Opinion
03 Civ. 0402 (HB)
December 1, 2003
OPINION ORDER
Plaintiff Folksamerica Reinsurance Co. ("Folksamerica"), in its action for a declaratory judgment, moves pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 56(c) for summary judgment against defendant Republic Insurance Co. ("Republic"). Republic cross-moves for summary judgment against Folksamerica. Third party defendants Aon Corp., Aon Re Worldwide, Inc., Aon Services Group, Inc., and Aon Specialty Re, Inc. (collectively "Aon") move for summary judgment against Republic and Folksamerica. Republic also moves to strike certain paragraphs of Folksamerica's summary judgment declarations and Folksamerica's entire Rule 56.1 statement in opposition to Republic's motion for summary judgment, and for sanctions with regard to Folksamerica's violations of Fed.R.Civ.P. 36(b). For the foregoing reasons, Republic's motion for summary judgment is granted-in-part and denied-in-part, and all other motions are denied.
On October 8, 2003, the parties stipulated to a dismissal of all claims asserted by Folksamerica and Republic against two of the four Aon entities: Aon Corporation and Aon Services Group. Therefore, future references to Aon only concern the remaining two entities, Aon Re Worldwide, Inc. and Aon Specialty Re, Inc.2
I. BACKGROUND
A. Overview of Reinsurance
As an understanding of reinsurance, and the way in which it differs from insurance, is central to this case, before turning to the facts of the instant matter, it may be worthwhile to summarize the basic tenets of reinsurance, borrowing liberally from the clearly stated introduction contained within the decade old but oft-cited Second Circuit opinion in Unigard
Reinsurance occurs when one insurer (the "ceding insurer" or "reinsured") "cedes" all or part of the risk it underwrites, pursuant to a policy or group of policies, to another insurer. See 13A John A. Appleman Jean Appleman, Insurance Law and Practice § 7681, at 480 (1976); 19 George J. Couch, Cyclopedia of Insurance Law § 80:1, at 624 (2d ed. 1983). The reinsurer agrees to indemnify the ceding insurer on the risk transferred.
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There are two basic types of reinsurance policies — facultative and treaty. See generally 1 Klaus Gerathewohl, Reinsurance Principles and Practice 64-128 (1980) (discussing various types of reinsurance coverage). In facultative reinsurance, a ceding insurer purchases reinsurance for a part, or all, of a single insurance policy. Treaty reinsurance covers specified classes of a ceding insurer's policies. As the district court explained, a "typical treaty reinsurance agreement might reinsure losses incurred on all policies issued by the ceding insurer to a particular insured, while facultative reinsurance would be limited to the insured's losses under a policy or policies specifically identified in the reinsurance agreement." Unigard, 762 F. Supp. at 572 n. 2.
The reinsurer is not directly liable to the original insured. See Unigard, 79 N.Y.2d at 582. Reinsurance involves contracts of indemnity, not liability. Id. at 582-83. Reinsurers do not examine risks, receive notice of loss from the original insured, or investigate claims. Id. at 583. In practice, the reinsurer has no contact with the insured.
Reinsurance works only if the sums of reinsurance premiums are less than the original insurance premium. Otherwise, the ceding insurers will not reinsure. For the reinsurance premiums to be less, reinsurers cannot duplicate the costly but necessary efforts of the primary insurer in evaluating risks and handling claims. Reinsurers may thus not have actuarial expertise, see Delta Holdings, 945 F.2d at 1241, or actively participate in defending ordinary claims. They are protected, however, by a large area of common interest with ceding insurers and by the tradition of utmost good faith, particularly in the sharing of information.Unigard Sec. Ins. Co., Inc. v. North River Ins. Co., 4 F.3d 1049, 1053-54(2d Cir. 1993). The parties to this action intended to interact consistent with this general policy of good faith; however, a computer coding error made by Aon's predecessor, RFC, and perpetuated by Aon, resulted in Aon's inadvertent failure to recognize Republic's third-layer of reinsurance. Haley Decl. Exh. F ("RFC converted claims to its sister company's (Intere's [computer]) system. For some unknown reason, the third layer of the contract for this account did not convert. Only the first and second layers converted.") (emphasis added). As a result, although Republic forwarded notices to Aon, with the instruction that such notices be sent to all reinsurers, Aon failed to transmit these notices to Folksamerica. Consequently, the parties now ask the Court to interpret the reinsurance contracts that define their relationship in order to determine the consequences of these mishaps.
B. Factual Background
This dispute involves the repercussions of late notice of claims or occurrences under three identical facultative reinsurance certificates ("the Certificates"). This Court must determine whether Folksamerica should be released from its obligation to reinsure Republic due to Republic's alleged failure to provide "notice," as mandated by the Certificates.
While Folksamerica characterizes all deficiencies by Republic as failures to provide timely notice, a large part of this dispute involves a determination as to which of these alleged violations in fact pertain to notice.
Folksamerica acquired its reinsurance obligations to Republic, pursuant to a transfer and assumption agreement, effective December 31, 1991, wherein Folksamerica assumed the assets and liabilities of Mony Reinsurance Corporation ("Mony Re"). The assets and liabilities that are relevant to this dispute consist of (1) two facultative reinsurance certificates covering Republic's policies of insurance with J.T. Thorpe Co., Inc. ("Thorpe"), a masonry and insulation contractor, and (2) one facultative reinsurance certificate covering Republic's policy of insurance with Clemtex, Ltd. ("Clemtex"), a supplier and/or manufacturer of sandblasting products. Notably, Mony Re, not Folksamerica, negotiated these three contracts — Folksamerica simply acquired the obligations that had been crafted by its predecessor.
The applicable facultative reinsurance certificates are Facultative Casualty Reinsurance Certificate Number C13043, covering a Thorpe policy, for the period July 1, 1982 through July 1, 1983, and Facultative Casualty Reinsurance Certificate Number C14009, covering a Thorpe policy for the period July 1, 1983 through July 1, 1984.
The applicable facultative reinsurance certificate is Facultative Casualty Reinsurance Certificate Number C10987, covering a Clemtex policy, for the period February 14, 1979 through February 14, 1980.
As a result of personal injury suits filed against both Thorpe and Clemtex, arising out of asbestos and silicosis-related injuries, Republic, the primary insurer of Thorpe and Clemtex, became exposed to millions of dollars in potential liability. Republic had several layers of reinsurance to cover its losses-with Folksamerica at the highest level-liable only after Republic's losses reached pre-proscribed catastrophic levels. Therefore, Folksamerica was not liable when suits first commenced — its exposure arose years later when in the aggregate the losses attained significant levels. However, before the time that Folksamerica's reinsurance obligation attached, Republic sent notices, including further documentation to all reinsurers, with regard to claims under both the Thorpe and Clemtex policies, regardless of whether such submissions were required under the specific language of each reinsurance contract. Although notice at that time was likely mandatory under some agreements, Republic's notice obligation to Folksamerica, had not yet accrued, as Republic only had the duty to notify Folksamerica when it raised its reserves, with respect to these policies, above fifty percent. Unlike primary insurers or even lower level reinsurers, entities such as Folksamerica, who indemnify upper levels of loss, typically require notice only after certain trigger events have occurred, which signal to them that indemnification is imminent. Such notice serves as a forecast of potential liability and allows the reinsurer to plan and allocate properly.
The Certificate language also mandates that the insurer provide the reinsurer with a definitive statement of loss ("DSOL") on all serious claims and occurrences, brought under the Certificates. The DSOL consists of particular documents from the claims file, that substantiate that the aggregate of claims warrants reinsurance, and allows the reinsurer to investigate the claims if it so chooses. The parties disagree as to how to classify the DSOL provision — either as a notice clause or as a billing supplement, and therefore also dispute when Republic acquired the obligation to submit the DSOL under each Certificate. Republic's obligations to Folksamerica under the Certificates are further complicated by the involvement of a reinsurance broker or intermediary, who facilitated both the execution of the reinsurance and the transmission of claim documentation. The broker hired by Republic for these purposes was RFC Intermediaries, Inc. ("RFC"). Aon later succeeded to RFC's obligations, including RFC's duty to transmit reports to reinsurers, as per Republic's instructions — instructions which included orders to transmit notices to all reinsurers at several points over the years, regardless of the particular agreements in place with each reinsurer. In several instances, with regard to Folksamerica, despite orders from Republic, Aon failed to carry out this command, due to a glitch in its computer system, which hid the third layer (Folksamerica's layer) of reinsurance from Aon's view. Nonetheless, because Folksamerica also held a treaty reinsurance policy, previously maintained by Great Lakes American Reinsurance Company ("GLARC"), to indemnify Republic's Thorpe liability, Folksamerica received, in a timely fashion, certain documentation relevant to claims against Thorpe. However, these documents only referenced Folksamerica's treaty reinsurance, not its facultative reinsurance. Exactly when Republic's notice and DSOL obligations attached, whether Republic properly discharged such obligations, and if not, what the appropriate result should be, are the points of contention in this case — all of which depend upon a determination of the proper interpretation of the Certificates' language.
C. Procedural History
Folksamerica filed its complaint in this action on January 17, 2003, seeking a declaratory judgment as to its liability under the Certificates. On May 23, 2003, Republic filed a third-party complaint against the four Aon entities. Aon filed its answer on August 22, 2003, claiming, among other things, that it served as Folksamerica's agent for purposes of delivering notice, whereupon Folksamerica amended its complaint to assert claims against Aon as a result of Aon's alleged breach of such duty. Republic filed its motion for summary judgment on August 29, 2003, Folksamerica followed suit on September 22, 2003, and Aon completed the circuit on September 26, 2003. On October 8, 2003, the parties stipulated to the discontinuance of all claims against Aon Corp. and Aon Services Group, Inc., which left only two Aon entities in the suit. On October 20, 2003, Republic filed a motion to strike portions of various declarations submitted by Folksamerica in addition to Folksamerica's Rule 56.1 statement in opposition to Republic's motion for summary judgment, and for sanctions. This Court heard oral arguments on October 24, 2003.
The Court informed the parties at oral argument that it would not resolve these motions prior to a determination on the underlying summary judgment motions. This seemed the prudent course both because the motions were late and because it was my hope that for the most part the concerns voiced would be resolved by the Opinion. This proved to be correct with regard to the prejudice issue. A review of the papers does not alter my views as expressed herein with regard to the choice of law issue. The prong that urges the imposition of sanctions is denied.
II. DISCUSSION
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 Ed. of Fire Comm.'s, 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), citing Freedom Gravel Prods., Inc. v. Michigan Mut. Ins. Co., 819 F. Supp. 275, 277 (W.D.N.Y. 1993) (citation omitted). See also Flair Broad. Corp. v. Powers, 733 F. Supp. 179, 184 (S.D.N.Y. 1990).
B. Choice of Law
The parties disagree as to which state's law should apply to the present dispute; Folksamerica argues for the application of New York law, and Republic and Aon lobby for Texas law. In diversity actions, when conflicts exist between the rules of two states, courts apply New York's choice-of-law rules to resolve the conflicts. See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 496(1941). With regard to contract cases, New York courts determine which state's law to apply using a "center of gravity" or "contacts" test that resolves the conflict based on which state has the greater interest in the litigation, as evident from factors such as "the place of contracting, the places of negotiation and performance, the location of the subject matter, and the domicile or place of business of the contracting parties." See Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1539 (2d Cir. 1997). An examination of these factors suggests the application of New York law.
Because reinsurance is a specialized form of business, contacts pertinent to reinsurance agreements differ from those that control with regard to other contracts, and even to those found to be most important in insurance disputes. With regard to reinsurance agreements, the state where the reinsurance certificate issued and the location where performance is expected, i.e. the place to which the ceding insurer must make its demand for payment, typically control for purposes of choice of law. See Christiania Gen. Ins. Corp. v. Great Am. Ins. Co., 979 F.2d 268, 274 (2d Cir. 1992) (affirming district court's application of New York law, when district 'court based its determination on the fact that the reinsurance contracts were negotiated, issued, and made in New York by a New York reinsurance company . . . [and] New York would be the place of performance under the contracts.") (district court quotations from Christiania Gen. Ins. Corp. v. Great Am. Ins. Co., 745 F. Supp. 150, 157 (S.D.N.Y. 99ty); Arkwright-Boston Mfrs. Mut. Ins. Co. v. Calvert Fire Ins. Co. et al., 887 F.2d 437, 439(2d Cir. 1989) (North Carolina law applied because reinsurer was organized in North Carolina and "any obligation to perform on the reinsurance contract would seem to arise in North Carolina upon presentation of a claim to [the reinsurer]."); Jefferson Ins. Co. of New York v. Fortress Re, Inc. et al, 616 F. Supp. 874, 877 (S.D.N.Y. 1984) (Court applied law where Certificate was issued, obligation to perform arose, and offices of reinsurer were located, despite ceding insurer and location of risk in another state).
The contacts most relevant to the Certificates in this case mandate the application of New York law. First, Republic concedes that all three Certificates were "issued" in New York, when Dave Jessup, the Mony Re representative who handled the policies, counter-signed the Certificates that had already been signed by Republic's representative. Schultz Decl. ¶ 8; Jessup Decl. ¶¶ 2, 15. Additionally, the underwriting for the Certificates was performed out of Mony Re's New York office. Jessup Decl. ¶¶ 2, 13. Mony Re received payments of premiums for the reinsurance in its New York office. Jessup Decl. ¶ 10. Further, any claim for payment under the Certificates would have been presented to Mony Re's New York claim department, and payment would have been issued from there. Id. at ¶¶ 3, 11; see Arkwright-Boston Mfrs. Mut. Ins. Co., 887 F.2d at 439. Further, as notice is the sum and substance of this case, the fact that the Certificates mandate that notice be given to "the Reinsurer," which, practically speaking, translates to the provision of notice in New York, underscores the centrality of New York to the present dispute. Finally, while Republic underscores that negotiations concerning the layers of reinsurance and the amount of premiums occurred in Texas (Schultz Decl. ¶¶ 8-9), an assertion hotly debated by Folksamerica (Jessup Decl. ¶ 16), any negotiations concerning the Certificates themselves, which would necessarily include negotiations regarding the notice provisions, occurred at Mony Re's offices in New York (Jessup Decl. H 13). As Folksamerica inherited the reinsurance obligations under the Certificates, it is noteworthy, though arguably not controlling, that Folksamerica is also a New York corporation. Am. Compl. ¶ 5.
Republic counters almost all of Folksamerica's assertions of pertinent contacts through its presentation of the flip-sides of each claim. In this case, Republic asserts that "[i]f Republic failed to provide prompt notice (which is an allegation that it vigorously disputes), then any such failure occurred in Texas where the notices and other loss information were generated and sent to the reinsurance intermediary for transmission to Folksamerica." Memorandum of Law In Support of Republic's Motion For Summary Judgment ("Rep. Mem.") at 16. This Court disagrees. Where Republic generated the "notices and other loss information" is irrelevant because the Certificates mandate that Republic "notify the Reinsurer."
Despite these obvious contacts with New York, Republic argues that Texas has a more significant interest in the present suit. In support, in addition to raising the counter-suppositions referenced supra, note 6, Republic argues that its office responsible for handling these Certificates was in Texas (Schultz Decl. ¶ 5), as was it's broker, RFC's office (id. ¶ 6). These contacts are not controlling in this dispute. First of all, the mere fact that Republic's offices are in Texas, when premium payments as well as notice of claims were to be sent to New York, is secondary. Further, while Republic's broker was located in Texas, and Republic may have negotiated with RFC in Texas, these negotiations are less central to the main dispute.
While these contacts are relevant to Republic's claim for indemnification against Aon, from Aon's failure to transfer prompt notice to Folksamerica, since Republic's claim against Aon is secondary to the dispute between Republic and Folksamerica, and may never be adjudicated if Folksamerica is held liable, contacts relevant to the primary claim between Folksamerica and Republic are controlling. Further, as none of the parties has asserted that a conflict exists between New York law and Texas law with regard to agency, and in particular, a reinsurance broker's potential liability stemming from its agency role, this Court need not conduct a conflict of law analysis on the issue of third-party liability. See B. Lewis Prods, v. Angelou, 01 Civ. 0530, 2003 U.S. Dist. LEXIS 12655, at *18 (S.D.N.Y. July 23, 2003) ("If there is no material conflict, a court is free to bypass the choice of law analysis and apply New York law.") (internal quotations and citations omitted).
In order to support its assertion that Texas law should apply, Republic relies most heavily on the fact that the location of the risk was in Texas. Rep. Mem. at 13-14. Republic stresses that "insurance involves a 'special subset of contracts' and that the applicable law in insurance contract cases 'is the local law of the state which the parties understood was to be the principal location of the insured risk . . ." Rep. Mem. at 13, quoting Zurich Ins. Co. v. Shear son Lehman Mutton, Inc., 84 N.Y.2d 309, 318 (1994). While Republic is correct that the location of the risk is a critical element in a dispute overprimary insurance, this factor is of significantly less relevance with regard to a reinsurance dispute — which involves the indemnification of the insurer by the reinsurer, and which is not directly affected by the underlying insured's location. See Jefferson Ins, Co. of New York, 616 F. Supp. at 877 ("If this was a suit on the underlying contract of insurance, this factor [place of risk] would weigh heavily. However, the interest of New York becomes more attenuated when the suit is premised solely on the reinsurance contract.") — Because this case concerns reinsurance, not insurance, the location of the risk and locale of the claims or suits asserted against the underlying insured, are not dispositive. Therefore, between the New York contacts and greater interest, New York law must govern.
Republic asserts that because Clemtex and Thorpe are both "Texas insureds," "[t]he underlying claims made against Thorpe and Clemtex, which form the basis of Republic's reinsurance claim against Folksamerica, are predominantly in Texas. Rep. Mem. at 14, citing Schultz Decl. ¶¶ 5, 7.
The parties go to great lengths — Republic even devoting half of its argument on summary judgment to argue the choice of law issue because of its potential to proscribe the outcome of this declaratory judgment. Texas law and New York law potentially diverge on an important issue — whether a party must show prejudice from late notice when a reinsurance policy requires prompt notice as a condition precedent. New York does not require reinsurers to prove prejudice in such cases (see Christiana Gen. Ins. Corp. of New York v. Great Am. Ins. Co., 979 F.2d 268, 272 (2d Cir. 1992); Unigard lns. Co. v. North River Ins. Co., 79 N.Y.2d 576, 582 (1992)), while Texas does (at least in the insurance context) (see Ins. Co. of No. Am. v. McCarthy Bros. Co. 123 F. Supp.2d 373, 379 (S.D. Tex. 2000)). For purposes of this analysis, I have assumed that Texas would adopt its insurance rule in the reinsurance context (as it would make little practical sense for the repercussion of late notice to be more lax in the reinsurance context, where notice is far less critical), and have concluded that New York law should apply.
C. "Notice" Provisions
While no one disputes that this case is about alleged late notice, Folksamerica posits an additional provision to be included under the notice umbrella that Republic and Aon classify otherwise. Therefore, the role of this Court is four-pronged: (1) to determine which provision(s) are notice provisions, (2) to determine whether those provisions require notice as a condition precedent to Folksamerica's duty to be bound by its reinsurance obligations, (3) to analyze the remainder of the contested provisions, even if not notice provisions in the prior sense, to determine whether Republic breached its duty to Folksamerica, and if so, (4) to determine the repercussions of any such violation.
Not only do the parties dispute whether one particular provision pertains to notice, but they also disagree as to whether the undisputed notice provision requires prompt notice as a condition precedent to liability. As a preliminary matter, the fact that the parties are not in accord as to whether a specific provision requires notice as a condition precedent, does not necessarily render the contract ambiguous. See Sayers v. Rochester Tel. Corp. Supplemental Pension Plan et al, 7 F.3d 1091, 1094 (2d Cir. 1993) ("Ascertaining whether or not a writing is ambiguous is a question of law for the trial court.") (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 Il, 237 F. Supp.2d 270, 274-75 (E.D.N.Y. 2002)). And, as the "interpretation or construction of an insurance policy presents a question of law to be decided by the court" (McGinniss v. Employers Reins. Corp., 648 F. Supp. 1263, 1266 (S.D.N.Y. 1986)), this Court has authority to determine, as a matter of law, the appropriate interpretation and construction of the language at issue.
1. Notice Provisions
The notice provisions (in bold) contained within the three relevant Certificates are identical, and include the following language relevant to Republic's obligations:
A. . . . The Company shall furnish the Reinsurer with a copy of its policy and all endorsements thereto and as a condition precedent agrees to notify the Reinsurer promptly of all changes which in any manner affect this Certificate of Reinsurance. . . .
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C. 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 the 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 fifty (50) percent of the Company's retention specified in item 3 of the Declarations. . . .
Because of Folksamerica's reliance on the connection between the "as a condition precedent" language in the first sentence and the "also" connector in the second sentence, the first sentence, although not a notice provision, is quoted in this section for purposes of clarity.
Haley Decl. Ex. A. As is clear from reading the above language, although the Certificates explicitly require notice of changes in the policy as a condition precedent, the Certificates do not expressly require prompt notice of a claim or occurrence where the Company created a loss reserve of fifty percent, as a condition precedent, However, despite the lack of textual support, Folksamerica asserts that the second provision also requires notice as a condition precedent.
Although Folksamerica asserts in its moving papers, that Republic did not provide prompt notice of changes to the policy, and lists the following events, which allegedly triggered this duty: (a) Republic's "drop down" in 1990 and alleged assumption of the coverage for one of Clemtex's insolvent primary insurers; (b) Republic's settlement of the declaratory judgment action against Thorpe in January 2001; and (c) the earlier than anticipated payout of funds, in 2001, under this settlement, with regard to Republic's settlement of the declaratory judgment action against Thorpe, Folksamerica fails to identify how any of these events served to "change" the policy. Folk. Mem. at 6, 9-10, 12, 16. Further, at oral argument, Folksamerica's counsel conceded, with regard to the "changes" provision, that "in the context of the issues on late notice under the facultative certificates it is irrelevant." Oral Arg't, 10/24/03, at 14:15-25-15:4. Therefore, as Folksamerica has rescinded its assertion that Republic breached this provision, this Court need not analyze this clause any further.
Folksamerica relies heavily on Judge Leisure's decision in Constitution Reins. Corp., 980 F. Supp. 124, to support its theory that the provision about notice of loss reserves increases is acondition precedent. Folk. Mem. at 17. However, while the reinsurance Certificate there contained the identical notice provision, the issue of how to interpret the notice clause was never raised, nor did the Court discuss this issue in its Opinion. Rather, the Opinion centered largely on the provision requiring submission of a definitive statement of loss ("DSOL"), an issue about which there was no dispute. Therefore, Constitution Reinsurance lends no support to Folksamerica's argument that the notice clause is also a condition precedent.
Folksamerica supports its interpretation by asserting that the "as a condition precedent" language in the first sentence modifies the second sentence as well — as it contends is clear from the use of the word "also." Folk. Reply Mem. at 7-8 (". . . we return to the text of the Mony Re certificates, which each establish, as a condition precedent for coverage, prompt notice under two circumstances, set forth in two adjoining sentences. [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 the 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 fifty (50) percent of the Company's retention specified in Item 3 of the Declarations."]) (bracketed language in block quote) (footnotes omitted). Folksamerica's reading simply defies basic rules of sentence construction. Although it is true that the word "also," signifies another responsibility, it is not the case that the connector makes evident that the responsibility is also a condition precedent. And, because "[c]ourts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition" (see Oppenheimer Co., Inc. v. Oppenheim, Appel, Dixon Co., 86 N.Y.2d 685, 691 (1995); Restatement [Second] of Contracts § 227(1), (3)), any doubt must be resolved against a finding of a condition precedent. "This interpretive preference is especially strong[,]" in cases such as this one, "when a finding of express condition would increase [and in this case mandate] the risk of forfeiture by the obligee." Id. Therefore, the general policy disfavoring forfeiture of contractual responsibilities dictates that this second sentence not be treated as a condition precedent.
Remarkably, at oral argument, Folksamerica even asserted that the first two sentences comprise one sentence — despite the fact that this reading is contrary to both the express language and the punctuation. Oral Arg't, 10/24/03, 3-4 (THE COURT: But what I would like you to tell me if you would is what evidence [that] [sic] you presented to show that the sentence which seems to and [sic] [be a] central issue here about the "company shall also notify the reinsurer promptly of any claim or occurrence" would be read as a condition precedent by ceding companies entering into contracts with you or your predecessor., MR. CAPUDER: Because, your Honor, the sentence that contains that language begins with the wording that a condition precedent — THE COURT: That sentence begins. I think I read you that sentence. I didn't see that. MR. CAPUDER: The sentence itself begins with the phrase that it is a conditions precedent to hold to coverage.)
Further, the fact that Mony Re, when drafting this Certificate, expressly made certain requirements condition precedents, implies that provisions that do not contain such express language should be interpreted differently. See, e.g. Int'l Fid. Ins. Co. v. Rockland, 98 F. Supp.2d 400, 412 (S.D.N.Y. 2000) ("Sophisticated lawyers, such as those drafting standard forms . . . must be presumed to know how to use parallel construction and identical wording to impart identical meaning when they intend to do so, and how to use different words and construction to establish distinctions in meaning."). When so much turns on how this second sentence is read, I cannot now add language that was not apparent upon signing. Millgard Corp. v. Cruz, 99 Civ. 2952, 2003 U.S. Dist. LEXIS 20928, at *11 (S.D.N.Y. Nov. 18, 2003) ("courts may not by construction add or excise terms . . . and thereby make a new contract for the parties under the guise of interpreting the writing.").
It would be unfair for the Court now to interpret the Certificates to require notice of reserves increases as a condition precedent, when the Certificates did not clearly express such a requirement to Republic and to any other companies that have contracted with Folksamerica under similar language. While Republic certainly knew of its duty to provide notice, it did not, and should not have understood this requirement to be backed by such draconian consequences should it fail, even through no fault of its own, to comply. Clearly, a reinsurance contract that expressly provides for prompt notice as a condition precedent would be far less marketable to sophisticated players than the one utilized by Folksamerica, as under the former, ceding companies would be well-aware that the consequences of inadvertent late notice would be catastrophic. Folksamerica may not have it both ways.
Not only is Folksamerica's interpretation defied by basic tenets of contract law, but it also runs contrary to instructions contained within what appears to be a well-known treatise — one whose editor Folksamerica respects enough to quote. According to that author, the following language should be utilized to achieve prompt notice as a condition precedent to recovery:
Folksamerica block cites a passage contained within what it deems "a leading reinsurance text — Strain's,Reinsurance. (The College of Insurance, 1980). See PI. Mem. at 22 (citing discussion of the intermediary's role).
As a condition precedent to recovery under this Contract, the Company shall advise the Reinsurer promptly (within 30 days of notice to Company) of all losses that may result in a claim under this Contract and of all subsequent developments thereto which may materially affect the position of the Reinsurer. The Company acknowledges that it is not necessary for the Reinsurer to establish prejudice resulting from any late notice of claim or loss and noncompliance by the Company with its obligations to notify the Reinsurer of any claim or loss, whether prejudicial or not, shall automatically relieve the Reinsurer of any liability with respect to that loss.
While this Court does not hold that language short of this exemplary clause will be insufficient to achieve a condition precedent, this clause helps to uncover the numerous inadequacies in Folksamerica's assertion that the notice provision in the Certificates is a condition precedent.
Robert W. Strain, Reinsurance 344 (Revised ed., Strain Publishing Seminars, Inc. 1996). Unlike the provision utilized by Folksamerica (which Strain explains is not to be construed as a condition precedent), the above provision (1) specifies to what the condition precedent refers, (2) sets out the number of days that suffice for prompt notice, (3) expressly states that the Reinsurer need not establish prejudice, and (4) clearly provides that the Reinsurer will be relieved of liability should prompt notice not be provided. A sophisticated corporation such as Mony Re would have, or at least should have, known how to make its notice provision a condition precedent, and indeed did so in the same Certificates, but either failed, or chose not to do so, with regard to this particular notice requirement. See, e.g. In re Jacobowitz, 296 B.R. 666, 672 (Bankr. S.D.N.Y. 2003) ("business persons are generally held to a high level of accountability in record keeping"); Talcott Natl. Corp. v. North St. Assocs., 77 Civ. 5859, 1979 U.S. Dist. LEXIS 9565, at *26 (S.D.N.Y. Sept. 26, 1979) (In the context of determining whether failure to disclose was material, court considered the conduct of defendants "in light of the fact that they were both sophisticated businessmen."). Therefore, this Court concludes as a matter of law that the provision requiring notice to the reinsurer when Republic raised its reserves over fifty percent, is not a condition precedent to Folksamerica's liability.
2. Prejudice Suffered From Failure to Provide Prompt Notice
Because the Certificates do not require prompt notice as a condition precedent, assuming that Republic violated the notice provision, in order to succeed on its claim for forfeiture under New York law, Folksamerica must prove that it suffered prejudice from the unreasonable delay in notice. New York law provides an escape hatch for insurers when policy holders do not strictly follow notice provisions proscribed in contracts; this is so even when such contracts do not require prompt notice as a condition precedent. See Unigard Sec. Ins. Co., Inc., 79 N.Y.2d at 581 ("It is settled New York law that the notice provision for a primary insurer operates as a condition precedent and that the insurer need not show prejudice to rely on the defense of late notice"), citing Sec. Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 440(1972). New York law however drastically limits the availability of this remedy in the reinsurance context-only offering such relief when the provision clearly and expressly requires notice as a condition precedent. See Unigard Security Ins. Co., Inc., 4 F.3d at 1063 ("we certified to the New York Court of Appeals the following question: 'Must a reinsurer prove prejudice before it can successfully invoke the defense of late notice of loss by the reinsured?' The Court of Appeals answered in the affirmative."); Unigard Security Ins. Co., Inc., 79 N.Y.2d at 582 ("There is nothing in this provision or elsewhere in the North River certificate indicating that the parties intended that the giving of notice should operate as a condition precedent"), comparing Liberty Mut. Ins. Co. v. Gibbs, 773 F.2d 15, 16-17 (1st Cir. 1985) (certificate specifically provided that notice "is a condition precedent to any liability under this policy."). Such treatment makes complete sense as a result of the difference between the positions of the reinsurer and the primary insurer.
These differences in the contractual undertakings of reinsurers and primary insurers have consequences of critical importance, as courts in other jurisdictions have found. A reinsurer is not responsible for providing a defense, for investigating the claim or for attempting to get control of the claim in order to effect an early settlement. Unlike a primary insurer, it may not be held liable to the insured for a breach of these duties. Settlements, as well as the investigation and defense of claims are the sole responsibility of the primary insurer; and settlements made by the primary insurer are, by express terms of the reinsurance certificate, binding on the reinsurer. Thus, failure to give the required prompt notice is of substantially less significance for a reinsurer than for a primary insurer.15 Unigard Sec. Ins. Co., Inc., 79 N.Y.2d at 583 (internal citations omitted) (emphasis added).
As discussed above, the notice provision in the Certificates does not require notice as a condition precedent, and therefore, if breached, Folksamerica is required to prove prejudice in order to be relived from its reinsurance obligation. Any relevant prejudice as a result of late notice must take the form of tangible economic injury. The loss of the right to associate does not suffice. Unigard Sec. Ins. Co., Inc., 4 F.3d at 1068-69.
Because Folksamerica has not proven prejudice from Republic's alleged failure to provide prompt notice under the Certificates, it is unnecessary for this Court to determine, as a matter of law, whether Republic's notice was indeed late — the result under either answer is the same — Folksamerica is liable to Republic. If Republic provided prompt notice, Folksamerica is obviously tied to its obligation to remit payment. And, even if Republic grossly violated its notice obligations, because Folksamerica has not proven prejudice, Folksamerica must still indemnify Republic.
Despite notice of the possibility that it would have to assert prejudice in order to be relieved from its obligations to Republic, as early as the interrogatory stage, when Republic expressly questioned Folksamerica with regard to the prejudice it suffered, and throughout the briefing of the three summary judgment motions that led up to this Opinion, Folksamerica has stood firm in its contention that it need not prove prejudice. Folksamerica has never even attempted to prove prejudice — its only submission with regard to prejudice was a declaration from its in-house counsel, that outlined potential prejudice claims, in order to substantiate its request to have an additional opportunity to prove prejudice should the Court deem it necessary. Haley Decide. ¶ 6.
Portions of Republic's Interrogatories and Folksamerica's Responses, contained within Van Tol Decl. Ex. A., Haley Decl. ¶ 3, are excerpted herein. (INTERROGATORY NO. 5.: Do you contend that Folksamerica suffered any prejudice as a result of the lack of notice alleged in Paragraph 16 through 29 of the Complaint? If so, identify any such prejudice that Folksamerica alleges it suffered as a result of late note under the Thorpe Reinsurance Certificates; RESPONSE TO INTERROGATORY NO. 5.; Folksamerica objects to this interrogatory as requesting information not necessary or material to the issues present in this litigation and not likely to lead to the discovery of admissible evidence. Subject to and not waiving such objection, under New York law, as stated in this Circuit, prejudice is irrelevant because the certificates at issue require prompt notice by Republic as a condition precedent to payment, and for that reason Folksamerica has not contended that it suffered prejudice. INTERROGATORY NO. 11.; Do you contend that Folksamerica suffered any prejudice as a result of the lack of notice alleged in Paragraphs 40 through 53 of the Complaint? If so, identify any such prejudice that Folksamerica alleges it suffered as a result of late notice under Clemtex Reinsurance Certificate; RESPONSE TO INTERROGATORY NO. 11; Folksamerica objects to this interrogatory as requesting information not necessary or material to the issues present in the litigation and not likely to lead to the discovery of admissible evidence. Subject to an[d] not waiving such objection, under New York law, as stated in this Circuit, prejudice is irrelevant because the certificates at issue require prompt notice by Republic as a condition precedent to payment, and for that reason Folksamerica has not contended that it suffered prejudice.)
Despite the fact that Folksamerica had ample opportunity to assert and substantiate a showing of prejudice, in the three summary judgment motions and was provided an additional chance at oral argument, this Court even invited, well-nigh pleaded with Folksamerica to discuss prejudice in a post argument letter brief. In this letter, instead of highlighting its proof of prejudice in its submissions before the Court, Folksamerica again reiterated its request for yet another opportunity to prove prejudice. Folk. Post Argument Letter Brief ("Letter Brief) at 7. ("Folksamerica again requests the opportunity to prove prejudice if this court intends to hold that Folksamerica is required to prove prejudice. The paragraphs in the above referred to Haley Declaration that followed this request (paras. 7-18) were not an attempt by Folksamerica to prove prejudice, as was apparent since they followed a request to be given the opportunity to prove prejudice, and rather were merely intended as a preliminary demonstration to show that the request had substance.").
This aside, the assertions of prejudice by Folksamerica have no basis in fact, and therefore, could not be substantiated by Folksamerica at trial. First, Folksamerica alleges that it suffered tangible economic harm from its inability to provide prompt notice to its retrocessionaires. Haley Decl. ¶ 12. However, Folksamerica fails even to allege (let alone substantiate) that any of its retrocessionaires have asserted late notice defenses themselves. Van Tol Decl. Ex. A, R at 105-09, 159-60, H at 127. Second, Folksamerica points to the fact that the late notice caused it to post late reserves, and led to its being under-reserved for a period of time, and consequently caused it to lose tax deductions. Haley Decl. ¶ 12. However, Folksamerica fails to show how its limited period of being under-reserved caused it to suffer any economic harm. Van Tol Decl. Exh. 0 at 165, S at 141-42, 44. When compared to Folksamerica's overall reserves, any additional missed reserves are inconsequential (Van Tol Decl. Exh. O at 172-73), and when coupled with the fact that Folksamerica posts reserves in the asbestos arena for losses that are incurred but not reported ("IBNR"), any shortfalls would have been covered. (R. Mem. at 22; Van Tol Decl. Ex. W at 29, X at 43-44, Q at 12). Folksamerica itself concedes that "this factor standing alone might be argued not to satisfy a need to show prejudice." Haley Decl. ¶ 8. Further, any missed deductions for the Thorpe and Clemtex claims would only amount to about $1.5 million, hardly material when compared to the hundreds of millions that Folksamerica takes in loss deductions each year. R. Mem. at 23. And, Folksamerica also admits that it was never reprimanded or even contacted by any regulatory agency with regard to any reserve deficiencies. Van Tol Decl. Ex. W at 53. Folksamerica's third assertion, that it suffered prejudice because its relationship with Republic and Aon has been strained by this lawsuit, when it was Folksamerica that initiated the matter in the first place, is akin to the fellow who killed his parents and then pled for mercy because he was an orphan, and is too far-fetched to warrant further discussion. Lastly, Folksamerica's assertion, without further explanation, that it has suffered "premium issues" (Van Tol Decl. Exh. S at 141: 23-24), if meant to refer to its inability to raise Republic's premiums upon renewal, lacks merit, as the Certificates were never renewed.
Folksamerica also asserts that if and when it submits payment to Republic, its retrocessionaires may refuse indemnification because they deem Folksamerica's payment to be in bad faith. Even prior to this Court's Opinion and Order, mandating payment to Republic, the retrocessionaires, in lieu of the "follow your fortunes" clause in all reinsurance contracts, would have likely been obligated to indemnify Folksamerica even if they disagreed with Folksamerica's failure to challenge the payment. See Unigard Sec. Ins. Co., Inc., 79 N.Y.2d at 583. But, after this Opinion, any refusal on the part of Folksamerica's retrocessionaires to indemnify can most certainly be remedied by Court Order.
Additionally, Folksamerica's assertion that its lack of notice of claims against Thorpe and Clemtex caused it to pay an inflated price when it acquired Mony Re lacks merit as Folksamerica purchased Mony Re in 1991, when Republic's reserves for Thorpe and Clemtex were only $1 and $180,000, respectively and therefore had not yet triggered Republic's notice obligations.
Perhaps Folksamerica gambled it would never have to prove prejudice — that it would prevail on both its contract interpretation arguments and on its choice of law assertion. While Folksamerica won the bet with regard to choice of law, it lost on its interpretation arguments. Had Folksamerica suffered actual prejudice in the form of tangible economic harm, it strains credulity to believe it would not have provided evidence of such prejudice, and instead sought an opportunity in the future to prove a material element of its claim. In lieu of Folksamerica's concession, and an unsurprising dearth of evidence of prejudice, this Court finds as a matter of law, that Folksamerica did not, and therefore could not, prove that it suffered prejudice from any alleged late notice on the part of Republic.
Folksamerica cites two cases in support of its position that it should be provided another opportunity to prove prejudice — both of which are inapposite. In Christiania, the Second Circuit held that the district court should have found that notice was due at anearlier date; therefore the reinsurer's concession that it did not suffer prejudice was no longer conclusive. See Christiania Gen. Ins. Co., 979 F.2d 268, 278 (2d Cir. 1992) ("Although Christiania conceded if could demonstrate no prejudice as a result of the two-month delay from April to June 1987, it does not follow that if it is determined after a trial that Great American's duty to provide notice arose at some point in time before April 1987, Christiania would not be able to demonstrate prejudice by virtue of the longer delay."). In this case, Folksamerica asserts that it should have received notice as early as 1991, when claims were first filed against the underlying insureds. While this Court need not calculate exactly when notice was due, it is beyond question, that under this Court's interpretation of the Certificates, notice was due long after 1991. The fact that Folksamerica could not prove prejudice under its inflated interpretation supports the view that Folksamerica would most certainly be unable to prove prejudice under this Court's interpretation, which requires notice at a significantly later point in time. In the other case cited by Folksamerica, Booking, a case about late notice to foe primary insurer, the Second Circuit reversed the district court's refusal to consider the choice of law issue, and determined that Texas law not New York law applied. Therefore, the Court remanded to provide the insurer with an opportunity to prove prejudice, as it was required to do under Texas law. See Booking v. General Star Mgmt. Co., 254 F.3d 414 (2d Cir. 2001). Because Booking involved insurance, where the law in New York is well-settled that whether or not a notice provision is a condition precedent, there is no obligation to prove prejudice, and the conflict of law question was not raised, the insurer had no duty to assert prejudice in the alternative. However, in this case, because it involves reinsurance, where even under New York law, prejudice must be shown if the provision is not a condition precedent, the status of the notice provision was directly at issue, and the conflict of law issue was raised and briefed extensively, Folksamerica was clearly "on notice" of the potential need to prove prejudice. Folksamerica has failed to provide any supportable ground to warrant yet another opportunity to prove prejudice. See Fed.R.Civ.P. 1 (the federal rules "shall be construed and administered to secure the just, speedy, and inexpensive determination of every action."). Therefore, Folksamerica has neither proven prejudice nor provided sufficient grounds to warrant yet another attempt. Consequently, Folksamerica may not escape liability by virtue of late notice.
As a general matter, reserves of fifty percent translate to the establishment of reserves above $4 million for Thorpe and $2 million for Clemtex, on any claim or occurrence. Aon Letter Brief at 2-3. Republic raised its loss reserves to these heights, at the earliest, in 2000 for Thorpe and 2002 for Clemtex. Rep. Letter Brief at 3-4.
3. Definitive Statement of Loss
Unlike the notice provision, it is undisputed that the DSOL provision requires submission of the DSOL as a condition precedent to Folksamerica's duty to remit payment. However, Folksamerica and Republic/Aon have a vastly different view as to how to classify the DSOL requirement, and, more importantly, as to when the DSOL provision requires submissions to be made. For purposes of clarity, I will quote the DSOL provision again:
C. 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 the Certificate which involves a death, serious injury or lawsuit
Folksamerica asserts that the DSOL provision requires notice of all claims and occurrences that involve death, serious injury, or a lawsuit, relevant to the coverage year of the reinsurance, regardless of whether the claims are significant enough to invoke Folksamerica's third-tier reinsurance. Folk. Letter Brief at 1-2. In contrast, Republic and Aon assert that the DSOL is not required until an advanced stage when the claims have amounted to such significant losses, that the reinsurance is actually invoked, and the ceding company has billed the reinsurer. Rep. Letter Brief at 1; Aon Letter Brief at 1. Because the meaning presented by Republic and Aon, unlike the proposal by Folksamerica, renders all provisions of the Certificate sensible, this Court finds that such reading must, as a matter of law, apply.
Folksamerica cites to Constitution Reins. Corp., 980 F. Supp. 124, as authority for its assertion that the DSOL provision, as a notice provision, obligated Republic to provide notice in the form of the DSOL of all claims that involved death, serious injury or lawsuit, that pertained to the coverage years of its reinsurance. Although Constitution Reinsurance is indeed a case from this district that interprets similar Certificate language, there are several reasons why that Court's discussion of the DSOL provision under the heading of "Prompt Notice" is of little if any precedential value here. First, unlike this case where lawsuits trickled in over the course of several years, and did not until a later date amass the aggregate loss to trigger Folksamerica's liability, Constitution Reinsurance involved a scenario whereby one catastrophic event occurred, arguably triggering the ceding company's duty to provide notice and the duty to submit the DSOL. Second, the Constitution Reinsurance Court's interpretation of the DSOL provision as a notice requirement was universally accepted and endorsed by the parties, and therefore was never challenged in the district court proceeding. Third, while Stonewall did challenge the district court's interpretation of the DSOL provision on appeal, Constitution Reinsurance attacked this challenge as improper as Stonewall had failed to raise this argument below. While it is impossible to divine the rationale behind the Second Circuit's affirmance — as it was without opinion — it is likely that the Court did not consider arguments raised for the first time on appeal (see Singleton v. Wulff, 428 U.S. 106, 120 (1976) ("a federal appellate court does not consider an issue not passed upon below.")) — and therefore there is no binding authority mandating a particular interpretation of the DSOL provision contained within the Certificates. Finally, and perhaps most importantly, as is discussed more fully infra, the Certificates at issue here contain an additional contractual requirement, not referenced by the Constitution Reinsurance Court, and therefore likely missing from the operative Certificate there, that makes the interpretation adopted by the Constitution Reinsurance Court inoperable here.
However, Larry Lande, an employee in Folksamerica's claims department, conceded at his deposition that a notice of loss and a DSOL are different, and that "the notice of loss necessarily does not contain all of the information that a definitive statement of loss will have." Lande Dep., 6/24/03 and 8/12/03, at 33: 13-22.
The DSOL comprises those materials that must be submitted to the reinsurer as a condition precedent to the reinsurer's duty to remit payment. Haley Decl. Exh. A ("DEFINITIVE STATEMENT OF LOSS Shall consist 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."). 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." Rep. Mem. at 20-21. Obviously, Folksamerica's interpretation of the DSOL as a notice provision, that requires substantiation of all claims and occurrences involving the reinsurance year makes the DSOL, as defined by the Certificate, inoperable. Under Folksamerica's interpretation, Republic was obligated to provide Folksamerica with prompt notice of all claims and occurrences, involving coverage years, substantiated by detailed reports from the claims files, even if the claims or occurrences did not trigger the reinsurance, and upon receiving the DSOL, Folksamerica would be bound promptly to remit payment to Republic, despite the fact that no payment was actually due under the Certificates. As a result of the interplay between the receipt of the DSOL and the duty to submit the reinsurance payment, the DSOL provision must, in order to have practical effect, be triggered at a later date than (or, in the case of catastrophic claims, simultaneously with) the notice provision. See Goodheart Clothing Co. v. Laura Goodman Enters., Inc., 962 F.2d 268, 272 (2d Cir. 1992) ("a court should interpret a contract in a way that ascribes meaning, if possible, to all of its terms.") (citations omitted); Restatement Second of Contracts § 203(a) (1981) ("an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect"). The only viable reading of the DSOL mandates that it be read to require a detailed billing, promptly after submission of a summary invoice, as a condition precedent to Folksamerica's duty to remit its reinsurance payment. Folksamerica's attempt to transform the DSOL provision into a second notice provision is simply unworkable.
It is clear that Folksamerica would have preferred to have had a notice provision tied to claims or occurrences, not to the raising of reserves. The following provision, would have better achieved Folksamerica's wishes: "The Company shall advise the Reinsurer promptly of all losses which, in the opinion of the Company, may result in a claim under this Contract and of all subsequent developments thereto which may affect the position of the Reinsurer." Richard M. Shaw, "Casualty Excess of Loss," in Robert W. Strain, ed., Reinsurance Contract Wording 345 (Revised ed. 1996). However, as is conceded by Lande, the Certificates do not contain such a provision. Lande Dep. 6/24/03, 8/12/03, at 214:10-17 (Lande conceded that the Certificates did not require notice of a claim or occurrence at the time the claim or occurrence was brought or was made known to Republic).
Because the DSOL provision, unlike the relevant notice provision, is drafted as a condition precedent, if violated by Republic, Folksamerica need not prove prejudice in order to avoid its reinsurance obligation. See Unigard Security Ins. Co., Inc., 4 F.3d at 1063. Therefore, in order to determine whether Republic violated the DSOL requirement, it is necessary to discern when Republic first acquired the duty to submit the DSOL. Although the parties do not specifically address the function of the word "promptly" in this context, this Court finds, by way of analogy to requirements of prompt notice, that the mandate of "prompt" submission limits the amount of allowable time between the ceding company's bill submission and its transmittal of the DSOL, to that of a reasonable time. See, e.g., Christiania Gen. Ins. Co., 979 F.2d at 275. "New York courts have held that the question whether notice was given within a reasonable time may be determined as a question of law when (1) the facts bearing on the delay in providing notice are not in dispute and (2) the insured has not offered a valid excuse for the delay." Constitution Reinsur. Corp., 980 F. Supp. at 130, citing State of New York v. Blank, 27 F.3d 783, 797 (2d Cir. 1994). In the notice context at least, "it is only when no excuse is offered for delay, or when no credible evidence supports the proffered excuse, that notice will be held untimely as a matter of law." Hartford Fire Ins. Co. v. Masternak, 390 N.Y.S.2d 949, 952 (4th Dep't 1977).
It should be noted that had the provision not included the word "promptly," I would have determined that there was no date upon which Republic's duty to provide Folksamerica with the DSOL attached. Rather, any delay would just cause a similar delay in Republic's receipt of payment. However, because the provision includes the word "promptly," there is a requirement that the DSOL be submitted within a reasonable time after the bill has been issued.
Because, at the time this action commenced, Republic had not yet billed Folksamerica under Clemtex, Republic's obligation to provide the DSOL had not yet arisen. Therefore, despite the fact that the parties dispute when the DSOL was provided (Folksamerica claims submission was made in November 2002 (Folk. Letter Brief at 5), Republic and Aon assert submission in July 2002 (Rep. Letter Brief at 2; Aon Letter Brief at 2)), as this submission was premature, this Court finds as a matter of law, that Republic did not violate the DSOL provision as per its obligations under Clemtex. On the other hand, it is undisputed that, at the time Folksamerica filed this action, Republic had already billed Folksamerica under Thorpe. Republic asserts that it sent initial bills to Folksamerica in March, April, and May 2002 (Rep. Letter Brief at 1); Aon states that Republic first billed Folksamerica in May 2002 (Aon Letter Brief at 1). Folksamerica asserts that Republic sent invoices in April 2002. Folk. Letter Brief at 5. While this factual dispute is not extensive, the parties are in greater disagreement over when the DSOL was submitted. Folksamerica asserts that the DSOL was never voluntarily provided, and was only made available during an audit in November 2002. Id. at 5. Republic asserts that on May 3, 2002, it sent the DSOL, consisting of various reports and information, to Larry Lande of Folksamerica (Rep. Letter Brief at 2), and Aon claims that Republic submitted the DSOL as early as April 2, 2002 (Aon Letter Brief at 1). The parties' varying assertions suggest that anywhere from no delay to an eight month delay in submission of the DSOL under Thorpe may have occurred. Therefore, the determination of (1) the length of Republic's delay, if any, in its submission of the DSOL for the Thorpe Certificates, and (2) whether such delay, if any, was reasonable, involve material issues of fact, and may not be resolved on a motion for summary judgment.
It should be noted that Republic asserts as an excuse for any delay in submitting a DSOL, that it had been promptly submitting reports and files to Aon, who, because of a computer glitch, did not properly and promptly forward such documents to Folksamerica. The determination of whether this excuse is valid, along with the determination of whether the DSOL was indeed late, entails analysis of Aon's role as the agent of Folksamerica or Republic. Because it may first be determined that whatever delay (if any) in submission of the DSOL to Folksamerica was not unreasonable, whereby obviating the need to conduct these inquiries, this Court deems it premature to undergo an analysis and determination of such issues at this time.
Republic asserts that because Folksamerica had notice of the Thorpe claims, and indeed had detailed reports regarding Thorpe, from its receipt of such documentation with regard to its separate treaty reinsurance policy, GLARC, for Thorpe. Folksamerica had constructive notice of the Thorpe claims, and therefore cannot assert any late notice defenses. If it is later determined that Republic's delay, if any, in submitting the DSOL under Thorpe was unreasonable, Republic may then raise this claim of constructive notice. Because the need to resolve this issue may never arise, it would be improper for the Court now to resolve this contingent issue.
III. CONCLUSION
For the foregoing reasons, (1) Republic's motion for summary judgment is granted-in-part and denied-in-part, (2) Folksamerica's motion for summary judgment is denied, and (3) Aon's motion for summary judgment is denied. Republic's motion to strike portions of several of Folksamerica's Declarations in addition to its Rule 56.1 Statement and for sanctions for alleged violations of Fed.R.Civ.P. 36(b) is denied. This Court finds as a matter of law that Republic's violations of any notice provisions contained within the Certificates do not relieve Folksamerica of its obligation to indemnify Republic. Further, this Court concludes as a matter of law that 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, or any other defense, will be credited. The trial will commence on December 8, 2003. In anticipation of the trial, all voir dire, requests, and any in limine motions must be fully submitted by December 1, 2003, as explained in my scheduling notice of November 6, 2003. The Clerk of the Court is ordered to close all pending motions. Any request to adjourn the trial will be entertained in a teleconference to chambers today, November 25, 2003, or Monday December 1, 2003.
IT IS SO ORDERED. be resolved on a motion for summary judgment.
III. CONCLUSION
For the foregoing reasons, (1) Republic's motion for summary judgment is granted-in-part and denied-in-part, (2) Folksamerica's motion for summary judgment is denied, and (3) Aon's motion for summary judgment is denied. Republic's motion to strike portions of several of Folksamerica's Declarations in addition to its Rule 56.1 Statement and for sanctions for alleged violations of Fed.R.Civ.P. 36(b) is denied. This Court finds as a matter of law that Republic's violations of any notice provisions contained within the Certificates do not relieve Folksamerica of its obligation to indemnify Republic. Further, this Court concludes as a matter of law that 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, or any other defense, will be credited. The trial will commence on December 8, 2003. In anticipation of the trial, all voir dire, requests, and any in limine motions must be fully submitted by December 1, 2003, as explained in my scheduling notice of November 6, 2003. The Clerk of the Court is ordered to close all pending motions. Any request to adjourn the trial will be entertained in a teleconference to chambers today, November 25, 2003, or Monday December 1, 2003.
IT IS SO ORDERED