29, 2009 against defendant Fireman's Fund Insurance Company ("FFIC" or "defendant") to enforce the terms of a reinsurance contract. In the reinsurance contract,FFIC agreed to reinsure Utica for a portion of an umbrella insurance policy Utica had issued to Goulds Pumps Inc. ("Goulds").

Plaintiff alleges: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; and (3) seeks a declaration regarding FFIC's obligation to pay Utica. Defendant answered and asserted twelve affirmative defenses and two counterclaims. Plaintiff answered defendant's counterclaims.

Following limited discovery, Utica moved for partial summary judgment disposing of two of FFIC's affirmative defenses.¹ FFIC opposed and Utica replied, respectively. Oral argument was heard on Friday, July 25, 2014, in Utica, New York. Decision was reserved.

II. BACKGROUND

Utica is a New York corporation in the insurance business. FFIC is a California corporation in the insurance and reinsurance business.²

Many years prior to the instant litigation, nonparty Goulds, a New York corporation, manufactured products containing asbestos. From 1966 through 1972, Goulds purchased primary and umbrella insurance policy coverage from Utica.³

A. Primary Insurance Policies

Goulds acquired general liability insurance from Utica through primary insurance policies that commenced in 1966 and provided coverage through 1972.

Many of the primary policies have never been located. It is undisputed that an issue arose early as to whether the primary policies had aggregate limits that would cap the overall amount of indemnity available under the policies to pay for bodily injury claims, and thus tap into coverage provided by the umbrella policies.⁴ Utica contended that all of the primary policies had aggregate limits (of $100,000/$300,000), while Goulds and FFIC insisted they had no aggregate limits.⁵

B. Umbrella Insurance Policies

Goulds also acquired umbrella insurance coverage from Utica for the same policy period as the primary policies, from 1966 until 1972. The umbrella policies provided coverage in the amount of $10 million.

C. Reinsurance Policies

Utica obtained reinsurance of the $10 million umbrella policies it issued to Goulds. Utica retained 5% of the first $1 million of the umbrella coverage; $5 million was reinsured with defendant FFIC; and the remainder reinsured with General Reinsurance Corporation ("Gen Re"). Regarding the $5 million FFIC reinsured, it issued seven certificates ofreinsurance to Utica, one for each year of reinsurance coverage from 1966 until 1972.⁶ Under the facultative reinsurance certificate, FFIC's liability followed that of Utica's, and "[p]rompt notice shall by given to the Reinsurer . . . of any occurrence or accident which appears likely to involve this reinsurance." LoPatto Decl., July 3, 2014, Ex. 14, ECF No. 261.

D. Goulds Asbestos Claims

Pursuant to the primary policies, Utica defended and indemnified Goulds with respect to claims made against Goulds alleging asbestos-related injuries from exposure to Goulds products. The first asbestos suits naming Goulds as a defendant were in 1997, and declaratory judgment actions between Goulds and its insurers, including Utica, followed in 2003 to determine the rights of the insurers.

Goulds and Utica engaged in mediation relating to the asbestos coverage. According to FFIC, Utica made it non-negotiable that Goulds agree that all Utica primary policies had aggregate limits of coverage—even those policies which were not at issue in the coverage litigation. According to FFIC, in exchange for a settlement of $325 million from Utica, Goulds agreed to stipulate that all of the Utica primary policies had aggregate limits of $300,000 and that all such limits had been exhausted. The Settlement Agreement, signed in February 2007 between Utica and Goulds, also provided that the $325 million settlement would come from the umbrella policies (therefore triggering Utica's reinsurance policies).

E. 1996 to 2008 FFIC Executes Commutation Agreements with Retrocessionaires

FFIC itself ceded some of the risk it had underwritten in the Utica and other policies, to its own reinsurers, known as retrocessionaires. From 1996 until 2008,⁷ FFIC entered into thirteen commutation agreements with retrocessionaires.⁸ FFIC negotiated the commutations based on its known and existing future liabilities, engaging in a detailed and careful process to determine whether and how to commute. As FFIC did not have notice of Utica's claim until 2008, it entered into the thirteen commutations between 1996 and 2008 without knowing about Utica's $35 million claim. In other words, the $35 million was not reflected as a future liability by FFIC and was not taken into account when FFIC negotiated with its retrocessionaires.

FFIC argues that the thirteen commutations which took place between 1996 and 2008 either would have taken into account the $35 million claim and therefore provided a greater commutation value or, if signification consideration for the claim was not paid, FFIC would not have commuted. Specifically, FFIC contends that according to contracts with its retrocessionaires, the retrocessionaires would have been responsible for indemnifying FFIC for $19,923,614 of FFIC's $35 million indemnification of Utica. Further, FFIC cannot go back to its retrocessionaires now for recoveries. Finally, notice from Uticawould have triggered FFIC's right to associate with Utica in the defense and control of the Goulds claims, and FFIC would have had the right to be provided with all of Utica's records relating to the Goulds claims.

F. 2008 Notice to FFIC

In July 2008, Utica notified FFIC of the existence of a reinsurance certificate that it claimed reinsured one of the umbrella policies that Utica had issued to Goulds. The certificate was not in Utica's files, but Utica informed FFIC that it had just come into possession of the reinsurance certificate for the July 1, 1971 to July 1, 1972 period. Utica also noted that it would be receiving additional certificates covering the years 1966-1972. In August 2008, Utica was provided copies of the remaining certificates for that time period (other than the certificate for the July 1, 1972 to July 1, 1973 period), which Utica forwarded to FFIC.⁹ FFIC later discovered the seventh certificate for the missing year in question, and provided it to Utica.

FFIC asserts that Utica provided no rationale for reporting its reinsurance claim more than a year after its February 2007 settlement with Goulds. According to the certificates of reinsurance, "[p]rompt notice shall by given to the Reinsurer . . . of any occurrence or accident which appears likely to involve this reinsurance." LoPatto Decl., July 3, 2014, Ex. 14, ECF No. 261. Notice from Utica would have triggered FFIC's right to associate with Utica in the defense and control of the Goulds claim and its right to Utica's records relating to the Goulds claim. FFIC contends it did not have theopportunity to exercise either right before receiving its first bill from Utica in September 2008, requesting an initial payment of $5 million.

Utica submitted later bills in August, September, October, and November 2009, totaling $35 million, which represents the full limits of the seven FFIC reinsurance certificates. Under the certificates, payment was not due to Utica until Utica provided FFIC with proof of loss. This required Utica to furnish FFIC with all relevant material so FFIC could determine whether payment under the certificates was proper. Following Utica's requests for payment, FFIC initiated a claim investigation. FFIC sought numerous pieces of information from Utica, inspected its files, and a team made a trip to Utica's office.

FFIC had serious doubts as to whether Goulds primary policies with Utica had aggregate limits and thus whether those limits were ever reached and exhausted. Utica insisted they were, thus triggering Goulds' umbrella policy with Utica, and eventually Utica's reinsurance claim with FFIC. It was FFIC's position at the time that Utica had not yet provided FFIC proof of loss sufficient to provide payment under the certificates. While the claim investigation was ongoing, Utica filed this suit contending that FFIC was taking too long to pay.

G. 2009 The Instant Action

Utica alleges FFIC breached its contracts when it failed to pay under the certificates (Count I); breached the duty of good faith and fair dealing when it refused to honor its obligations, ignored information from Utica in the claim investigation, requested additional improper information, and ignored Utica's inquiries (Count II); and seeks adeclaration that FFIC is obligated to pay Utica for bills after August 31, 2009, regarding additional claims paid by Utica pursuant to the underlying policies (Count III).

III. DISCUSSION

This case involves a dispute over money which Utica claims FFIC owes it under its reinsurance contracts. FFIC argues it does not owe Utica any money because Utica breached provisions in the reinsurance contracts. Utica now moves for partial summary judgment on two of FFIC's affirmative defenses.

A. Motion for Summary Judgment-Legal Standard

The entry of summary judgment is warranted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with...