Opinion
No. X02-CV-03-0178122 S
September 23, 2003
MEMORANDUM OF DECISION
The Hartford Accident and Indemnity Insurance Company, on behalf of itself and thirteen related insurance companies, hereinafter collectively referred to as "Hartford," has brought this action against 373 foreign and domestic reinsurers for breach of contract related to a series of reinsurance contracts between Hartford and the defendants. Nine of the defendants, Argonaut Insurance Company, Continental Indemnity Company, Security Insurance Company of Hartford, Tryg-Baltica International (UK) Ltd., Hilcot Re Ltd., Harleysville Insurance Company (UK) Ltd., Security Insurance Company (UK) Ltd., Oslo Re, and Chartwell Insurance Company, have filed motions to dismiss one count of the plaintiffs' complaint, the thirty-third count, or in the alternative, to stay that portion of the action on the grounds that it fails to allege a justiciable controversy. Chartwell Insurance Company also seeks to dismiss or stay an additional count, the thirty-second count, on the grounds that the arbitration provision of the parties' contract mandates arbitration prior to the institution of litigation.
Although additional defendants have filed similar motions to dismiss, the court has been informed that withdrawals have been or will be filed with respect to those defendants.
In ruling on a motion to dismiss, the court must take the facts to be those alleged in the complaint, including those necessarily implied, construing them in a manner most favorable to the pleader. Pamela B. v. Ment, 244 Conn. 296, 308 (1998).
The allegations of the plaintiffs' complaint assert the following. Hartford is engaged primarily in the business of insurance and reinsurance and the defendants are reinsurers organized under the laws of various foreign and domestic jurisdictions. Reinsurance is a transaction whereby, pursuant to a reinsurance contract, an insurer transfers or "cedes" to another insurer, known as the "reinsurer," a portion of the ceding insurer's risks under the insurance policies written to policyholders. The reinsurer agrees to indemnify the ceding insurer in return for a portion of the ceding insurer's premiums. CT Page 10880-ao
Over a span of several decades, Hartford has been reinsured by the defendants in this action under a series of reinsurance contracts that constitute a single continuous reinsurance program providing excess of loss reinsurance coverage in various amounts over a number of years, which the plaintiff calls the "blanket casualty treaty program." The blanket casualty treaty program is designed to provide Hartford with multiple layers of reinsurance, with each reinsurance contract covering losses in excess of a specified amount or "attachment point" and each attachment point corresponding to the limits of the immediately preceding layer. The reinsurance contracts require the defendants to pay reinsurance for a claim in the manner that Hartford has paid the underlying policyholder, including relying on Hartford's decision as to whether and how to settle a claim.
In the first thirty-two counts of the plaintiffs' complaint, Hartford asserts breach of contract claims against various defendants and seeks money damages. Specifically, Hartford alleges that various defendants failed to pay billings submitted by Hartford to the defendants for reimbursement for losses it paid under the various reinsurance contracts.
In the thirty-third count of the complaint, Hartford seeks a declaratory judgment as to certain defendants with respect to how claims should be billed under the blanket casualty treaty program. Hartford alleges that a number of the outstanding billings included in the first thirty-two counts arise from claims that Hartford has settled and paid under two or more underlying insurance policy periods ("multi-year claims"). These multi-year claims, such as claims for pollution coverage or asbestos liabilities, involve underlying cause-based occurrences that take place over several years, thereby triggering coverage under two or more underlying policy periods. Where Hartford has settled and paid such multi-year claims, Hartford has billed the blanket casualty treaty program on the basis of a separate reinsurance retention and limit per occurrence for each such underlying policy period ("the multi-year billing method.") This billing method has the effect of billing such losses to relatively few blanket casualty treaty program upper layers and of allocating payments among reinsurers over multiple years on the basis of the "loss occurring" in each underlying policy period.
I
Motion to Dismiss the Thirty-third Count
Hartford alleges that certain unidentified defendants have asserted CT Page 10880-ap that multi-year claims must be billed to the blanket casualty treaty program on the basis of a single reinsurance retention and limit, regardless of the number of underlying policy periods implicated (the "single year billing method"). Use of the single year billing method would require the re-billing of existing claims to reinsurers who have already been billed and paid claims under the multi-year billing method used by Hartford. Application of the single year billing method would also result in the re-billing of existing claims to additional higher layers of the blanket casualty treaty program. Depending on how the single year billing method is applied, this shifting of certain existing losses to higher layers of the blanket casualty treaty program could include all upper layers of the blanket casualty treaty program and the reinsurers of those higher layers who have yet to be billed under the multi-year billing method. The single year billing method would also make additional multi-year claims billable, including multi-year claims that have already been paid by Hartford and fall within Hartford's multiple retentions under the multi-year billing method.
Hartford asserts that a dispute exists as to the appropriate billing method under the blanket casualty treaty program that warrants judicial intervention. The moving defendants maintain that the thirty-third count must be dismissed because it is not yet ripe for adjudication. They contend that no actual or live controversy exists between them and the plaintiffs as to the appropriate billing method and that the thirty-third count identifies no bills between the parties that are currently in dispute. For the following reasons, the court agrees with the moving defendants that the thirty-third count of the complaint does not present a justiciable issue and must therefore be dismissed.
The Connecticut Supreme Court has recently opined on the doctrine of justiciability and its opinion is particularly instructive with respect to the issues before the court in this case. See Milford Power Co. v. Alstom Power, Inc., 263 Conn. 616 (2003). An issue regarding justiciability implicates the court's subject matter jurisdiction and must be resolved as a threshold matter. Id., 624. "[R]ipeness is the sine qua non of justiciability." (Quotation marks and citations omitted.) Id. The purpose of the requirement that a claim be ripe for adjudication is to prevent courts from entangling themselves in abstract disagreements. Id., 626. In determining that a case fulfills the requirement of ripeness, the court must be satisfied "that the case before the court does not present a hypothetical injury or a claim contingent upon some event that has not and indeed may never transpire." Id.
While the procedure established by statute and practice book for the issuance of a declaratory judgment, see General Statutes § 52-29 and CT Page 10880-aq Practice Book § 17-54, provides a valuable tool by which litigants may resolve uncertainty of legal obligations, a declaratory judgment action is nonetheless limited to resolving controversies that are justiciable. Id., 625. The declaratory judgment provisions do not create jurisdiction where it would not otherwise exist. Id.
In Milford Power Co. v. Alstom Power, Inc., the plaintiff power company, which had contracted with the defendants for certain engineering, procurement and construction services related to the construction of an electric power generating plant, sought a declaratory judgment to determine whether an accident during construction entitled the defendants to make a claim for additional time or money to complete construction under a force majeure provision of the parties' contract. The defendants filed a motion to dismiss contending that action was premature because they had not yet made a claim for additional time or money to construct the project. The trial court denied the motion to dismiss. The Supreme Court reversed, finding that there was no justiciable controversy pending before the court. The Supreme Court's decision hinged on the fact that the defendants, though giving notice to the plaintiff under the contract that a force majeure event had occurred, had not yet claimed that they were entitled to more money or time to complete the project. Without such a claim of entitlement, there existed no actual dispute, only a hypothetical one. "In other words, because the plaintiff's claims were contingent on the outcome of a dispute that had not yet transpired, and indeed might never transpire, the injury was hypothetical and, therefore, the claim was not justiciable." Milford Power Co. v. Alstom Power, Inc., supra, 263 Conn. 627.
Similarly, in this case, the thirty-third count of the plaintiffs' complaint asserts a hypothetical, not an actual controversy. In the thirty-third count, Hartford is seeking a declaration that the multi-year method is the appropriate billing method for multi-year claims. The complaint, however, contains no factual allegation that the nine defendants moving to dismiss that count actually dispute that the multi-year billing method should be used.
The plaintiffs nevertheless maintain that a billing dispute with other defendants may lead to additional bills to these moving defendants. Specifically, the plaintiffs assert that certain defendants in the first thirty-two counts have claimed that they do not owe the disputed bills because they dispute the billing method used by the plaintiffs. Hartford contends that if these defendants prevail in their contention that a single year billing method, rather than a multi-year billing method should be used, it could result in the issuance by it of additional bills CT Page 10880-ar to the defendants named in the thirty-third count and the recomputation of bills already paid by them.
Hartford's claim is the epitome of a "claim contingent upon some event that has not and indeed may never transpire." Milford Power Co. v. Alstom Power, Inc., supra, 263 Conn. 626. In fact, it is contingent on a number of events that have not and may never transpire. The unidentified defendants disputing the appropriate billing method will have to prevail in their claim. The bills will then have to be recomputed and the recomputation will have to result in new or increased bills to the moving defendants. The moving defendants, in turn, will have to dispute the new or reissued bills. If any one of these events fails to occur, there will be no dispute to adjudicate.
Hartford contends that the decision by the U.S. Court of Appeals for the Second Circuit in Hartford Acc. Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219 (2d Cir. 2001), supports their position that their claim constitutes a justiciable controversy. In that case, Hartford sought to compel Swiss Re, a reinsurer, to arbitrate certain claims under the blanket casualty treaty program, including Hartford's claim that its multi-year billing method was appropriate and any new or recomputed bills that may result from a different billing method. The issue before the Second Circuit, however, was whether those claims were arbitrable under the arbitration clause of the parties' contract. The Second Circuit held that, given the broad language of the arbitration clause which provided that "any difference arising between the contracting parties shall be submitted to arbitration," Hartford's claims fell within the scope of the arbitration agreement.
In contrast, the issue here is not whether Hartford's claims contained in the thirty-third count are arbitrable under the parties' arbitration agreement but whether they are justiciable in court. The fact that these claims can be resolved in an arbitration proceeding counsel against allowing Hartford to proceed in court through a declaratory judgment action. See Practice Book § 17-55(3) (a declaratory judgment action may be maintained where there is another form of proceeding that can provide the plaintiff with immediate redress only if the court is of the opinion that the plaintiff should be allowed to proceed despite the existence of such alternate procedure).
Since this court lacks subject matter jurisdiction over the claims contained in the thirty-third count of the plaintiffs' complaint because they are not yet ripe, that count is hereby dismissed.
II CT Page 10880-as
Motion to Dismiss the Thirty-second Count
The defendant Chartwell Insurance Company ("Chartwell") also seeks to dismiss the thirty-second count of the complaint which asserts a breach of contract claim against it. Chartwell contends that this lawsuit should be dismissed because the arbitration clause of the parties' contract provides that arbitration is a condition precedent to such an action. I agree.
The scope of the parties' obligation to arbitrate is defined by the language of the parties' arbitration agreement. A party can be compelled to arbitrate a dispute "only if, to the extent that, and in the manner which, he has agreed to do so." White v. Kampner, 229 Conn. 465, 471 (1994). No one is under a duty to submit any question to arbitration except to the extent that he has signified his willingness. (Citations and quotation marks omitted.) Success Centers v. Huntington Learning Centers, 223 Conn. 761, 772 (1992).
An agreement by the parties to arbitrate their disputes prior to seeking any judicial relief is binding and a court should not countenance the filing of a lawsuit if arbitration proceedings have not first been brought. "Where a contract contains a stipulation that the decision of arbitrators on certain questions shall be a condition precedent to the right of action on the contract itself, such a stipulation will be enforced and, until arbitration has been pursued or some sufficient reason given for not pursuing it, no action can be brought on the contract. Kantrowitz v. Perlman, 156 Conn. 224, 227-28, 240 A.2d 891 (1968). Whether an agreement makes arbitration a condition precedent to an action in court depends on the language of the arbitration Clause." Multi-service Contractors, Inc. v. Vernon, 181 Conn. 445, 447 (1980).
While a mere agreement to arbitrate, standing alone, will not give rise to a determination that arbitration is a condition precedent to litigation, Kantrowitz v. Perlman, supra, 156 Conn. 228-29, the parties may, through the express language of the arbitration agreement, so stipulate. In the present case, the arbitration clause of the reinsurance contract between Hartford and Chartwell expressly provides that arbitration is a condition precedent to any right of action under the contract. In their arbitration clause, the parties agreed as follows:
As a precedent to any right of action hereunder, if any dispute shall arise between the Company and the Underwriters with reference to the interpretation of this Agreement or their rights with respect to any transaction involved, whether such dispute arises before or after CT Page 10880-at termination of this Agreement, such dispute, upon written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen.
The language of the agreement manifestly provides that arbitration is a condition precedent to the bringing of any action. The breadth of the terms "any right of action" plainly includes the right to bring an action in court. The parties' agreement to proceed with arbitration prior to instituting any action merits enforcement and no action may be brought in court on the contract until the parties have pursued an arbitration of their dispute. Kantrowitz v. Perlman, supra, 156 Conn. 227. See also Mcintosh v. Oxford Health Plans, Superior Court, complex litigation docket at Waterbury, Docket No. X01CV010165663S (Nov. 30, 2001) (Hodgson, J.), and Gavalis v. Wheeler, Superior Court, judicial district of Hartford at Hartford, Docket No. CV98-0584866 (January 13, 1999) (Fineberg, J.).
Hartford asserts that this court should stay this action pursuant to General Statutes § 52-409, rather than dismiss it. Section 52-409 provides that:
If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration.
Although the use of the word "shall" ordinarily expresses a mandatory duty, it does not invariably do so. Doe v. Statewide Grievance Committee, 240 Conn. 671, 681 (1997). "The test to be applied in determining whether a statute is mandatory or directory is whether the prescribed mode of action is the essence of the thing to be accomplished, or in other words, whether it relates to a matter of substance or a matter of convenience . . . If it is a matter of substance, the statutory provision is mandatory. If, however, the legislative provision is designed to secure order, system and dispatch in the proceedings, it is generally held to be directory, especially where the requirement is stated in affirmative terms unaccompanied by negative words." (Citations omitted.) Santiago v. State, 261 Conn. 533, 540 (2002).
Section 52-409 relates to a matter of procedure designed to secure the CT Page 10880-au orderly adjudication of matters appropriately referable to arbitration. The requirement of issuing a stay is also stated in affirmative terms unaccompanied by negative words or negative consequences. Consequently, the statute's instruction to the court to issue a stay of court proceedings until an arbitration has been held is directory.
Moreover, a dismissal of the court action so that the parties here can pursue the resolution of their dispute through arbitration as mandated by their arbitration agreement is consistent with the purpose underlying § 52-409. The statute seeks to insure that arbitrable issues are resolved by arbitration. The objective of a dismissal in this case would be to require the parties to adhere to their agreement to arbitrate dispute prior to the initiation of any court action.
A stay of a court action is appropriate in cases in which the parties have agreed to arbitrate disputes but have not agreed that arbitration shall be a condition precedent to instituting a lawsuit. Mcintosh v. Oxford Health Plans, Superior Court, complex litigation docket at Waterbury, Docket No. X01CV010165663S (Nov. 30, 2001) (Hodgson, J.). A stay is not appropriate where the parties have expressly agreed that, as a condition precedent to any right of action, including the filing of an action in court, arbitration must first be had. Otherwise, the very result expressly prohibited by the parties, the existence of a lawsuit prior to arbitration, will be allowed to stand.
Hartford contends that it has proffered a "sufficient reason for not pursuing arbitration," citing Kantrowitz v. Perlman, supra, 156 Conn. 227-28. The only reason it has given is a desire to toll any applicable statute of limitations. In the same breath, however, Hartford maintains that no meritorious statute of limitations defense bars any of its claims. I do not find this reason sufficient to justify Hartford's failure to request arbitration prior to filing this lawsuit as it is contractually obligated to do.
Although both Hartford and Chartwell have expressed their readiness and willingness to proceed with arbitration, neither party has submitted a written request for arbitration and no arbitration proceedings have been instituted. Since the parties have failed to pursue arbitration despite their express agreement to do so prior to bringing any other action, Chartwell's motion to dismiss the claims against it in the thirty-third count of the plaintiffs' complaint is hereby granted.
III
Conclusion
In light of the above, the motions to dismiss the thirty-third count of the plaintiffs' complaint filed by the defendants Argonaut Insurance Company, Continental Indemnity Company, Security Insurance Company of Hartford, Tryg-Baltica International (UK) Ltd., Hilcot Re Ltd., Harleysville Insurance Company (UK) Ltd., Security Insurance Company (UK) Ltd., Oslo Re, and Chartwell Insurance Company are hereby granted. The court also grants the motion to dismiss the thirty-second count of the plaintiffs' complaint filed by Chartwell Insurance Company. CT Page 10880-av
BY THE COURT
Jon M. Alander Judge of the Superior Court