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TRAVELERS INS. CO. v. BUFFALO REINSURANCE

February 9, 1990

THE TRAVELERS INSURANCE COMPANY, PLAINTIFF,
v.
BUFFALO REINSURANCE COMPANY, FREMONT SYNDICATE, INC., MAIDEN LANE SYNDICATE, INC., PAN ATLANTIC INVESTORS, LTD., REPUBLIC INSURANCE COMPANY AND SOUTH PLACE SYNDICATE, INC., DEFENDANTS.



The opinion of the court was delivered by: Cannella, District Judge:

MEMORANDUM AND ORDER

Defendants' motion for summary judgment is granted. Fed.R.Civ.P. 56. Plaintiff's motion for leave to file a sur-reply memorandum in further opposition to defendants' motion for summary judgment is denied. Defendants' cross-motion to strike plaintiff's sur-reply memorandum as improperly submitted is granted. Defendants' request for costs and attorneys' fees in connection with the cross-motion is denied.

BACKGROUND

Plaintiff, Travelers Insurance Company ["Travelers"], seeks a declaration that defendants are obligated to indemnify Travelers pursuant to certain reinsurance contracts for a portion of the losses Travelers paid to one of its insureds.

Koppers Coverage

Koppers Company, Inc. ["Koppers"] is a diversified manufacturing corporation that marketed a variety of roofing products, including several different kinds of prefabricated laminate sheets known as Koppers Multipurpose Membranes ["KMM"]. Travelers issued a series of comprehensive general liability insurance policies to Koppers covering the period May 1, 1981 through January 1, 1985 [the "Koppers policies"]. Each Koppers policy provides $5 million of coverage for each occurrence and in the aggregate for products liability property damage claims. In pertinent part, the policies furnish coverage for "all sums which the insured becomes legally obligated to pay as damage because of bodily injury or property damage to which this insurance applies caused by an occurrence. . . ." Affidavit of Clifford H. Schoenberg in Support of Motion for Summary Judgment, Exh. 21, at T20295, 86 Civ. 3369 (JMC) (S.D.N.Y. Aug. 25, 1988) (emphasis added) ["Schoenberg Affidavit"].

Reinsurance Coverage

Shortly after Travelers issued the Koppers policies, Travelers made arrangements to reinsure portions of its Koppers risk in the reinsurance market. Reinsurance generally denotes "that undertaking whereby one insurer agrees to protect another insurer, known as the reinsured, either wholly or partially from a risk which it has undertaken, both policies being in effect at the same time, and the original insured having no interest in the reinsurance." J.A. Appleman & J. Appleman, 13A Insurance Law & Practice § 7681, at 484-85 (1976). Through the use of O'Connor Associates ["O'Connor"], a reinsurance intermediary, Travelers obtained certificates of facultative reinsurance [the "Certificates"] from defendants Buffalo Reinsurance Company ["Buffalo Re"], Fremont Syndicate, Inc. ["Fremont"], Maiden Lane Syndicate, Inc. ["Maiden Lane"], Pan Atlantic Investors, Ltd. ["Pan Atlantic"], Republic Insurance Company ["Republic"], and South Place Syndicate, Inc. ["South Place"] [collectively, the "Reinsurers"]. Buffalo Re was the principal reinsurer of Travelers' primary policies with Koppers, providing the highest layer of per occurrence continuing excess coverage for each of the policy years. See Buffalo Reinsurance Company's Statement Pursuant to S.D.N Y Civil Rule 3(g), at ¶ 4, 86 Civ. 3368 (JMC) (S.D.N.Y. Sept. 15, 1988). Each of the remaining Reinsurers provided varying amounts of facultative reinsurance to Travelers under their respective Certificates for covered losses on a per occurrence basis where any single occurrence produced a covered loss that exceeded $500,000. See Certain Defendants' Statement Pursuant to S.D.N.Y. Civil Rule 3(g), at ¶ 4, 86 Civ. 3368 (JMC) (S.D.N.Y. Aug. 25, 1988) ["Certain Defendants' 3(g) Statement"].

Reinsurance Notice Obligations

The Reinsurers employed two different forms of facultative reinsurance Certificates. The standard notice of loss clause in the Certificates provides that Travelers:

  will notify [the] Reinsurer promptly of any event
  or development which the Company [Travelers]
  reasonably believes might result in a claim
  against [the] Reinsurer.

Republic Insurance Company Certificate of Casualty Facultative Reinsurance, at ¶ 5(a). in Schoenberg Affidavit, Exh. 2, However, as to those Reinsurers who were underwriting members of the New York Insurance Exchange — Fremont, Maiden Lane, Pan Atlantic, and South Place — the Certificates provided that Travelers:

  shall advise the Underwriter(s) promptly of any
  claim and any subsequent developments pertaining
  thereto which, in the opinion of the Company
  [Travelers], may involve the reinsurance
  hereunder.

New York Insurance Exchange Certificate of Casualty Facultative Reinsurance, at ¶ 2, in Schoenberg Affidavit, Exh. 2. In addition to the notice provisions, both forms provide that the Reinsurers shall have the right to associate with the full cooperation of Travelers in the defense or control of any claim involving the reinsurance.

KMM Claims

Beginning in early 1983, Koppers experienced an increasing number of product liability claims arising from premature failures of the KMM roofing system. By March of 1984, overwhelmed by the volume of the claims, Koppers sought outside claims-handling assistance. Koppers contacted a Travelers subsidiary engaged in claims adjusting, Constitution State Service Company ["CSSC"], which in turn advised Travelers of the existing KMM claims. Although Koppers believed that these claims were not covered under its policies, Travelers determined that it was bound by ethical claims-handling practices to apprise its insured that indemnity coverage may exist. Moreover, based upon further investigation of the KMM claims, Travelers determined that the widespread and invariable pattern of premature failure in virtually all KMM roofs evinced a single cause of the failures and, therefore, the hundreds ...


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