directly responds to an issue raised in Travelers' opposition
As Travelers' sur-reply memorandum was improperly submitted,
defendants' motion to strike the sur-reply is granted. The
Court has not considered the sur-reply memorandum or the
rebuttal memorandum in reaching its decision. Defendants'
motion for costs and attorneys' fees incurred in connection
with it cross-motion is denied.
II. Summary Judgment
A. Standards for the Application of Summary Judgment
The standard in the Second Circuit for granting summary
judgment in contract cases is well established. In an "action
on a contract . . . summary judgment is perforce improper
unless the terms of the agreement are `wholly unambiguous.'"
Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d
Cir. 1985) (quoting Heyman v. Commerce & Indus. Ins. Co.,
524 F.2d 1317, 1320 (2d Cir. 1975)). The moving party must
establish that the contractual language is not "susceptible of
at least two fairly reasonable meanings." Schering Corp. v.
Home Ins. Co., 712 F.2d 4, 9 (2d Cir. 1983). In determining the
existence of a "fairly reasonable meaning," the court must bear
in mind that "it is the rare sentence that cannot be read in
more than one way if the reader is willing either to suspend
the rules of common English usage or ignore the conventions of
a given commercial setting." Wards Co., 761 F.2d at 120.
When contract language is susceptible of at least two fairly
reasonable meanings, "a material issue exists concerning the
parties' intent, and the non-moving party has a right to
present extrinsic evidence regarding the meaning of the
contested term." Id. Accordingly, "where the text of an
agreement reasonably allows for varying interpretations —
whether by the inadvertence or design of the draftsman — the
need for judicial construction cannot, and may not, be
avoided." Id. (citing Grand Union Co. v. Cord Meyer Dev. Corp.,
735 F.2d 714, 717 (2d Cir. 1984); Schering, 712 F.2d at 9). Of
course, these principles should nevertheless be read in light
of the standards for the application of summary judgment in
Rule 56(c) of the Federal Rules of Civil Procedure provides
that a court shall grant a motion for summary judgment if it
determines that "there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a
matter of law." Fed.R.Civ.P. 56(c). For the issues of fact to
be "genuine," they must provide a basis for "a rational trier
of fact to find for the non-moving party." Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct.
1348, 1356, 89 L.Ed.2d 538 (1986). The mere existence of
disputed factual issues, however, is not enough to defeat a
motion for summary judgment. See Knight v. United States Fire
Ins. Co., 804 F.2d 9, 11-12 (2d Cir. 1986), cert. denied,
480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); Quarles v.
General Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985) (per
curiam). The unresolved issues must be "material to the outcome
of the litigation." Knight, 804 F.2d at 11. It stands to reason
that, in order to be material, the disputed issues must
implicate cognizable legal principles upon which recovery may
be had or liability denied, thus entitling the moving party to
judgment as a matter of law. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202
(1986); Kronfeld v. Trans World Airlines, 832 F.2d 726, 731 (2d
Cir. 1987), cert. denied, 485 U.S. 1007, 108 S.Ct. 1470, 99
L.Ed.2d 700 (1988). With respect to materiality, the Supreme
Court has noted that "the substantive law will identify which
facts are material. Only disputes over facts that might affect
the outcome of the suit under the governing law will properly
preclude the entry of summary judgment. Factual disputes that
are irrelevant or unnecessary will not be counted." Anderson,
477 U.S. at 248, 106 S.Ct. at 2510.
B. Choice of Law
Travelers contends that the law of Connecticut is the proper
choice of law while the Reinsurers argue that the law of
New York is proper. The question of which law governs this
action becomes significant since there is a conflict of law
between New York and Connecticut governing an insured's failure
to give prompt notice to its insurer. New York law does not
require an insurer to establish prejudice in order to disclaim
liability based on the insured's failure to give prompt notice
of an occurrence for which the insurer may incur liability.
See Security Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436,
440, 293 N.E.2d 76, 78, 340 N.Y.S.2d 902, 905 (1972). In
Connecticut, however, an insurer must prove prejudice from the
insured's delay in providing notice in order to disclaim
coverage. See Aetna Casualty & Sur. Co. v. Murphy,
206 Conn. 409, 417-18, 538 A.2d 219, 223 (1988).
A federal district court sitting in diversity looks to the
choice of law rules of the forum state. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85
L.Ed. 1477 (1941); Aetna Casualty & Sur. Co. v. General Time
Corp., 704 F.2d 80, 82 (2d Cir. 1983). In the absence of an
express contractual choice of law provision, New York courts
resolve choice of law issues in contract actions by employing
an interest analysis, which looks to the competing contacts of
each jurisdiction to determine which has the greater interest
in the application of its law. See, e.g., Intercontinental
Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382,
248 N.E.2d 576, 581, 300 N.Y.S.2d 817, 825 (1969); Auten v. Auten,
308 N.Y. 155, 161, 124 N.E.2d 99, 102 (1954); accord Hutner v.
Greene, 734 F.2d 896, 899 (2d Cir. 1984); Zanfardino v.
E-Systems, Inc., 652 F. Supp. 637, 639 (S.D.N.Y. 1987). However,
not all contacts are relevant in defining which jurisdiction
has the predominant interest in the protection or regulation of
the rights involved. Rather, "`[c]ontacts obtain significance
only to the extent that they relate to the policies and
purposes sought to be vindicated by the conflicting laws.'"
Miller v. Miller, 22 N.Y.2d 12, 17, 237 N.E.2d 877, 880, 290
N YS.2d 734, 738 (1968) (quoting In re Estate of Crichton,
20 N.Y.2d 124, 135 n. 8, 228 N.E.2d 799, 806 n. 8, 281 N.Y.S.2d
811, 820 n. 8 (1967)).
An examination of the contacts which New York and Connecticut
have with the instant controversy requires the court "first to
isolate the issue, next to identify the policies embraced in
the laws in conflict, and finally to examine the contacts of
the respective jurisdictions to ascertain which has a superior
connection with the occurrence and thus would have a superior
interest in having its policy or law applied." Dym v. Gordon,
16 N.Y.2d 120, 124, 209 N.E.2d 792, 794, 262 N.Y.S.2d 463, 466
(1965), overruled on other grounds, Tooker v. Lopez, 24 N.Y.2d 569,
249 N.E.2d 394, 301 N.Y.S.2d 519 (1969).
Turning to the instant action, the central issue is whether
a reinsured's failure to provide timely notice to its reinsurer
discharges the reinsurer's obligations absent a showing of
prejudice to the reinsurer. The purpose of notice of loss
provisions in a primary insurance contract is "to afford the
insurer an adequate opportunity for investigation, to prevent
fraud and imposition upon it, and to enable it to form an
intelligent estimate of its rights and liabilities before it is
obligated to pay." See G. Couch, 19 Couch on Insurance 2d §
49:2, at 227 (2d ed. 1983). The Connecticut rule requiring an
insurer to prove prejudice in order to disclaim coverage on
late notice grounds is designed to protect the interest of
unsophisticated insureds from the often technical notice
provisions drafted by insurers. In the absence of prejudice to
the insurer, the insured's late notice is nothing more than
harmless error. The New York rule, on the other hand, serves to
protect New York insurers by permitting them to rely on the
finality of notice of loss clauses.