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REPUBLIC INS. CO. v. MASTERS

February 24, 1994

REPUBLIC INSURANCE COMPANY, Plaintiff,
v.
MASTERS, MATES AND PILOTS PENSION PLAN, AETNA CASUALTY AND SURETY COMPANY, and FEDERAL INSURANCE COMPANY, et al., Defendants.



The opinion of the court was delivered by: VINCENT L. BRODERICK

 VINCENT L. BRODERICK, U.S.D.J.

 I

 This litigation involves an inter-insurer dispute concerning liability for legal defense costs in connection with a long-running complex lawsuit. The underlying cases (the "main litigation") which were consolidated and settled prior to trial with the assistance of United States Magistrate Judge Naomi Reice Buchwald, involved maritime investments by the Master, Mates and Pilots Individual Retirement Income Pension Plan and Pension Plan (collectively the "pension plan") - investments were designed to promote jobs in the industry. *fn1" See generally Lowen v. Tower Asset Management, 653 F. Supp. 1542 (SDNY), aff'd 829 F.2d 1209 (2d Cir 1987); In re Masters Mates & Pilots Pension Plan and IRAP Litigation, 957 F.2d 1020 (2d Cir 1992) (remanding for revision of initial settlement).

 There is no indication in this litigation of actual or attempted personal enrichment on the part of pension plan officers. But legal risks were incurred in the management of the pension plan, and in fact a series of lawsuits arose.

 While both security of pension funds and job preservation are legally as well as pragmatically important, *fn4" the fiduciary duties imposed upon trustees and officers of pension plans covered by ERISA (29 USC 1001 et seq.) limit the ability of plan managers to pursue job promotion objectives where the investments chosen are risky. *fn5"

 In resolving the main litigation, substantial settlement and defense costs were incurred, although only defense costs are at issue in the present inter-insurer litigation. Because the cases brought against the pension plan and its trustees were settled, there was no ultimate adjudication as to whether or not illegal behavior on the part of either actually occurred. *fn6" While the pension plan remains a nominal defendant in the current case and plaintiff Republic Insurance Company ("Republic") asks that its policy be rescinded, no live controversy between Republic and its insureds exists at the present time. Republic seeks no reimbursement from the pension plan, and the pension plan seeks no further payments from Republic.

 All matters relating to indemnification for amounts paid in settlement of damage claims have been settled as part of the global resolution of the main litigation and are not involved here. The present litigation focuses on disputes between insurers with regard to ultimate responsibility for defense costs which have already been paid to the insureds or their defense counsel. The pension plan takes the position that in light of the global settlement of the case and the absence of any monetary claims by or against it, there is no genuine controversy between the plan and plaintiff Republic. *fn7" This position waives any counterclaims against Republic and any potential claims by the pension fund against Republic. Thus the pension plan will be unaffected by the resolution of the current inter-carrier *fn8" controversy.

 II

 Defendant Aetna Casualty and Surety Company ("Aetna") provided insurance to the pension plan and its officials up until a time when plaintiff Republic assumed some of those risks. Republic agreed to offer coverage only after questioning the reasons for Aetna's desire to step aside and being given adequate but inaccurate assurances by pension plan officials that there were no then-known risks. Republic inquired of the pension plan management whether any trustee was aware of facts which might lead to a claim. As stated in Republic's virtually unopposed statement of facts:

 
No mention was made about . . . secret participation . . . in making maritime investments to increase union employment, nor that internal Plan guidelines prohibited such investments. . . .

 Republic also asserts without contradiction that had it known of such investments, it would not have issued its policy to the pension plan.

 Losses to the pension plan did in fact occur and as a result of the ensuing complex litigation concerning the management of the pension plan, payments were made by Republic, Aetna and the defendant Federal Insurance Company ("Federal") ...


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