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ALLENDALE MUT. INS. CO. v. EXCESS INS. CO.

February 3, 1998

ALLENDALE MUTUAL INSURANCE COMPANY, Plaintiff, against EXCESS INSURANCE COMPANY LTD., LONDON AND HULL MARITIME INSURANCE COMPANY, LTD, FARNAM, T A/C, THE MARINE INSURANCE COMPANY LTD., THE OCEAN MARINE INSURANCE COMPANY LTD., THE YORKSHIRE INSURANCE COMPANY, LTD., PERTE C A/C, PRUDENTIAL ASSURANCE COMPANY, LTD., TRUST A/C NO. 2, ENGLISH AND AMERICAN INSURANCE COMPANY, LTD., SWITZERLAND INSURANCE COMPANY UK, LTD., NIPPON INSURANCE COMPANY OF EUROPE LTD., FUJI INTERNATIONAL INSURANCE COMPANY LTD., ENGLISH AND AMERICAN UNDERWRITING AGENCY LTD., CORNHILL INSURANCE COMPANY PLC, MINSTER INSURANCE COMPANY, LTD., THE THREADNEEDLE INSURANCE COMPANY, LTD., SOVEREIGN MARINE AND GENERAL INSURANCE COMPANY LTD., TOKIO MARINE AND FIRE INSURANCE COMPANY (U.K.) LTD., WILLIS FABER (UNDERWRITING MANAGEMENT) LTD., CERTAIN UNDERWRITERS AT LLOYDS OF LONDON CONSISTING OF: Lloyd's Underwriter Syndicate No. 317 RMO, Lloyd's Underwriter Syndicate No. 457 WTK, Lloyd's Underwriter Syndicate No. 658 NTE, Lloyd's Underwriter Syndicate No. 1028 HRD, Lloyd's Underwriter Syndicate No. 207 EDW, Lloyd's Underwriter Syndicate No. 904 GKS, Lloyd's Underwriter Syndicate No. 401 BRI, Lloyd's Underwriter Syndicate No. 406 IAM, Lloyd's Underwriter Syndicate No. 535 COT, Lloyd's Underwriter Syndicate No. 787 FBB, Lloyd's Underwriter Syndicate No. 500 TJP, Lloyd's Underwriter Syndicate No. 448 AJW, Lloyd's Underwriter Syndicate No. 52 HUN, Lloyd's Underwriter Syndicate No. 1014 MAC, Lloyd's Underwriter Syndicate No. 613 MJB, Lloyd's Underwriter Syndicate No. 855 ARM, Lloyd's Underwriter Syndicate No. 724 SAH, Lloyd's Underwriter Syndicate No. 162 GLO, Lloyd's Underwriter Syndicate No. 1158 BMR, Lloyd's Underwriter Syndicate No. 40 KJC, Lloyd's Underwriter Syndicate No. 488 JCH, Lloyd's Underwriter Syndicate No. 34 DGL, Lloyd's Underwriter Syndicate No. 123 AWS, Lloyd's Underwriter Syndicate No. 609 MED, Lloyd's Underwriter Syndicate No. 552 MAN, Lloyd's Underwriter Syndicate No. 31 MFS, Lloyd's Underwriter Syndicate No. 803 GWH, Lloyd's Underwriter Syndicate No. 428 RFW, Lloyd's Underwriter Syndicate No. 697 STQ, Lloyd's Underwriter Syndicate No. 1035 EVE, Lloyd's Underwriter Syndicate No. 920 HLP, Lloyd's Underwriter Syndicate No. 872 EPI, Lloyd's Underwriter Syndicate No. 932 PJG, Lloyd's Underwriter Syndicate No. 936 CRE, Lloyd's Underwriter Syndicate No. 79 SCM, Lloyd's Underwriter Syndicate No. 102 KER, Defendants.


The opinion of the court was delivered by: SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 Plaintiff Allendale Mutual Insurance Company ("Allendale") filed a Complaint on December 28, 1995, alleging breach of contract. According to the Complains, the defendant reinsurers breached the parties' agreement in three ways: 1) by wrongfully refusing to pay a $ 7 million claim, 2) by failing to investigate this claim in good faith, and 3) by initiating suit on the contract in England in spite of its forum-selection clause. *fn1" The Findings of Fact and Conclusions of Law set forth below are based on a seven day bench trial held December 15-23, 1997.

 I. Findings of Fact

 Allendale is an insurance company incorporated under the laws of Rhode Island. The defendants are reinsurers organized under the laws of the United Kingdom. See Joint Pretrial Order, Undisputed Facts ("Undisputed Facts") at PP 1-2. Effective January 1, 1991, Factory Mutual International ("FMI"), an Allendale subsidiary, issued an insurance policy to Zenith Data Systems France and Zenith Data System Europe ("Zenith") covering physical losses at Zenith's Seclin, France warehouse up to 248,301,000 French francs (approximately $ 48 million). See Trial Ex. 1. This policy was 100% reinsured by Allendale, see Trial Ex. 2, who in turn sought reinsurance for all but $ 2.5 million of the risk.

 Pursuant to this effort, a $ 7 million layer of the risk was offered to defendants through a series of intermediaries. Defendants indicated a desire to accept for the period between January 1, 1991 and January 1, 1992 by initialing a broker's slip (the "first contract") which briefly described the Seclin warehouse and the terms of the contract. Among these terms was one that provided: "Service of Suit Clause (U.S.A.)." The parties agree that this notation incorporates by reference a clause taken from an industry handbook which provides, in pertinent part: "It is agreed that in the event of the failure of the [defendants] . . . to pay any amount claimed to be due hereunder, the [defendants], at the request of [Allendale], will submit to the jurisdiction of a court of competent jurisdiction within the United States of America." Trial Ex. 51; Trial transcript ("tr.") at 417. The slip also disclosed that the warehouse was "non sprinklered." See Trial Ex. LLLL.

 On January 28, 1991, the Seclin warehouse was surveyed by an FMI engineer. See tr. at 487-88. The report drafted as a result of this inspection (the "survey report") included a section titled "Recommendations." This section included the following six entries:

 
[1] A cutting and welding permit procedure should be implemented whenever cutting or welding operations have to take place . . .
 
[2] Fire hoses fed by the public main should be installed according to Factory Mutual standards throughout the warehouse building . . .
 
[3] Automatic sprinkler protection should be provided throughout the warehouse according to Factory Mutual standards . . .
 
[4] The above sprinkler protection should be fed by an adequately sized water supply consisting of a pump and a tank . . .
 
[5] Given the total value of the goods stored, a second water supply should be provided for reliability . . .
 
[6] A burglar alarm system should be installed to supplement the present watch service and further protect the goods of ...

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