The opinion of the court was delivered by: William G. Bassler, District Judge:
At issue in this litigation is whether an insurance company failed to
give timely notice of an underlying claim to its reinsurer and if so,
whether the reinsurer must show that it suffered prejudice as a result of
such late notice in order to escape its contractual indemnification
obligation under the reinsurance policy.
Plaintiff British Insurance Company of Cayman ("BICC") is the insurance
company seeking recovery of reinsurance balances against its reinsurer,
Safety National Casualty Corporation ("Safety"). BICC maintains that its
predecessor-in-interest gave Safety notice of the underlying claim in
1994, which was nine years after initially learning of that claim. BICC
claims that such notice was timely because the obligation to provide
notice did not arise until that time. Moreover, it claims that even if
notice was untimely, it should prevail on its motion for summary judgment
because Safety was not prejudiced by any delay.
Safety does not dispute that the contract for reinsurance applies to
the losses at issue; rather, Safety has filed a cross motion for summary
judgment contending that it is not obligated to indemnify BICC because
BICC's predecessor failed to provide timely notice of the underlying
claim. According to Safety, even if it was notified of the underlying
claim in 1994, which it disputes, a nine year lapse is untimely as a
matter of law. Alternatively, Safety contends that at the latest, BICC's
obligation to provide notice arose in 1992 and that the resulting two
year delay is also untimely.
The Court has diversity jurisdiction over this matter pursuant to
28 U.S.C. § 1332.*fn1 Oral argument was heard on May 7, 2001. For
the reasons set forth below, BICC's motion for summary judgment is
denied. Safety's cross motion for summary judgment is granted.
I. Insurance and Reinsurance Policies
ACIC transferred, or ceded, risk to Safety under the Policy by buying
reinsurance from Safety in the form of a Certificate of Facultative
Reinsurance ("Facultative Reinsurance"). Pursuant to the Facultative
Reinsurance, Safety received premium ceded by ACIC and undertook to
reimburse ACIC's losses up to a specified limit. Specifically, under the
Facultative Reinsurance, Safety is to reimburse ACIC for any losses in
excess of the $250,000 self-insured retention up to $750,000, and for any
losses in excess of $5,250,000 up to $5,000,000.
The Facultative Reinsurance contains a notice provision, which
The Company shall advise the Reinsurer promptly of any
claim and any subsequent developments pertaining
thereto which, in the opinion of the Company, may
involve the reinsurance hereunder. . . . The Company,
when so requested, will afford the Reinsurer an
opportunity to be associated with the Company, at the
expense of the Reinsurer, in the defense or control of
any claim, suit or proceeding involving this
reinsurance, and the Company and the Reinsurer shall
cooperate in every respect in the defense and control
of such claim, suit or proceeding.
(Paragraph 4 of Certificate of Facultative Reinsurance attached to
Certification of Thomas Perry, Esq. ("Perry Cert.") as Ex. A.)
Pursuant to an Assumption Reinsurance Agreement dated August 29, 1996,
ACIC assigned the Facultative Reinsurance to British International
Insurance Company ("British International"). Then pursuant to an
Assumption Reinsurance Agreement dated November 30, 1998, BICC assumed
the Facultative Reinsurance.
II. Kirtos Worker's Compensation Claim
Anthony Kirtos ("Kirtos") was employed by May as a truck driver. On
March 18, 1982, Kirtos sustained a back and neck strain while carrying a
sofa. He subsequently filed a workers' compensation claim against May. As
of December 31, 2000, BICC's losses on the Kirtos claim totaled
$62,172.61. Continuing to make payments to May as it is obligated to do,
BICC has determined that its overall exposure on this claim, exclusive of
what it has paid to date, is at least $197,823.79, based on Kirtos' life
expectancy and the present value of his benefits.
The Kirtos claim has been managed by Central Regional Claims
Corporation ("CRCC"), the claims handling entity for May. Among other
things, CRCC (1) obtained surveillance reports and independent medical
examinations of the claimant; (2) paid the claimant's medical bills; (3)
reviewed the claimant's medical reports and decisions of the Bureau of
Workers' Compensation and Industrial Commission of Ohio regarding the
claimant; and (3) coordinated the defense of the Kirtos claim, which BICC
alleges included efforts at settlement.
The Claims Summary Report, which was included in the materials
provided to ACIC, advised ACIC that as of August 15, 1984, Kirtos
was receiving temporary and total disability benefits ("TTD"). It
was estimated that the TTD benefits would continue for 127 weeks.
(Claims Summary Report attached to Sullivan Cert. as Ex. B.)
On April 24, 1985, after receiving notice of the Kirtos claim, ACIC
opened a claims file. ACIC closed the file on that same day, or shortly
thereafter, upon determining that the claim "won't reach ACIC layer."
(Worksheet attached to Sullivan Cert. as Ex. B.)
There is no dispute that ACIC did not provide notice to Safety or take
any action on the Kirtos claim from at least May 1985 until April 1992.
On April 9, 1992, at CRCC's request, Marsh advised ACIC that the Kirtos
claim was still active.
By letter dated June 11, 1992, CRCC sent its Kirtos claim file dating
back to April 1989, to ACIC and advised that it was continuing to
investigate the claim in order to "better evaluate" the exposure for
permanent total disability benefits ("PTD"). (June 11, 1992 letter
attached to Sullivan Cert. as Ex. J.) The parties dispute whether the
June 11, 1992 letter revealed that Kirtos had filed an application for
PTD benefits which was then pending.
The letter did, however, provide ACIC with a summary of the amounts
spent as of that date and CRCC's reserve analysis for the Kirtos claim.
CRCC also informed ACIC that over $152,000 had been paid as TTD
benefits, that more than $17,000 had been paid in medical expenses with
$8,564 incurred but not paid, and that over $18,000 had been paid in
other expenses. Moreover, the information provided by CRCC indicated that
May had established ...