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INVESTORS INS. v. DORINCO REINSURANCE

March 14, 1990

INVESTORS INSURANCE COMPANY OF AMERICA, PLAINTIFF,
v.
DORINCO REINSURANCE COMPANY, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

This diversity action alleges a claim in breach of contract and one for reformation of the contract. Presently before this Court are the cross motions for summary judgment by the plaintiff and defendant, Fed.R.Civ.P. 56, as well as defendant's motion for sanctions pursuant to Fed.R.Civ.P. 11 and 56(g).

BACKGROUND*fn1

In October 1986, the plaintiff, Investors Insurance Company of America ("Investors") agreed to buy the Dorinco Syndicate Corporation (the "Dorinco Syndicate") from the defendant Dorinco Reinsurance Corporation for $2,908,395, which represented the asset value of the company. The Dorinco Syndicate had been a wholly owned subsidiary of defendant and was in the insurance business. It was also a member of the New York Insurance Exchange ("Exchange"), which was an insurance market established under Article 62 of the New York Insurance Law ("NYIL") for the purpose of providing a facility for the underwriting of reinsurance of all kinds and certain direct insurance. NYIL § 6201 (McKinneys' 1985).

The agreement entered into by the parties included an indemnity clause, which is the basis of the instant action. Section 6.06 of the agreement, entitled "Assumption of Liability for Certain Insolvencies," generally states that "Dorinco agrees to indemnify Investors for a certain proportion of the insolvencies of syndicates on the Exchange that result in diminution of the Security Fund." Agreement § 6.06, attached to Defendant's Exhibit C. The Exchange's Security Fund was created, inter alia, ". . . to assist in the detection and the prevention of insolvencies . . ." of the underwriting members of the Exchange. Defendant's 3(g) in Support of Its Motion at ¶ 7.

The Security Fund has two components, the Deposit Fund and the Surcharge Fund, which together are considered the "Aggregate Fund" of the Security Fund. Exchange Constitution, Article XIII, § 2. The Exchange's Constitution requires all of its members to become Security Fund members and to deposit $500,000 into a bank in trust for the benefit of the Deposit Fund. Article XIII, § 5 provides that the Exchange shall levy a surcharge on premiums on policies written by the members in order to further the financial strength of the Security Fund. Article XIII, § 7(A) prioritizes the funds, stating that expenditures from the Security Fund are to come first from the Surcharge Fund to the fullest extent possible, and then, states

  In the event that the Board of Directors
  determines that the Surcharge Fund is, or is
  likely to be, insufficient to satisfy the
  obligations of the Security Fund it shall notify
  the Exchange and the bank or trust company, if
  any, holding the Deposit Fund, to transfer from
  the Deposit Fund to the Security Fund . . . as it
  deems necessary or appropriate to reasonably
  assure that the Security Fund will be able to
  meet its obligations.

Article XIII, § 7(a), attached as Defendant's Exhibit D.

The Board of Directors of the Security Fund determined on September 2, 1987 that the Surcharge Fund was inadequate to satisfy the Security Fund's obligations, and the Board called down the Deposit Fund pursuant to section 7(a) of Article XIII. Dorinco indemnified Investors for the diminution of the Dorinco Syndicate's Initial Deposit. In response, on or about February 24, 1988, Dorinco advised Investors that, according to Dorinco's interpretation of the writing embodying their agreement, no indemnification was due or owing by Dorinco because the corporate entity known as the NYIE Security Fund, Inc. had suffered no "actual diminution" by the draw down of the Deposit Fund. Dorinco has refused to reform the indemnification claims and has not indemnified Investors.

DISCUSSION

Standards for Summary Judgment

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The movant may discharge this burden by demonstrating to the Court that there is an absence of evidence to support the non-moving party's case on which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).*fn2 The non-moving party then has the burden of coming forward with "specific facts showing that there is a genuine issue for trial." Rule 56(e). The non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Speculation, conclusory allegations and mere denials are not enough to raise genuine issues of fact. To avoid summary ...


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