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Pacific Employers Insurance Company v. Global Reinsurance Corporation of America (Formerly Known As

May 23, 2011

PACIFIC EMPLOYERS INSURANCE COMPANY, PLAINTIFF,
v.
GLOBAL REINSURANCE CORPORATION OF AMERICA (FORMERLY KNOWN AS CONSTITUTION REINSURANCE CORPORATION), DEFENDANT.



The opinion of the court was delivered by: Robert F. Kelly, Sr. J.

MEMORANDUM

Presently before the Court are a "Motion for Summary Judgment on Count I of Its Counterclaim for Declaratory Judgment" filed by Defendant Global Reinsurance Corporation of America (formerly known as Constitution Reinsurance Corporation ("Constitution")) ("Global"), an Answer and Memorandum of Law in Opposition ("Opposition") filed by Plaintiff Pacific Employers Insurance Company ("PEIC"), and a Reply filed by Global.

In support of its Opposition, PEIC submitted an Affidavit of Thomas A. Greene ("Greene"), an Expert Report by Greene, and an Affidavit of Judith A. Harnadek ("Harnadek"). Presently before the Court are Global's Motion to Strike certain portions of Harnadek's Affidavit and a Motion to Strike Greene's Affidavit and Expert Report along with memoranda of law in support thereof and PEIC's Responses in Opposition thereto.

I. FACTS

The claims in this case relate to a reinsurance contract.*fn1 For the period of June 1, 1980 to June 1, 1981, PEIC entered into a facultative reinsurance contract*fn2 ("Certificate") with Global, Certificate No. 68224, through which Global, as the reinsurer, agreed to reinsure an umbrella commercial liability policy (No. XMO-003649) ("Direct Policy") that PEIC issued to the Buffalo Forge Company ("Buffalo Forge"). Buffalo Forge purchased primary insurance policies from Utica Mutual Insurance ("Utica Mutual") between June 1, 1961 and June 1, 1981. Utica Mutual issued primary policy (No. GLA 3925) to Buffalo Forge for the period from June 1, 1980 to June 1, 1981. The 1980-1981 Utica Mutual policy has a limit of $1 million.

The dispute in this matter relates to whether PEIC was obligated under the Certificate to provide certain notice to Global in the form of a definitive statement of loss ("DSOL") as a condition precedent to coverage and, if so, whether PEIC breached the condition precedent. The provisions specifically at issue are found on the second page of the Certificate, titled the "Reinsuring Agreements and Conditions." The preamble on this page states:

In consideration of the payment of the premium, and subject to the terms, conditions, and limits of liability set forth herein and in the Declarations made a part thereof, the Reinsurer does hereby reinsure the ceding company named in the Declarations (herein called the Company) in respect of the Company's policy(ies) as follows:

(Compl., Ex. A at 2 (emphasis added).) Following this first sentence, the Certificate outlines conditions A through L, which in relevant part provide:

D. As a condition precedent, 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 this Certificate which involves a death, serious injury or lawsuit. The Company shall also notify the Reinsurer promptly of any claim or occurrence where the Company has created a loss reserve equal to (50) percent of the Company's retention [$500,000]. While the Reinsurer does not undertake to investigate or defend claims or suits, it shall nevertheless have the right and shall be given the opportunity, with the full cooperation of the Company and its representatives in the defense and control of any claim, suit or proceeding involving this Certificate of Reinsurance.

E. All loss settlements made by the Company provided they are within the terms and conditions of the policy(ies) and within the terms and conditions of this Certificate of Reinsurance shall be binding on the Reinsurer. Upon receipt of a definitive statement of loss, the Reinsurer shall promptly pay its proportion of such loss as set forth in the Declarations. . . (Id. at ¶¶ D, E (emphasis added).) The Certificate defines the components of a DSOL as:

. . . 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. at ¶ F, Definitions.)

At some point after the Certificate was executed, Buffalo Forge was named in numerous asbestos products personal injury lawsuits. Buffalo Forge initially tendered these claims to Utica Mutual for defense and indemnity under the primary policies issued by Utica Mutual, including the 1980-1981 Utica Mutual Policy. Buffalo Forge began to give PEIC notice of asbestos personal injury claims and lawsuits by April of 2001. PEIC claims that, although the Buffalo Forge claims did not impact Global's layer of reinsurance until September of 2009, it requested its broker to keep all of its reinsurers informed about the developments in the Buffalo Forge matter throughout its handling of the claim, beginning in October 2005. PEIC also claims that it sent billings, notices and updates to its broker and asked its broker to forward them to its reinsurers in 2006, 2007 and 2008. In September of 2009, PEIC submitted its first bill to Global under the Certificate in the amount of $559,072.67. PEIC explained that, "To date, PEIC has paid a total of $1,915,069 in indemnity and $2,731,294 in defense representing their share of amounts due pursuant to cost-sharing agreements." (Global Mot. Summ. J. Ex. 10 at GLO 001597.)

Global responded to PEIC's September 2009 billing with a reservation of rights letter that included requests for additional information and disputed some areas of coverage. PEIC provided the additional information and asserted its position that coverage was due under the Certificate. In early November 2009, Global requested and was granted permission to conduct an audit of PEIC's files. After conducting a review of the files, Global did not release any funds to PEIC, but instead, informed PEIC that it continued to dispute its liability under the Certificate and was asserting a late notice defense. On December 18, 2009, PEIC filed a Complaint in this Court alleging a breach of contract and seeking a declaratory judgment of its rights under the Certificate.

Global now moves for summary judgment on its Counterclaim for Declaratory Judgment. Global's Counterclaim seeks a declaratory judgment that PEIC is not entitled to recover under the Certificate because it failed to promptly provide a DSOL to Global as required by the first sentence of Paragraph D, supra. Global argues that the phrase "As a condition precedent" is a condition precedent to coverage, which PEIC breached by waiting eight years to notify Global of the pending asbestos claims and lawsuits. As such, Global seeks a declaratory judgment that "PEIC is not entitled to recover under the [Certificate] for any cession to Global in connection with PEIC's defense and indemnity payments for the underlying asbestos liabilities." (Answer ΒΆ 60.) At the heart of this ...


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