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United States District Court, S.D. New York

May 4, 2004.


The opinion of the court was delivered by: HAROLD BAER, Jr., District Judge


Defendant Republic Insurance Co. ("Republic") moves (1) pursuant to Federal Rule of Civil Procedure ("Fed.R. Civ. P.") 56(c), for summary judgment against plaintiff Folksamerica Reinsurance Co. ("Folksamerica") on the issue of whether Republic violated the Definitive Statement of Loss ("DSOL") provisions of the J.T. Thorpe Co., Ink ("Thorpe") Certificates; (2) to strike the Declaration of I. Davis Jessup, II ("Jessup Declaration") and certain portions of Folksamerica's 56.1 Opposition;*fn1 and (3) to voluntarily dismiss, without prejudice, its counterclaims for bad faith and unjust enrichment, pursuant to Fed. R. Civ. P. 41(a); and Folksamerica brings a separate motion for partial summary judgment against Republic, to dismiss Republic's bad faith counterclaim (with prejudice). Third party defendants Aon Re Worldwide, Inc. and Aon Specialty Re, Inc. (collectively "Aon") join in support of Republic's motion for summary judgment. For the following reasons, (1) Republic's motion for summary judgment, on the DSOL issue, is granted; (2) Republic's motion to strike is granted-in-part and denied-in-part; (3) Folksamerica's motion for summary judgment, dismissing Republic's bad faith counterclaim, is granted; and (4) Republic's motion to voluntarily dismiss, without prejudice, its counterclaims for bad faith and unjust enrichment, is denied.


 A. Background

  This declaratory judgment action involves a reinsurance coverage dispute between Folksamerica (the reinsurer), Republic (the insurer), and Aon (the reinsurance broker) — stemming from alleged late "notice" to Folksamerica of claims under several reinsurance Certificates involving two insureds — Clemtex, Ltd. ("Clemtex"), a supplier and/or manufacturer of sandblasting equipment, and Thorpe, a masonry and insulation contractor. Late last year, all three entities submitted extensive summary judgment motions, and after argument, this Court made the following determinations:

  Republic's violations of any notice provisions contained within the Certificates do not relieve Folksamerica of its obligation to indemnify Republic. Further . . . with regard to Clemtex, Republic did not violate the DSOL provision. However, summary judgment on the following issues of fact, with regard to the Thorpe Certificates, is inappropriate: (a) whether Republic violated the DSOL provision in the Thorpe Certificates, due to untimely submission, (b) whether the untimeliness, if any, of Republic's submission of the DSOL under Thorpe was unreasonable, and (c) whether, if such violations are deemed unreasonable, Republic's proffered excuse that Aon is the party at fault or that Folksamerica had constructive notice as a result of GLARC [a Treaty], or any other defense, will be credited. Folksamerica Reins. Co. v. Republic Ins. Co., 03 Civ. 0402, 2003 U.S. Dist. LEXIS 21584, at *53 (S.D.N.Y. Dec. 2, 2003).

  Because the parties had been unable to complete discovery, due to the illness of an important witness, the record did not contain the evidence necessary for the Court to resolve whether Republic had violated the DSOL under the Thorpe Certificates, and if so, whether such violation was reasonable. Subsequently, this needed discovery was completed, and, in order to streamline the proceedings, at Republic's request, the Court authorized a second round of summary judgment on this open issue, in order to provide the parties with an additional opportunity to obviate the need for a trial.*fn2

  Therefore, this Opinion begins where the prior left off. For a complete discussion of the factual and procedural background of this case, reference to the First Amended Opinion & Order, is advised. Folksamerica Reins. Co., 2003 U.S. Dist. LEXIS 21584, at *53.


 A. Summary Judgment Standard of Review

  Pursuant to Fed.R.Civ.P. 56(c), a district court must grant summary judgment if the evidence demonstrates 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." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250 (1986). "Summary judgment is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to `secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986), quoting Fed.R.Civ.P. 1.

  In determining whether there is a genuine issue of material fact, a court must resolve all ambiguities and draw all inferences against the moving party. See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987). However, the mere existence of disputed factual issues is insufficient to defeat a motion for summary judgment. Knight v. United States Fire Ins. Co., 804 F.2d 9, 11-12 (2d Cir. 1986), cert. denied, 480 U.S. 932 (1987). The disputed issues of fact must be "material to the outcome of the litigation" (id. at 11), and must be backed by evidence that would allow "a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts." Id. With respect to materiality, "substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. "Summary judgment is particularly appropriate in resolving insurance coverage disputes, because the interpretation of an insurance policy presents a question of law." Constitution Reins. Corp. v. Stonewall Ins. Co., 980 F. Supp. 124, 127 (S.D.N.Y. 1997), aff'd without opinion, 182 F.3d 899 (2d Cir. 1999) (citation omitted). See also Flair Broad. Corp. v. Powers, 733 F. Supp. 179, 184 (S.D.N.Y. 1990).

  "Ascertaining whether or not a writing is ambiguous is a question of law for the trial court." Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan et al, 1 F.3d 1091, 1094 (2d Cir. 1993) (citations omitted). Although it is true that "a motion for summary judgment may be granted only where the agreement's language is unambiguous and conveys a definite meaning" (id.) (internal quotations and citations omitted), "a court may not [ ] find ambiguity" in a reinsurance contract "where none exists." United Capital Corp. v. Travelers Indem. Co. of II., 237 F. Supp.2d 270, 274-75 (E.D.N.Y. 2002).

 B. Definitive Statement of Loss on Thorpe Certificates

  Republic asserts, as a matter of law, that it fully complied with the DSOL provision contained within the Thorpe Certificates, by supplying Folksamerica, no later than May 29, 2002, with all information necessary for it to post proper reserves and determine the propensities of any loss reported. Folksamerica, on the other hand, enumerates specific topics, and one in particular, about which it allegedly requested, but did not receive, documentation until November 2002, when it audited Republic's records. By way of background, the DSOL provision contained within the Certificates provides that: C. As a condition precedent,*fn3 the Company shall promptly provide the Reinsurer with a definitive statement of loss on any claim or occurrence reported to the Company and brought under the Certificate which involves a death, serious injury or lawsuit.

 Van Tol Decl. Exh. A. By definition, the DSOL "consist[s] of those parts or portions of the Company's investigative claim file which in the Judgment of the Reinsurer are wholly sufficient for the Reinsurer to establish adequate loss reserves and determine the propensities of any loss reported hereunder." Id. (emphasis added).*fn4 Further, the Certificates require that "[t]he Company shall make available for inspection, and place at the disposal of the Reinsurer at all reasonable times, all records of the Company relating to the Certificate of Reinsurance or claims in connection therewith." Id. By definition, "upon receipt of a definitive statement of loss, the Reinsurer shall promptly pay its proportion of such loss as set forth in the Declarations." The Certificates also contain the following provision, relating to loss settlements:

All loss settlements made by the Company, provided they are within the terms and conditions of the original policy(ies) and within the terms and conditions of this Certificate of Reinsurance, shall be binding on the Reinsurer.

  It is undisputed that Folksamerica received invoices on April 30, 2002, or soon thereafter, seeking reimbursement under the Thorpe Certificates, in the amount of $450,000. Rep. 56.1 ¶ 5; Folk. 56.1 ¶ 2. Further, due to the problems experienced with transmitting reports to its reinsurers, through Aon, its intermediary, on May 3, 2002, Republic forwarded a complete set of all narrative reports that it had previously instructed Aon to forward to all reinsurers (which included Folksamerica).*fn5 Rep. 56.1 ¶ 10. Republic sent additional invoices, proofs of loss, and a narrative report, to Folksamerica on May 8, 2002, raising the total amount of reimbursement sought to $800,000. Id. ¶ 11. Soon thereafter, on May 23, 2002, Larry Lande ("Lande"), Folksamerica's Assistant Secretary, requested authority to post reserves for the Thorpe claims, in the amount of $4,057,505, and received such approval on May 29, 2002. Id. ¶ 13.

  Republic asserts that the fact that (1) Folksamerica posted reserves in May 2002, (2) at $4,057,505,*fn6 an amount far in excess of the loss submitted to date, which was only $800,000, (3) sent notices to its retrocessionaires on or about May 31, 2002, advising them of its posting, (4) informed its retrocessionaires, in such notices, that it had "received backup documentation from Republic, indicating an exposure to Republic in excess of $2 million" on each of the two Thorpe Certificates*fn7 (Van Tol Decl. Exh. M) (emphasis added), and (5) none of Folksamerica's retrocessionaires complained that the information provided by Folksamerica was insufficient to enable them to post adequate reserves themselves, collectively establishes that Folksamerica had fulfilled both of the requirements of the DSOL — to enable Folksamerica to set adequate loss reserves and to determine the propensities of the loss. Rep. 56.1 ¶¶ 13-14. Further, Republic asserts that, in response to Folksamerica's continued questions, and dissatisfaction with its timely answers, in September 2002, it invited Folksamerica to come to the offices of its counsel, and view all the records, arranged for the audit to take place in October 2002, and the audit was conducted on November 4, 2002. It is undisputed that the audit confirmed Republic's prior assurances. Therefore, Republic argues that by May 29, 2002, when it received authority to post its reserves at $4,057,505, it had fully complied with the DSOL provision. Rep. Mem. at 4.

  Folksamerica argues that, after receiving the relevant invoices from Republic, it specifically inquired about: (1) "acceleration of the exposure by Republic under its policies"; (2) "the treatment of multiple occurrences"; (3) "payment of claims under products liability coverage and non-products coverage"; and (4) "allocation of losses among policies." Folk. Mem. Opp. at 3. As to the products versus non-products coverage, Folksamerica allegedly requested documentation because "[i]f the claims were allocated to non-products theories of recovery, and thus, non-products coverage, the limit per occurrence could be hit again and again, without ever reaching an aggregate cap." Id at 4. While Folksamerica appears to have received sufficient documentation to assuage its other concerns, Folksamerica continued to seek documentation relating to products versus non-products losses.

  Additional communications between the parties, concerning products versus non-products losses, began on May 31, 2002, when Lande wrote to Montgomery, seeking clarification as to, inter alia, (a) whether Republic planned to cede the $1.35 million settlement of non-product claims to its reinsurers, (b) how the Republic policies were exposed for non-products losses, and (c) what percentage of Thorpe's overall exposure stemmed from non-products losses. In this letter, Lande wrote that "Folksamerica is holding payment in abeyance pending receipt and review of the requested information." Van Tol Decl. Exh. Q. In response, Jennifer Morrison ("Morrison"), Republic's Managing Coverage Attorney, promptly wrote that "Republic's settlement with J.T. Thorpe, for $1,350,000 represents the parties' resolution of their dispute concerning the existence of coverage other than Products-Completed Operations coverage. That settlement has not been billed to your layer." Id. Exh. R. On May 31, 2002, Lande requested that Republic "please provide the information requested in items three and four ["b" and "c" above] of my May 31, 2002 letter." Id. Exh. S. In a June 4th response, Morrison explained that:

  To better assess the exposure, Republic requested specific information on the number of product claims and the number of non-product claims received by Thorpe. In response, Thorpe advised `[a]lthough Thorpe believes that a number of the claims settled or pending against it may have arisen out of its operations, and not its products, Thorpe is unable at this time to provide the specific information you have requested regarding the number of such non-product claims. In response to Lande's July 31 letter, one of Folksamerica's latter inquiries, Republic and Folksamerica participated in a conference call, which occurred on August 20, 2002. During the call, as represented by an internal Folksamerica memoranda, Folksamerica "reiterated our position that we require proof of the non-products exposure to our layers., Republic maintains that they have not paid any non-products claims to date. We were unable to resolve our differences, and Republic is to forward additional information in support of their position." Id. Exh. CC. Shortly thereafter, in a September 6, 2002 letter, after having what appears to be an epiphany, instead of forwarding any documentation, Morrison informed Lande that "[t]o the extent you desire to review information and documentation included within the Thorpe claim files, the claim files can be made available for your review in the office of defense counsel located in Center, Texas. I would be happy to coordinate such a review with defense counsel at your earliest convenience." Id. Exh. FF. On September 27, 2002, Morrison reiterated the audit invitation*fn8 to Richard Watson ("Watson"), Folksamerica's Vice President, and again explained "that Republic has paid in accordance with your [Folksamerica's] definition of a product claim." Id. Exh. GG.

  Watson performed the audit on November 4, 2002, and concluded, after reviewing "56 pre-trial reports involving over 400 plaintiffs," that "Thorpe's attorneys have properly allocated the paid claims and that the payments, according to the plaintiffs' depositions and product identification do not include non-products claims." Van Tol Decl. Exh. HH. While Watson remarked that "[i]t certainly would have been helpful" if these documents "had been made available prior to our Dallas trip" (id.) (emphasis added), Watson never intimated that Republic had been dishonest or even negligent in its representations that a breakdown of products and non-products claims did not exist Instead, it appears that only after Watson spent a considerable amount of time, with pages and pages of documents, did he gain the level of satisfaction that Folksamerica demanded. Whether this degree of compliance was or is the practice in this industry, I leave for another day.

  Certainly, Folksamerica was entitled to pursue its inquiry.*fn9 Id. Exh. A. On the other hand, Republic must not be punished for failing to intuit, until September 2002, that Folksamerica would not be satisfied until it saw for itself that Republic had not billed for non-products losses. There was not a peep from Folksamerica, that even suggested that an audit was necessary, or that it would have been helpful. Instead, Folksamerica continuously requested that Republic locate and forward documentation for its position — but such documentation was simply non-existent. Republic's responses to Folksamerica's inquiries were always prompt, and were never indicative of evasion. For the most part, Folksamerica inquired and Republic explained. When Folksamerica reiterated its demand for documentation, a conference call was held, and Republic then initiated the audit invitation. To conclude that Republic violated the DSOL provisions in the Thorpe Certificates, would invalidate months of responsiveness, and create a precedent, which would invite abuse. Put another way, to so hold would violate both law and public policy.

 C. Republic's Bad Faith Claim

  Although the Court intended only one additional round of summary judgment motions on the single issue of whether Republic violated the DSOL provision of the Thorpe Certificates, in an effort to resolve all issues, the Court agreed to adjudicate Folksamerica's additional summary judgment motion, pertaining to Republic's counterclaims premised on the theories of Folksamerica's "breach of the implied covenant of good faith and fair dealing" and the "duty of utmost good faith."*fn10

  Folksamerica asserts, and this Court agrees, that "New York has consistently and repeatedly held that there is no right of action for cad faith' claims handling practices between the parties to an insurance contract . . ." Folk. Mem. at 1. See New York Univ. v. Continental Ins. Co., et al., 87 N.Y.2d 308, 316 (1995) ("defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortuous conduct separate and apart from its failure to fulfill its contractual obligations."); Rocanova v. Equitable Life Assurance Soc. Of the U.S. v. American Int'l Underwriters Ins. Co., et al., 83 N.Y.2d 603, 614 (1994) (the "law of this State does not currently recognize a private cause of action under Insurance Law § 2601" which "prohibits insurers from engaging in `unfair claim settlement practices'" such as "not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear."); Marvex Processing & Finishing Corp., et al. v. Allendale Mutual Ins. Co., et al., 398 N.Y.S.2d 464, 466 (Sup.Ct. 1977) ("It has been generally recognized in this State that an insurer's liability under a policy is limited to the amount of coverage, plus appropriate interest."). Republic argues that these cases, which stem from the primary insurance field, not the reinsurance context, are not controlling, and that these cases left open the possibility that New York law does recognize such an alternative cause of action in the context of reinsurance. Although this Court has been well educated, primarily by the parties here, as to how New York law on reinsurance differs from primary insurance, in certain contexts, e.g., whether late notice automatically absolves the reinsurer of its duty to remit payment (Unigard Sec. Ins. Co., Inc. v. North River Ins. Co., 4 F.3d 1049, 1063 (2d Cir. 1993); Unigard Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 582 (1992)), Republic has failed to establish that the policies underlying reinsurance, as distinct from those involving primary insurance, counsel in favor of an additional cause of action for bad faith failure to reinsure promptly.*fn11 Therefore, despite the fact that, as recognized and expounded in this Court's prior summary judgment opinion, the reinsurance field enjoys the "tradition of utmost good faith, particularly in the sharing of information" (Folksamerica Reins. Co., 2003 U.S. Dist. LEXIS 21584, at *5, citing Unigard Sec. Ins. Co., Inc., 4 F.3d at 1053-54), there is no caselaw to support a private right of action for the breach of this "traditional" manner of dealing. Republic's Count III counterclaim is therefore dismissed.


  For the foregoing reasons, and to ensure that there remain no open motions, I conclude as follows: (1) Republic's motion for summary judgment, contending that it did not violate the DSOL provision of the Thorpe Certificates (Folksamerica's last struggle to resist payment), is granted; (2) Folksamerica's motion for summary judgment, dismissing Republic's Count III counterclaim, based on a violation of the duty of good faith and fair dealing, is granted; (3) Republic's motion to dismiss, without prejudice, its counterclaims for bad faith and unjust enrichment, is denied; and (4) Republic's motion to strike the Jessup Declaration and portions of Folksamerica's 56.1 Opposition is granted-in-part and denied-in-part. As all outstanding issues have now been resolved, there need be no trial on May 17, 2004. The Clerk is instructed to close all pending motions and remove this case from my docket. Settle Judgment on notice.


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