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AXA Corporate Solutions Insurance Company v. Lumbermens Mutual Casualty Co.

May 25, 2006


The opinion of the court was delivered by: Deborah A. Batts, United States District Judge.


Plaintiffs AXA Corporate Solutions Insurance Company ("AXA") and First Indemnity of America Insurance Company ("FIA") have filed a Second Amended Complaint against Defendant Lumbermens Mutual Casualty Co. ("Lumbermens") for breach of implied indemnity, reformation of contract and breach of contract on each of two Co-Surety Agreements.

For the reasons that follow, Defendant Lumbermens' Motion to Dismiss is GRANTED.


A. Factual Background

Although much of the factual background underlying this dispute has been recited in the Court's prior decision on Defendant's Motion to Dismiss, see AXA Corporate Solutions Ins. Co. v. Lumbermens Mut. Cas. Co., No. 03 Civ. 8493, 2005 WL 1649045 (S.D.N.Y. July 13, 2005), the addition of FIA as Plaintiff and new factual allegations necessitate a thorough recitation of facts.

Plaintiff AXA is licensed to conduct business as an insurer and surety in the State of New York, with its place of business in New York, New York. Plaintiff FIA is a foreign corporation with a place of business in Parsippany, New Jersey. Defendant Lumbermens is authorized to conduct the business of insurance in the State of New York, with its principal place of business in Long Grove, Illinois.

1. The Relationship Between AXA and FIA

Plaintiffs contend that at all times relevant to the events in the Second Amended Complaint, FIA was the agent of AXA with respect to the underwriting and administration of a surety bond program, pursuant to a written agreement dated on or about July 1, 1991. (2d Am. Compl. ¶ 7.) The signatories to this agreement (hereinafter the "Underwriting Agreement") were Colonia Insurance Company, the predecessor company of AXA, FIA and/or FIA Financial Services Group.*fn1

The Underwriting Agreement states that "Colonia is desirous of FIA/FSG assuming the functions that are normally performed by the company to place and service a program of surety bonds" and "FIA is desirous of reinsuring the bonds issues by [Colonia] on a quota share treaty basis." (Dreifuss Aff. at Ex. C, pp.1-2.) According to the Underwriting Agreement, FIA/FSG agreed to provide certain administrative services with respect to the administration and servicing of the Bonds, including: (1) receiving, reviewing and advising Colonia of all notices or claims and of any proposed adjustments relating to bonds; (2) approving or rejecting bonds on behalf of Colonia in accordance with guidelines provided by FIA; (3) assisting and advising Colonia with the preparation of bond forms, applications, and other printed documents related to the sale and administration of the bonds; (4) maintaining and furnishing Colonia with records relating to the underwriting insurance and maintenance of the bonds, and any losses or claims related to them, as requested by Colonia; (5) receiving and maintaining any collateral received in connection with the bonds; (6) preparing written reports and statistical information relating to the bonds for Colonia; and (7) collecting premiums on behalf of Colonia and forwarding them to it. (Id. at Ex. C ¶ 1.)

The Underwriting Agreement also contained a paragraph entitled "Independent Contractor" which stated that "Nothing in this Agreement creates the relationship of an employer or employee, joint venture, partnership or association between [Colonia], FIA/FSG and FIA. In no event may FIA/FSG and/or FIA bind [Colonia] to any agreement, contract or alter, modify, vary or waive the terms of any such agreement or contract." (Id. ¶ 15.)

In addition to the Underwriting Agreement, FIA and AXA entered into a Surety Quota Share-Reinsurance Treaty on or about February 1, 1992.*fn2 The scope of the Treaty included, but was not limited to, surety bonds issued in the name of AXA. (2d Am. Compl. ¶ 9.)

Pursuant to the execution of the Underwriting Agreement and to facilitate the issuance of AXA's bonds, AXA appointed several FIA employees as attorneys-in-fact to sign bonds issued, namely Patrick J. Lynch, Michael J. Tully, Eamonn T. Long and Philip S. Toby. (Id. ¶ 8.)

Plaintiffs contend that "[i]n furtherance of its agency authority" under the Underwriting Agreement, FIA dealt with other insurance/surety companies, who also wrote bonds in New York state or engaged in reinsurance, including Defendant Lumbermens.

(Id. ¶ 10.)

On a "one by one basis," FIA "as agent for AXA" entered into "co-surety agreements" with Lumbermens, through Lumbermens' agent Universal Bonding Insurance Company ("Universal Bonding"). (Id. ¶ 11.) Plaintiffs believe that Universal Bonding was owned by Defendant, which in turn, was owned by Kemper Insurance Company. (Id. ¶ 12.) According to Plaintiffs, Defendant, through its agent Universal Bonding, and AXA, through its agent FIA, entered into dozens of co-surety agreements with respect to the underwriting and issuance of performance and payment bonds. Such co-surety agreements were executed in the name of AXA and were based on an apportionment of liability with respect to the penal sum of each performance or payment bond issued. (Id. ¶ 13.) All premiums received were appropriately apportioned by and between the parties, in their proportionate amount, as were losses incurred in connection with those bonds. (Id. ¶ 14.) "Excepting the co-surety agreements at issue in this matter," Plaintiffs believe that all premium and/or losses under co-surety agreements between FIA, on behalf of AXA, and Universal Bonding, on behalf of Lumbermens have been paid. (Id. ¶ 15.) Universal Bonding, located in Lyndhurst, New Jersey sent written communications and invoices to AXA at FIA's address in Parsippany, New Jersey. (Id. ¶ 15, and Ex. F.)

2. Valenzuela Bonds

On or about April 27, 1999, AXA, as surety, and non-party Valenzuela Engineering, Inc., executed a Performance Bond and a Payment Bond in favor of the United States of America, as obligee, in connection with certain construction work known as N/B Renovate Aircraft Maintenance Facility, Edwards AFB, CA, Contract No. DACA05-99-C-0032 ("Valenzuela Project"). Each bond was "in the penal sum" of $6,978,000 and together were known as Bond No. L04576 ("the Valenzuela Bonds"). (Id. ¶¶ 19-20.) The AXA representative listed on the Valenzuela Bonds is Eamonn T. Long as Attorney-in-Fact.

On May 9, 1999, Plaintiffs allege that AXA, by and through its agent FIA, and by FIA's employee Eamonn T. Long, and Lumbermens entered into a written agreement, designated as Co-Surety #142.*fn3 (Id. ¶ 23.) According to Plaintiffs, Co-Surety #142 was prepared by Kemper Insurance Company, owner of Defendant, on Kemper letterhead, and forwarded to FIA, as agent for AXA, "as was the customary procedure employed between the parties." (Id. ¶ 24.) And "[a]s was the course of dealings between the parties," Co-Surety #142 included the principal, obligee and job description information, referenced the contract date and penal sum of the amount of the bond, and listed FIA and Lumbermens, by name, with a specific sum of money apportioning the penal sum of the bond at issue. (Id. ¶ 25.) According to Plaintiffs, the same form had been used between the parties and was often prepared by Kemper itself. The parties proportionately shared in losses on any bonds written with such "co-surety" forms. (Id. ¶ 26.) By this agreement, and "[a]s was the course of dealings between the parties," Plaintiffs allege that Lumbermens agreed to share proportionately in all losses, including loss adjustment expenses incurred, and agreed to be liable for losses equal to the proportionate share that $2,000,000 bears to the penalty of the bond, or 28.66%. (Id. ¶¶ 27-30.) The Principal/Contractor on Co-Surety #142 is listed as Valenzuela Engineering, Inc. and the Obligee as the Department of the Army. N/B Renovate Aircraft Maintenance Facility is listed as the Job Description. The name AXA does not appear on Co-Surety #142. (Id. at Ex. D.)

In connection with the Valenzuela Bonds, AXA and/or FIA allegedly sustained net losses, including loss adjustment expenses, in the amount of $356,409.25. (Id. ΒΆ 41.) Plaintiffs claim that according to Co-Surety #142, AXA and/or FIA are entitled to payment from Lumbermens in the amount of $102,146.87 and that Lumbermens, without justification and in material breach ...

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