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BERNSTEIN v. CENTAUR INS. CO.

September 9, 1986

GEORGE BERNSTEIN, acting for and on behalf of the Commissioner of Banking and Insurance of The State of Vermont as Receivor for the purpose of rehabilitation of Ambassador Insurance Company and JAMES P. CORCORAN, Superintendent of Insurance of the State of New York as Rehabilitor of Horizon Insurance Company, Plaintiffs,
v.
CENTAUR INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: CANNELLA

CANNELLA, D.J.

Following a nonjury trial on the merits, the Court finds for the defendant in part and plaintiff George Bernstein in part. Fed. R. Civ. P. 52(a).

BACKGROUND

 This diversity action was brought by Ambassador Insurance Company ["Ambassador"] and Horizon Insurance Company ["Horizon"]. On November 10, 1983, the Superior Court of the State of Vermont declared Ambassador insolvent and appointed the Commissioner of Banking and - Insurance - as rehabilitator. On December 7, 1983, the Supreme Court of the State of New York declared Horizon insolvent and appointed the Superintendent of Insurance of New York as rehabilitator. On January 31, 1984, George Bernstein and James P. Corcoran, acting on behalf of the rehabilitators of Ambassador and Horizon respectively, were substituted as plaintiffs. See Memorandum and Order at 1-2 & nn.1-3, 83 Civ. 7989 (JMC) (S.D.N.Y. Nov. 11, 1984)["November Memorandum and Order"].

 In this action plaintiffs allege breach of reinsurance contracts. The Court previously granted defendant Centaur Insurance Company's ["Centaur"] motion to dismiss a portion of the complaint and granted in part Centaur's motion to stay the action pending arbitration. See November Memorandum and Order; Order, 83 Civ. 7989 (JMC)(S.D.N.Y. Jan. 24, 1985)["January Order"]. The Court ruled that two issues were to be decided by the Court: (1) whether reinsurance certificates numbered CF-719 and CF-720, the "Flexi-Van" and "X-Tra" risks respectively, are voidable, as claimed by defendant, and (2) whether reinsurance coverage on Ambassador's policy #GOA 792034 and Horizon's policy #100894, which insured Budget Rent-a-Car for 1981-1982, was extended to cover the 1982-83 term. See January Order at 1-2. Following a more complete presentation of the issues in the pretrial briefs, it became apparent that the first of these issues could properly have been submitted to the arbitrators. However, in light of defendant Centaur's consent to submit the issue to the Court, see Supplemental Affidavit of Gerald F. Murray at P 3, 83 Civ. 7989(JMC)(filed Dec. 17, 1984), both issues were presented at trial.

 The evidence adduced at trial disclosed an appalling laxity on the part of all insurance companies involved -- a laxity which was cleverly manipulated by one Leonard Rogers, who unfortunately failed to live to tell the tale. In addressing each of the issues before it, the Court is faced with determining which company must bear the burden of Roger's apparently fraudulent or at least extremely careless behavior. Having reviewed the evidence and considered the demeanor of the witnesses the Court makes the following findings of fact.

 FINDING OF FACT

 1. In 1981, 1982 and 1983, Ambassador was an insurance company organized under the laws of the State of Vermont and engaged in the business of writing property and casualty insurance. During the same years, Horizon was a wholly owned subsidiary of Ambassador and similarly engaged in the business of writing property and casualty insurance. At all relevant times, Arnold Chait was President of Ambassador and Horizon. *fn1"

 2. In 1981, 1982, and 1983, Centaur, an Illinois corporation, was an insurance company licensed to do business in the State of New York. During most of the relevant period, Centaur's wholly owned subsidiary, Atlantic and Gulf Insurance Agency, Ltd. ["Atlantic & Gulf"], served as Centaur's general agent for direct insurance and facultative *fn2" reinsurance. *fn3"

 3. In 1979, Leonard Rogers was hired by Atlantic & Gulf as chief facultative underwriter. *fn4" Rogers was later promoted to Vice-President of Production and held that title on September 1, 1981. *fn5" While he was employed by Atlantic & Gulf, Rogers had the authority to underwrite and accept facultative reinsurance on behalf of Atlantic & Gulf and Centaur. *fn6"

 4. In November 1981, Rogers formed Guaranteed Insurance Underwriters ["Guaranteed"], of which he was President and principal shareholder. *fn7"

 5. The Managing Director of Atlantic & Gulf during the period March 1978 through April 1982 was George B. McNeill. *fn8" Richard Pluth was a Vice-President of Operations at Centaur from April 1981 through April 1983. *fn9"

 6. On January 19, 1982, Rogers submitted his resignation to George B. McNeill and, at the request of Richard Pluth, left the company's employ on that day. *fn10"

 A. Budget Rent-a-Car ["Budget"] Risks

 7. In 1981 Kahn-Carlin Insurance Agency was a retail insurance broker representing Budget in New Orleans and Miami. *fn11" In June 1981, Don Carlin, the president of Kahn-Carlin, discussed with Rogers the placement of the Budget insurance account. Rogers told Carlin at that time that he was an employee of Atlantic & Gulf. *fn12" Carlin said that he wanted the Budget policy written by an "A" rated company, *fn13" and Rogers indicated that he would submit a proposal.

 8. Thereafter, Rogers proposed that Ambassador and Horizon each carry part of the Budget insurance, reinsured 100% by Centaur. Carlin understood that Rogers had arranged to have Ambassador and Horizon front *fn14" the Budget risk because both were A rated companies, while Centaur had only a B rating. *fn15"

 9. Before agreeing to participate in this arrangement, Chait had Horizon's counsel, Michael Skay, write to Centaur, to confirm that Atlantic & Gulf was an agent of Centaur "for the purpose of arranging facultative reinsurance." *fn16" Owen B. Davies, President of Centaur, confirmed by letter as follows:

 Thank you for your letter of August 27, 1981, relating to your arranging facultative reinsurance with our Company through Mr. Leonard Rogers.

 Mr. Leonard Rogers is Vice President-Production of Atlantic and Gulf. . . This Agency is a wholly-owned subsidiary of Centaur. . . . *fn17"

 10. On September 28, 1981, Rogers, apparently on behalf of Atlantic & Gulf, telexed Daniel Lynch, Vice-President of Underwriting for Ambassador and Horizon to confirm the coverage. *fn18" Thereafter, on January 28, 1982, Ambassador issued its policy number GLA 792034 to Budget for the period October 1, 1981 to October 1, 1982, and Horizon issued its policy number GLH 1008944 to Budget covering the same period. The Ambassador policy covered New Orleans operations; the Horizon policy covered Miami, Florida. *fn19"

 11. Reinsurance certificates were not issued for these policies until the fall of 1982. Nor was Ambassador or Horizon billed for premiums until after the expiration of the policies. *fn20"

 12. In July 1982, Horizon notified Atlantic & Gulf that the 1981-1982 Budget policy would expire on October 1. *fn21" No other written communication passed between the reinsurer and reinsured concerning the renewals of the policies. Following March 1982, Atlantic & Gulf had no authority to write facultative reinsurance and there are no records to indicate that it issued any such policies effective later than March 1, 1982. *fn22"

 13. Following Rogers' departure from Atlantic & Gulf on January 19, 1982, no one at Centaur or Atlantic & Gulf informed Horizon or Ambassador that Rogers had left their employ. *fn23" However, there is no custom or practice in the industry for an assuming reinsurer to notify a ceding insurer when an officer or underwriter of the assuming reinsurer leaves its employment. *fn24" Nor was there a custom or practice at Ambassador and Horizon to notify other insurance companies when an officer or underwriter left their employment. *fn25"

 14. Daniel Lynch knew that Rogers had left Atlantic & Gulf in January 1982. Chait, Lynch and others at Ambassador and Horizon knew that Rogers had formed Guaranteed in the fall of 1981, and Chait may have known that Rogers had left Atlantic & Gulf. *fn26"

 15. Ambassador and Horizon never requested confirmation that Guaranteed was an agent of Centaur for the purpose of binding facultative reinsurance and were never notified that Guaranteed had such authority. ...


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