With respect to the bank account underfunding, Connecticut General introduced records that showed, according to the testimony of Robert A. Marino, the underwriter at CIGNA Corporation responsible for the Carey account at the time of its termination, that at Citibank's request Connecticut General transferred $ 94,211 to Carey's Citibank account to cover claims payments while the contract was in effect. Tr. 25-27; CG Ex. C. John O'Mahoney, Carey's Insurance Manager, testified that $ 19,285 of the $ 94,211 was used to pay "run-off" claims that were incurred prior to but not reported until after termination of the Agreement. Following the hearing, Carey submitted a declaration from its former treasurer Alan Berdy stating that he "believe[s]" that Connecticut General incorrectly included "run-off" claims of $ 19,285 in its figure for bank account liability. Neither Mr. O'Mahoney nor Mr. Berdy cited any evidence in support of this belief, however. See Tr. 66-68. On the basis of Mr. Marino's testimony and the documentary record, I therefore find that Carey owes Connecticut General $ 94,211 in bank account underfunding.
With respect to the supplemental premium, Carey does not dispute that, as set forth in the Supplemental Plan, as of October 1, 1988 the "estimated liability for incurred but unreported claims at the close of the preceding policy year" was $ 264,454. See Tr. 66. Nor does Carey dispute Connecticut General's figures that during the period October 1, 1988 through October 19, 1989 the unpaid portion of Carey's maximum monthly amounts was $ 388,366. Connecticut General insists that the "clear and unambiguous" meaning of the Supplemental Plan is therefore that the supplemental premium is simply the sum of $ 264,454 "PLUS" $ 388,366.
In Connecticut General's view, the supplemental premium is to be understood as the accumulation, over the years of the agreement, of the "margins" by which Carey's maximum monthly payments exceeded its actual payments. Mr. Marino testified that the agreement was structured so that Connecticut General's profit was largely a function of the amount of the supplemental premium (its "margins") minus any amounts it was required to pay for benefits above Carey's maximum monthly payment ceiling (its "deficits"). Although this understanding is apparently reflected in item (b) of the Supplemental Plan premium formula, which on its face is the sum of margins from October 1, 1988 to the date of termination, it does not follow that item (a) was to remain fixed at $ 264,454. A more logical interpretation of the Supplemental Plan -- one that is not inconsistent with the generation of profits for Connecticut General from the supplemental premium -- is that item (a) was to be revised and updated on the basis of further information about the amount of "incurred but not reported claims" on the date as of which the supplemental premium was calculated.
Under the original agreement, as P 16(b) of the CMP Rider makes clear, the original version of the supplemental premium calculation was based on the sum of margins, but it was limited to margins during a single policy year, i.e., "the last Policy Year," not all preceding years ("The sum of the Maximum Monthly Payments for each of the Policy Months in the last Policy Year"; "all Plan Benefits the Employer has paid with respect to such Policy Year"; "all Plan Benefits unpaid at the time of such termination, which the Employer is...obligated to pay with respect to such Policy Year"; emphasis added). Although item (b) in the Supplemental Plan is based on the net accumulation of unpaid margins over the years beginning with October 1, 1988, the language of the new formula suggests that item (a) is not fixed but is instead to be revised, if not superseded, on the basis of newer information, just as under P 16(b) of the CMP Rider the amount of the supplemental premium was eventually superseded by the subsequent policy year's margins and "run-off" claims.
The definition of item (a) in the new formula is "estimated liability for incurred but unreported claims at the close of the preceding policy year." No explanation is given for how it is to be calculated, but for the parenthetical information that it is $ 264,454 as of October 1, 1988. As Carey plausibly argues, the definition corresponds to what the parties call "run-off" claims. The word "estimated" and the phrases "incurred but unreported" and "to the date as of which item (a) is revised" all suggest that item (a) is an amount that is to be revised, presumably on the basis of subsequently obtained information regarding the amount of claims that were incurred "but unreported" as of October 1, 1988 but were subsequently reported as well as claims incurred after October 1, 1988 but not reported prior to the date the agreement was terminated. Claims that were "incurred but unreported" as of October 1, 1988 but reported prior to the termination of the agreement will be reflected in item (b) of the newer formula since they will be included in the "paid" portion of subsequent months' Maximum Monthly Payments. In sum, the plausible interpretation of the language (which is hardly, as Connecticut General insists, "clear and unambiguous") must be that item (a) refers to the amount of "run-off" claims remaining as of the date of termination of the agreement, October 19, 1988, "the date as of which item (a) is revised." On the basis of Mr. Marino's testimony, I find that as of October 19, 1989 there were remaining "run-off" claims of $ 33,000, and that item (a) is therefore $ 33,000.
The language of the Supplemental Plan is clear and unambiguous with respect to item (b), however. As Connecticut General maintains, item (b) is defined straightforwardly as "the unpaid portion...of the Maximum Monthly Payments from October 1, 1988 to [October 19, 1989]," and Connecticut General has made an undisputed showing that this amount is $ 388,366. In a convoluted shaggy-dog argument that would require totally dispensing with the language of item (b) and rests on a section of the Supplemental Plan dealing with a wholly unrelated subject (the "Experience Rating Process" and Connecticut General's administration of the Plan), Carey argues first that the Supplemental Plan also provides for the recovery of deficits from margins; that deficits during the first two years of the agreement were $ 260,789; that Connecticut General, as an incentive to Carey, agreed to amortize recovery of this sum over the third, fourth and fifth years of the policy; and that Connecticut General is therefore entitled to recover only $ 86,930, i.e., one-third of $ 260,789, as item (b). Apart from the unsubstantiated testimony of Mr. O'Mahoney and declaration of Mr. Berdy, Carey has put forward no evidence supporting this alleged superseding agreement, and under the parol evidence rule their extrinsic testimony, offered to contradict the clear and unambiguous terms of a written agreement, is inadmissible. Investors Ins. Co. v. Dorinco Reins. Co., 917 F.2d 100, 104 (2d Cir. 1990); NYSA-ILA Medical & Clinical Services Fund v. Golten Marine Co., No. 91 Civ. 4707 (SWK), 1994 U.S. Dist. LEXIS 20280 at *3, 1994 WL 800706 at *1 (S.D.N.Y. Dec. 21, 1994); Royal Bank of Canada v. Mahrle, 818 F. Supp. 60, 62 (S.D.N.Y. 1993); Stroll v. Epstein, 818 F. Supp. 640, 645 (S.D.N.Y.), aff'd, 9 F.3d 1537 (2d Cir. 1993); Adler & Shaykin v. Wachner, 721 F. Supp. 472, 476 (S.D.N.Y. 1988). Even apart from this fatal difficulty, Carey's account of this alternative understanding lacks credibility because it is difficult to believe that these two sophisticated companies would not have any agreement, letters, memos or documentation of any kind reflecting anything about an oral understanding of this type.
Connecticut General is thus entitled to recover $ 388,366 as item (b), and a total supplemental premium of $ 421,366, i.e., $ 33,000 plus $ 388,366. I therefore recommend that Connecticut General recover a total of $ 591,092 in damages, i.e., (1) residual premiums of $ 75,515; (2) bank account underfunding of $ 94,211; and (3) a supplemental premium of $ 421,366.
In addition, plaintiff is entitled to recover prejudgment interest calculated at a simple rate of 9% per annum as of the date all amounts became due, October 19, 1989. N.Y. Civ. Prac. L. & R. § § 5001(a), 5004 (McKinney 1992); see Nu-Life Constr. Corp. v. Board of Educ., 789 F. Supp. 103, 106 (E.D.N.Y. 1992); Novelty Textile Mills, Inc. v. C.T. Eastern, Inc., 743 F. Supp. 212, 221 (S.D.N.Y. 1990); SEC v. Musella, 748 F. Supp. 1028, 1043 (S.D.N.Y. 1989), aff'd, 898 F.2d 138 (2d Cir.), cert. denied, 498 U.S. 816 (1990); N. Bloom & Son v. Skelly, 673 F. Supp. 1260, 1269 (S.D.N.Y. 1987); Kaufman v. Le Curt Constr. Corp., 196 A.D.2d 577, 601 N.Y.S.2d 186, 188-89 (2d Dep't 1993); Long Playing Sessions, Inc. v. Deluxe Labs., Inc., 129 A.D.2d 539, 540, 514 N.Y.S.2d 737, 738 (1st Dep't 1987). I therefore recommend that Connecticut General recover $ 338,521.29 in prejudgment interest.
For the reasons set forth above, I recommend that Connecticut General recover from Carey Energy a total of $ 929,613.29, which includes damages of $ 591,092.00 and prejudgment interest of $ 338,521.29.
Copies of this Report and Recommendation were mailed February 8, 1996 to:
Thomas A. Martin, Esq.