Opinion
No. K-211.
June 19, 1969. Suggestion to Certify Denied July 10, 1969.
Appeal from the Circuit Court, Leon County, Hugh M. Taylor, J.
White, Phipps, Linn, Furnell Mahorner, Tallahassee, for appellant.
Earl Faircloth, Atty. Gen., Stephen Marc Slepin, Asst. Atty. Gen., Thomas A. Waddell, John W. Achor and Norman S. Sauls, Tallahassee, for appellee.
Two of the respondents in receivership proceedings have appealed from an order entered by the Circuit Court for Leon County denying their petition for a priority as to certain reinsurance proceeds.
The basic question presented for our determination in this appeal is whether that court erred in such denial in view of the appellants' contention that the reinsurance contract was for their benefit as the original insureds.
The appellants, Imperial Polk Leathers, Inc., and Saddle Creek Properties, Inc., both hereinafter referred to as "Imperial," were among the groups of respondents which were subscribers of the Florida Insurance Exchange, an insolvent domestic reciprocal insurer, had been ordered into receivership, with the appellee-relator, the Treasurer and ex officio Insurance Commissioner, being appointed as the receiver. The receiver filed a petition for instructions, and Imperial filed the petition first mentioned above for affirmative relief asserting a priority to certain reinsurance proceeds. In the order appealed from herein the court, among other things, denied the appellants' petition.
The pertinent facts established by the evidence and a stipulation entered into by the parties are as follows:
Imperial asked an insurance agency to secure fire insurance coverage for its properties, and the agency arranged for such coverage with the above-mentioned Florida Insurance Exchange, which expressly imposed a condition of its obtaining facultative reinsurance before it would cover above $140,000. When such reinsurance had been found, the Exchange issued riders increasing its coverage of Imperial, so that the total fire insurance coverage of Imperial rose to over $500,000.
On August 4, 1966, a fire occurred at the premises of Imperial, and the Exchange and Imperial agreed to a total fire loss of $333,030.66. Proofs of claim were timely filed.
Prior to the receivership of the Exchange, Lloyds, a reinsurer, paid the Exchange under its fire treaty $75,873.02 for the fire loss incurred by Imperial, and another reinsurer paid the Exchange under its facultative reinsurance contract $55,973.70 for the fire loss incurred by Imperial. No part of this reinsurance money was ever turned over to Imperial by the Exchange. No part of Imperial's fire loss has ever been paid.
This court in McDonough Construction Corp. v. Pan American Surety Co., 190 So.2d 617 (Fla.App. 1966) had occasion to recognize the general principle in reinsurance that the reinsurance contract is between the reinsurer and the insurer, and the original insured has no privity in that contract; and that, if the insurer becomes insolvent, the reinsurance proceeds become assets to be distributed among the general creditors and the original insured has no equitable claim upon them.
In this appeal, however, Imperial contends that the courts have recognized three exceptions to the foregoing principle: (1) where the reinsurer binds itself to the terms and conditions of the original contract; (2) where the reinsurer binds itself to assume complete liability for the original policies; and (3) where, by special agreement between the original insured and its insurer, reinsurance is made a condition of the original policy.
Upon a consideration of the authorities, we have reached the conclusion that the first exception to the above general principle which we recognized in the McDonough case, supra, is a valid exception to that principle in Florida. This case, as to that exception, makes this, we conclude from our research on the point, a case of first impression in Florida.
In support of its contention that such an exception should be recognized in the case at bar, the appellant cites and relies upon the decision of the Alabama Supreme Court in United States Fire Ins. Co. v. Hecht, 231 Ala. 256, 164 So. 65 (1935) and the decisions of the Missouri Supreme Court in Homan v. Employers Reinsurance Corporation, 345 Mo. 650, 136 S.W.2d 289, 127 A.L.R. 163 (1940), and First National Bank of Kansas City v. Higgins, Mo., 357 S.W.2d 139 (1962). As we read them, these decisions stand for the proposition that a reinsurance contract which binds the reinsurer to the terms and conditions of the original policy is a contract assuming liability to the original insured in the amount reinsured.
Our independent legal research, however, shows that there is a split of authority as to this proposition. After full consideration of the conflicting authorities, we have concluded that the three cases relied upon by the appellant represent the better view and more nearly coincide with our concepts of justice under law.
Among the decisions from jurisdictions other than Alabama and Missouri recognizing what we consider to be the better view are Hunt v. New Hampshire Fire Underwriters Assoc., 68 N.H. 305, 38 A. 145, 38 L.R.A. 514, 73 Am.St.Rep. 602 (1895); and Globe Nat. Fire Ins. Co. v. American Banking Casualty Co., 205 Iowa 1085, 217 N.W. 268, 56 A.L.R. 463 (1928).
In the case at bar two certificates of reinsurance contained this provision: "Subject to the same risks, valuations, endorsements (except changes of location), assignments and conditions as the Original Insurance, and loss if any to be settled and paid pro rata with the reinsured and at the same time and place and upon the same terms and conditions." The remaining five certificates provide that the "Form 8 Conditions" were "As original." Similarly, two cover notes provided: "Subject to all the terms, clauses, and conditions of the policy." Lloyds bound itself by the express language of the reinsurance agreement to the terms and conditions of the original contract.
In our opinion, the above-quoted provisions of the reinsurance agreements bring this case squarely within the rule recognized in the Hecht, Homan, and Higgins cases, supra, as an exception to the general principle which we recognized in the McDonough case, supra. Accordingly, we think that the Circuit Court committed reversible error in denying the appellants' petition for a priority as to the reinsurance proceeds.
Therefore, the order appealed from herein must be, and it is, reversed and the cause is remanded with instructions for further proceedings consistent with the views set forth above.
Reversed and remanded with directions.
RAWLS, J., concurs.
WIGGINTON, C.J., dissents.
I sincerely regret my inability to agree with the majority opinion of my esteemed colleagues.
The trial court found from the evidence, and I agree, that the contracts of reinsurance involved in this case were not procured at the insistence of appellant insureds as a condition of placing their insurance with the insolvent insurer. The reinsurance contracts between the insurer and the reinsurers were procured solely for the protection of the insurer, and to indemnify it against any loss it may subsequently sustain for the liability incurred by it under insurance policies issued to appellant insureds.
In McDonough Construction Corporation v. Pan American Surety Company this court held that the insured policy-holder had no right of action against the receiver of the insolvent insurer for the proceeds of a facultative reinsurance treaty with a reinsurer. It is my view that the rule in McDonough is applicable to the case sub judice.
McDonough Construction Corporation v. Pan American Surety Company (Fla.App. 1966) 190 So.2d 617.
The majority opinion holds that under the better reasoned decisions rendered by courts of other jurisdictions, an exception to the general rule pronounced in McDonough should be applied in resolving the question presented in this appeal. It bases its conclusion upon the decisions rendered by the Supreme Court of Alabama in United States Fire Insurance Company v. Hecht, and the decisions of the Supreme Court of Missouri in the cases of Homan v. Employers Reinsurance Corporation and First National Bank of Kansas City v. Higgins. In each of the three cases on which reliance is placed the reinsurance agreement involved was found by the court to be a contract of indemnity against liability in which the reinsurer agreed to indemnify both the insurer and its policyholders against any loss which they may sustain by virtue of the outstanding policies issued by the insurer. Under this type of reinsurance agreement the reinsurer becomes liable directly to the insureds who purchased the policies, and the third party beneficiaries thereunder. This is the type of reinsurance contract which is employed when the reinsurer takes over all or a part of the business of the original insurer and assumes full liability for all losses sustained by the holders of outstanding policies issued by the insurer. In each of the cited cases the court was careful to point out the distinction between the type of reinsurance agreement involved in those cases and the type of agreement wherein the reinsurer agrees to indemnify the insurer against loss under policies issued by it, but in doing so creates no privity with nor incurs any liability to the policyholders or third party beneficiaries under those policies. The latter type of reinsurance agreement is in my judgment the kind involved in the case sub judice. There is no privity of contract between the appellant insureds and the reinsurers whose funds are now in the hands of appellee receiver. These funds are considered to be general assets applicable to the claims of creditors of the insolvent insurer on a pro rata basis.
United States Fire Insurance Company v. Hecht (1935), 231 Ala. 256, 164 So. 65.
Homan v. Employers Reinsurance Corporation (1940), 345 Mo. 650, 136 S.W.2d 289.
First National Bank of Kansas City v. Higgins (Mo. 1962), 357 S.W.2d 139.
The majority opinion concludes that the language of the reinsurance agreement which provides that "the reinsurers' liability shall be subject to the same risks, valuations, endorsements, assignments, and conditions as the original insurance with loss, if any, to be settled and paid pro rata with the reinsured at the same time and place and upon the same terms and conditions," subjects the reinsurers to liability in a direct action brought by the insureds, and entitled the insureds to the proceeds of the reinsurance agreement applicable to their policies. It is my interpretation of the foregoing language that its purpose, intent and legal effect are to fix the measure of the reinsureds' liability to the insurer, and do not convert the reinsurance agreement into a contract of indemnity against liability for the claims of policyholders. This is the conclusion reached by the Supreme Court of Ohio in Stickel v. Excess Insurance Company of America, with which conclusion I agree.
Stickel v. Excess Insurance Company of America (1939), 136 Ohio St. 49, 23 N.E.2d 839.
I would affirm the judgment appealed.