United States District Court, N.D. New York
Beth Forshaw Christopher G. Lee Simpson, Thacher &
Bartlett LLP For Utica Mutual Insurance Company.
S. Ahmad Patrick M. McDermott Hunton & Williams LLP For
Utica Mutual Insurance Company.
M. Friedman Crystal D. Monahan Jason B. Eson Rubin, Fiorella
& Friedman LLP For Munich Reinsurance America, Inc.
MEMORANDUM-DECISION AND ORDER
Brenda K. Sannes, United States District Judge.
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). Presently before the Court are the
parties' motions in limine. (Dkt. Nos. 332, 344, 346,
PROCEDURAL AND FACTUAL BACKGROUND
Court assumes familiarity with the procedural and factual
background of this case, as set forth in its March 20, 2018,
Decision. 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,
Munich's Motions in Limine
to Preclude Evidence of Follow the Fortunes and Follow
the Settlements (Dkt. No. 332)
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. 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)).
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)).
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
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).
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).
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).
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.
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”).
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
Motion to Preclude Certain Testimony by Utica's Experts
(Dkt. No. 344)
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.”).
Custom and Practice
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).
Declaratory Judgment Expenses
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).
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)).
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.
Notice of Mid-Term Changes to Reinsured Policies
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).
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.
Materiality of Defense Endorsement
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. Accordingly, Munich's motion to
preclude is denied.
Utica's Compliance with 1970s Customs and
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.
Application of Follow the Settlements to
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.
Utica's Business Practices and Procedures
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.
Reasonability of Allocation and Billings
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