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
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.
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
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 ...