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Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc.

United States District Court, N.D. New York

June 27, 2018


          Mary Beth Forshaw Christopher G. Lee Simpson, Thacher & Bartlett LLP For Utica Mutual Insurance Company.

          Syed S. Ahmad Patrick M. McDermott Hunton & Williams LLP For Utica Mutual Insurance Company.

          Bruce M. Friedman Crystal D. Monahan Jason B. Eson Rubin, Fiorella & Friedman LLP For Munich Reinsurance America, Inc.


          Hon. Brenda K. Sannes, United States District Judge.


         These related diversity breach of contract actions arise from disputes between Utica Mutual Insurance Company (“Utica”) and Munich Reinsurance America, Inc. (“Munich”) regarding monies owed under the terms of the facultative reinsurance certificates Munich issued to Utica in 1973 (No. 12-cv-196) and 1977 (No. 13-cv-743).[1] Presently before the Court are the parties' motions in limine. (Dkt. Nos. 332, 344, 346, 352-356).


         The Court assumes familiarity with the procedural and factual background of this case, as set forth in its March 20, 2018, Decision.[2] Utica Mut. Ins. Co. v. Munich Reins. Am., Inc. (Utica I), No. 12-cv-00196, No. 13-cv-743, 2018 WL 1737623 (N.D.N.Y. Mar. 20, 2018).[3]


         A. Munich's Motions in Limine

         1.Motion to Preclude Evidence of Follow the Fortunes and Follow the Settlements (Dkt. No. 332)

         In ruling on the parties' motions for summary judgment, the Court noted that it was undisputed that neither Certificate contained a follow-the-fortunes or follow-the-settlements provision. Utica I, 2018 WL 1737623, at *21-22.[4] Further, the Court declined, “[o]n this record, ” “to imply a follow-the-settlement clause into the reinsurance certificates.” Id. at *22. Concerned that the “Court appears to have left the door slightly ajar to permit Utica . . . to come forth with evidence establishing that following clauses are implied in the Certificates as a matter of custom and practice, ” Munich filed a motion in limine seeking to preclude Utica from presenting any evidence on this issue at trial. (Dkt. No. 332). Utica opposes Munich's motion. (Dkt. No. 334). The Court held oral argument on the motion and directed further briefing. (Dkt. No. 340). After carefully considering the parties' arguments, the Court denies Munich's motion. The Court will allow Utica to present evidence at trial as to whether the doctrines of follow the fortunes or follow the settlements were, at the time the parties agreed to the Certificates, so “fixed and invariable” in the reinsurance industry as to be part of the Certificates. British Int'l Ins. Co. v. Seguros La Republica, S.A., 342 F.3d 78, 84 (2d Cir. 2003) (quoting Belasco Theatre Corp. v. Jelin Prods., Inc., 270 A.D. 202, 205 (1st Dep't 1945)).

         As the Court noted in its summary judgment ruling, reinsurance contracts are “governed by the same principles that govern contracts generally.” Glob. Reins. Corp. of Am. v. Century Indem. Co., 30 N.Y.3d 508, 518 (2017); see Glob. Reins. Corp. of Am. v. Century Indem. Co., 890 F.3d 74, 77 (2d Cir. 2018) (explaining that, when interpreting facultative reinsurance contracts, “courts must ‘look to the language of the policy above all else,' in determining its meaning” (quoting Glob. Reins. Corp. of Am., 30 N.Y.3d at 518)).

         Utica seeks to imply a follow-the-fortunes or follow-the-settlements clause into the parties' contract based upon the “custom and practice” opinion of its experts, Andrew Maneval, Paul Feldsher, and Debra Roberts. (Dkt. No. 334, at 12). Andrew Maneval states in his report that:

Reinsurance contracts are understood in the industry to be governed by a principle requiring that the reinsurer ‘follow the fortunes' of the ceding company. In the context of payments made to underlying insured, the reinsurer is generally understood to be obligated to ‘follow the settlements' made by the ceding company. . . . While these principles are frequently expressed in writing in reinsurance contracts, as a matter of custom and practice in the industry, generally they are considered to be applicable to reinsurance contracts even if specific reference is not made to them in the contract.

(Dkt. No. 301-67, ¶ 14). Paul Feldsher opines that a “basic and customary tenant” of the insurance and reinsurance industry “is that reinsurers generally follow the fortunes of the cedents' settlements and handling claims.” (Dkt. No. 301-76, ¶ 28). Debra Roberts states that she “disagrees with [Munich's expert's] conclusion that these reinsurance certificates do not contain any implied follow-the-fortunes or follow-the-settlements concepts, as it is my opinion that all reinsurance contracts, unless expressly stated otherwise, follow the fortunes or settlements of the underlying coverage.” (Dkt. No. 301-62, ¶ 25).

         Utica asserts that one of Munich's own experts “agrees” with this assessment, citing to the testimony of Daniel Schmidt. (Dkt. No. 334, at 15). Schmidt opined that Munich would be obligated to indemnify Utica “[i]f the settlement were reasonably consistent with the terms and conditions of the underlying policies (and the 1973 and 1977 certificates).” (Dkt. No. 301-50, at 14). Schmidt also opined, however, that it “clearly is not a matter of widespread industry and custom and practice” that an implied follow-the-fortunes provision binds a reinsurer to follow all of a ceding company's “allocation decisions, including post-settlement, regarding how it will choose to allocate its loss payments in respect of its available reinsurance coverage.” (Dkt. No. 313-82, at 13).

         “[T]he burden of proving a trade usage has generally been placed on the party benefiting from its existence.” British Int'l Ins. Co., 342 F.3d at 83 (quoting Putnam Rolling Ladder Co. v. Mfrs. Hanover Tr. Co., 74 N.Y.2d 340, 348 (1989)). “Under New York law . . . custom and usage evidence must establish that the omitted term is ‘fixed and invariable' in the industry in question.” Hutner v. Greene, 734 F.2d 896, 900 (2d Cir. 1984) (quoting Belasco Theatre Corp., 270 A.D. at 205). “One who seeks to use trade usage to . . . annex a term to a contract must show either that the other party to the contract is actually aware of the usage, or that the existence of the usage in the business to which the transaction relates is so notorious that a person of ordinary prudence in the exercise of reasonable care would be aware of it.” Reuters Ltd. v. Dow Jones Telerate, Inc., 231 A.D.2d 337, 343 (1st Dep't 1997). “The trade usage must be ‘so well settled, so uniformly acted upon, and so long continued as to raise a fair presumption that it was known to both contracting parties and that they contracted in reference thereto.'” British International, 342 F.3d at 84 (quoting Reuters, 231 A.D.2d at 343-44).[5]

         The existence of an industry custom is “in the first instance a question of fact, ” Aetna Cas. & Sur. Co. v. Home Ins. Co., 882 F.Supp. 1328, 1349 (S.D.N.Y. 1995), and the party seeking to rely on such custom must present sufficient evidence to create a triable issue of fact.Hutner, 734 F.2d at 900. Munich argues that Utica's experts' opinions concerning the follow-the-fortunes and follow-the-settlement doctrines at best identify a general custom and practice and thus fall short of the “fixed and invariable” standard. Maneval, for example, opines that “generally” where, as here, a reinsurance certificate does not contain a follow-the fortunes or follow-the-settlement provision, such provisions are still “considered to be applicable.” (Dkt. No. 301-67, ¶ 14). Similarly, Feldsher states that “reinsurers generally follow the fortunes of the cedents' settlements and handling claims.” (Dkt. No. 301-76, ¶ 28). Although Roberts unequivocally asserts that “all reinsurance contracts, unless expressly stated otherwise, follow the fortunes or settlements of the underlying coverage, ” (Dkt. No. 301-62, ¶ 25), her opinion is not supported by further explanation or specific facts. The Court notes that the parties, who are highly sophisticated and represented by able counsel, did not raise this issue at the summary judgment stage. While Utica may ultimately be unable to show the follow-the-fortunes and follow-the-settlements doctrines were fixed and invariable in the reinsurance industry at the time the parties agreed to the Certificates, the Court declines to entertain what is, in essence, a second motion for summary judgment just prior to trial. Accordingly, Munich's motion to preclude evidence concerning follow the fortunes or follow the settlements, (Dkt. No. 332), is denied. Two additional points Utica raised in its briefing, however, require further discussion.

         First, Utica asserts that “the Court must consider custom and practice to assess whether an ambiguity exists” in the contract language. (Dkt. No. 357, at 7). While this is a correct statement of the law, see Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co., 762 F.3d 165, 180 (2d Cir. 2014) (“Evidence of trade practice and custom may assist a court in determining whether a contract provision is ambiguous in the first instance.”), Utica has failed to explain how that principle applies here. The cases Utica cites in support of its assertion are inapposite. See Int'l Multifoods Corp., 309 F.3d at 87 (where “competing inferences . . . can be drawn from the language” of the policy, contract is facially ambiguous and evidence probative of parties' intent, including evidence of custom and usage may be considered); Seven Star Shoe Co., Inc. v. Strictly Goodies, Inc., 657 F.Supp. 917, 920-21 (S.D.N.Y. 1987) (considering business custom and usage on what it means in the shoe business to be a sales “representative”).

         Second, Utica contends that the custom and practice need not be “fixed and invariable” and that it need only show a “custom and practice that is ‘generally understood in the particular trade or business.'” (Dkt. No. 357, at 13 (quoting Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 617 (2d Cir. 2001)). As Utica acknowledges, however, the “generally understood” standard only applies to the determination and resolution of an ambiguity. (Id. at 13). Here, Utica has not identified a “word or phrase” in the Certificates “capable of meaning” that Munich is required to follow the fortunes or follow the settlements. Hugo Boss, 252 F.3d at 617. Indeed, any such terms are wholly absent from the Certificates. Therefore, to import the follow-the-fortunes or follow-the-settlements doctrines into the Certificates, Utica must show that they are a “fixed and invariable” custom and practice of the reinsurance industry.

         2. Motion to Preclude Certain Testimony by Utica's Experts (Dkt. No. 344)

         As discussed below, many of the issues Munich raises in its motion to preclude testimony by Utica's experts (Dkt. No. 344) and in its motion concerning general evidentiary issues (Dkt. No. 346) are premature, overly broad in scope, and lack factual context and are therefore best resolved at trial in the context of trial evidence. See Wechsler v. Hunt Health Sys., Ltd., 381 F.Supp.2d 135, 140 (S.D.N.Y. 2003) (“Evidence should be excluded on a motion in limine only when the evidence is clearly inadmissible on all potential grounds.”); Media Sport & Arts s.r.l. v. Kinney Shoe Corp., No. 95-cv-3901, 1999 WL 946354, at *7, 1999 U.S. Dist. LEXIS 16035, at *22 (S.D.N.Y. Oct. 19, 1999) (“[A]lthough defendant is correct that neither expert nor lay witnesses may testify as to conclusions of law, this motion is premature.”); see also United States v. Goodale, 831 F.Supp.2d 804, 808 (D. Vt. 2011) (“The trial judge may reserve judgment on a motion in limine until trial to ensure the motion is considered in the proper factual context.”).

         a. Custom and Practice

         Munich seeks an order precluding Utica from introducing trial testimony by three of its experts, Andrew Maneval, Paul Feldsher, and Debra Roberts, “about various alleged industry customs and practices.” (Dkt. No. 344, at 3). Specifically, Munich argues that preclusion of these experts' testimony is required because their opinions concerning custom and practice are inconsistent “with how courts within the Second Circuit define custom and practice, ” lack “validation” and “foundation, ” and “overuse and misuse the concept of custom and practice.” (Dkt. No. 344, at 4). Utica opposes this motion. (Dkt. No. 375).

         i. Declaratory Judgment Expenses

         At the summary judgment stage, the Court found that the language in the Certificates concerning Munich's obligation to pay expenses was ambiguous, and that extrinsic evidence was required to determine whether expenses included declaratory judgment expenses. Utica I, 2018 WL 1737623, at *19-20. Presently before the Court is Munich's motion to preclude Maneval from testifying that there was a custom and practice in the reinsurance industry of “treating broad descriptions of ‘expenses' in reinsurance contracts to include [declaratory judgment] expenses.” (Dkt. No. 344, at 6; Dkt. No. 301-67, ¶ 49). Munich argues that because Utica must establish that the practice of including declaratory judgment expenses in reinsurance contracts was “fixed and invariable” and Maneval concedes that not all companies adopted that custom and practice, his testimony on this issue should be precluded. (Dkt. No. 344, at 6). Utica opposes this motion. (Dkt. No. 375, at 11).

         “The trial court has always had broad latitude over the admission of evidence and it has been particularly broadened with respect to the admissibility or exclusion of expert evidence. This principle of broad discretion is never more evident where the court has to determine if the expert testimony will be helpful to the fact finder.” Rondout Valley Cent. Sch. Dist. v. Coneco Corp., 321 F.Supp.2d 469, 473 (N.D.N.Y. 2004) (citations omitted). Where, as here, the expert will testify at a bench trial, courts are more willing to admit expert testimony, with the understanding that the testimony can be given only the weight that it deserves, or excluded in whole or in part, after the trial as necessary. See CDR-Wantagh, Inc. v. Shell Oil Co., No. 07-cv-4497, 2011 WL 795865, at *9, 2011 U.S. Dist. LEXIS 19717, at *23-24 (E.D.N.Y. Feb. 28, 2011) (citing Victoria's Secret Stores Brand Mgmt., Inc. v. Sexy Hair Concepts, LLC, No. 07-cv-5804, 2009 WL 959775, at *6 n.3, 2009 U.S. Dist. LEXIS 30458, at *16 n.3 (S.D.N.Y. Apr. 8, 2009). “It is not that evidence may be less reliable during a bench trial; it is that the court's gatekeeping role is necessarily different. Where the gatekeeper and the factfinder are one and the same-that is, the judge-the need to make such decisions prior to hearing the testimony is lessened.” In re Salem, 465 F.3d 767, 777 (7th Cir. 2006) (citing United States v. Brown, 415 F.3d 1257, 1268-69 (11th Cir. 2005)).

         In this case, Munich contends that Maneval's testimony is equivocal and thus fails to show that the inclusion of declaratory judgment expenses was a fixed and invariable custom and practice at the time the Certificates were issued. To prevail on its interpretation, Utica must, as Munich argues, establish a “fixed and invariable” usage of which Munich was or should have been aware. See Int'l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props., LLC, 467 F.3d 107, 134-35 (2d Cir. 2006); Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466-67 (2d Cir. 2010). However, as this is a bench trial, and Munich's arguments largely challenge the credibility of Maneval's testimony and the weight to which is entitled, Munich's motion to preclude at this time is denied.

         ii. Notice of Mid-Term Changes to Reinsured Policies

         Munich seeks to preclude Utica from offering “expert testimony on some alleged custom and practice regarding the manner in which cedents in the 1970s notified reinsurers about midterm changes to reinsured policies.” (Dkt. No. 344, at 6). Specifically, Munich seeks to preclude the introduction of Feldsher's opinion concerning notification of changes in the 1970s on the ground that it is “internally inconsistent, ” (id. at 7), and Maneval's testimony that there was a custom and practice of providing notification “at meetings or by telephone” on the ground that it is “flimsy” and thus fails to establish “a universal and accepted practice in the 1970s, ” (id. at 8 (quoting Dkt. No. 301-75, ¶ 26)). Utica opposes Munich's motion. (Dkt. No. 375, at 13-14).

         Expert testimony regarding “the ordinary practices in an industry” is appropriate if it helps a fact finder evaluate a party's conduct “against the standards of accepted practice.” United States ex rel. Anti-Discrimination Ctr. of Metro N.Y., Inc. v. Westchester County, No. 06-cv-2860, 2009 WL 1110577, at *3, 2009 U.S. Dist. LEXIS 33709, at *8 (S.D.N.Y. Apr. 22, 2009); see Marx & Co. Inc. v. Diners' Club Inc., 550 F.2d 505, 508-09 (2d Cir. 1977); Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., 238 F.Supp.3d 314, 341-43 (N.D.N.Y. 2017). Further, as discussed, arguments concerning the consistency or strength of an expert's testimony are matters for the finder of fact to consider when determining the weight to assign the testimony and are not, in this case, grounds for preclusion. Accordingly, Munich's motion to preclude is denied.

         Iii. Materiality of Defense Endorsement

         Munich seeks to preclude Utica from offering expert testimony “for the proposition that the change effected by the mid-term Defense Endorsement-to provide defense costs in addition to policy limits-was not a material change, and that industry custom and practice would not have required Utica [to] notify its reinsurers of the Defense Endorsement.” (Dkt. No. 344, at 8). Munich contends that because the 1973 Certificate's requirement that Utica “notify the Reinsurer [Munich] promptly of any changes” to the 1973 Umbrella, (Dkt. No. 301-33, at 2), is clear and unambiguous, the Court “should not consider extrinsic evidence in the form of expert testimony that modifies the parties' contract to only require Utica to notify [Munich] about ‘material midterm changes' to reinsured policies, ” (Dkt. No. 344, at 8). At the summary judgment stage, Munich centered its arguments on the principles of contract modification, and the Court found that Munich had “adduced evidence that when there were changes to a reinsured policy, it would refer such changes to underwriters, who ‘would respond with an endorsement of the change to the certificate that reinsured that policy.'” Utica I, 2018 WL 1737623, at *16. The Court further noted the caselaw regarding a reinsured's obligation to disclose to potential reinsurers facts that materially affect a reinsurer's risk, and concluded that there were “triable issues of fact as to whether the addition of the Defense Endorsement was a material change to Munich.” Id.; see Christiania Gen. Ins. Corp. of N.Y. v. Great Am. Ins. Co., 979 F.2d 268, 278 (2d Cir. 1992) (“The relationship between a reinsurer and a reinsured is one of utmost good faith, requiring the reinsured to disclose to the reinsurer all facts that materially affect the risk of which it is aware and of which the reinsurer itself has no reason to be aware.”). Munich challenges both Utica's billings based upon the mid-term endorsement, and Utica's good faith in failing to inform Munich about the endorsement. (Dkt. No. 345 at 18, 55-61). Thus, expert evidence is admissible with respect to the materiality of the Defense Endorsement.[6] Accordingly, Munich's motion to preclude is denied.

         iv. Utica's Compliance with 1970s Customs and Practices

         Munich seeks to preclude any testimony by Maneval concerning Utica's alleged compliance “with industry custom and practice in the 1970s in the manner in which it reported and provided information” to Munich on the basis that Maneval “failed to identify what the custom and practice was.” (Dkt. No. 344, at 9). Munich challenges the reliability and credibility of Maneval's testimony on this issue. (Id. at 10). Utica disputes Munich's characterization of Maneval's report, (Dkt. No. 375 at 17-18), and at this juncture it appears that the testimony would be helpful to the Court. Accordingly, Munich's motion is denied without prejudice to renewal at trial.

         v. Application of Follow the Settlements to Cedent's Allocation

         Munich seeks an order precluding Maneval's testimony concerning the application of follow the settlements to a cedent's allocation on the ground that such testimony is inconsistent with Utica's assertion that it is relying on follow the fortunes and is, in any event, a legal determination. (Dkt. No. 344, at 10-11). At this juncture, Maneval's testimony regarding the custom and practice in the industry regarding follow the settlements would appear to be of assistance to the Court. Accordingly, Munich's motion is denied without prejudice to renewal at trial.

         vi. Utica's Business Practices and Procedures

         Munich argues that Maneval's “characterizations of Utica's use of data in claims systems and Utica's verification of its bills to reinsurers as industry custom and practice are patently improper, such testimony must be precluded at trial.” (Dkt. No. 344, at 14). The Court will permit expert testimony regarding “the ordinary practices in an industry” if it helps the Court evaluate a party's conduct “against the standards of accepted practice.” Anti-Discrimination Ctr., 2009 WL 1110577 at *3, 2009 U.S. Dist. LEXIS 33709, at *8; see Marx & Co. Inc., 550 F.2d 508-09; Utica Mut. Ins. Co., 238 F.Supp.3d at 341-43. At this juncture, it appears that Maneval has testimony regarding industry practices that would be of assistance to the Court. Accordingly, Munich's motion is denied without prejudice to renewal at trial.

         b. Legal Matters

         i. Reasonability of Allocation and Billings

         Munich seeks to preclude expert testimony by Maneval and Feldsher regarding the reasonability and good faith of Utica's allocation of settlement payments among primary and umbrella policies and billings to Munich. (Dkt. No. 344, at 15). Munich asserts that these “are the ultimate legal issues to be determined by the Court.” (Id.). Utica opposes Munich's motion and argues that the ...

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