Onebeacon America Insurance v. Commercial Union Assurance Co. , 684 F.3d 237 ( 2012 )

United States Court of Appeals
For the First Circuit
No. 11-2072
ONEBEACON AMERICA INSURANCE COMPANY,
Plaintiff, Appellant,
v.
COMMERCIAL UNION ASSURANCE COMPANY OF CANADA
n/k/a AVIVA INSURANCE COMPANY OF CANADA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Boudin, and Thompson,
Circuit Judges.
Kevin J. O'Connor, with whom Jennifer L. Noe and Hermes,
Netburn, O'Connor & Spearing, P.C., was on brief for appellant.
Benjamin L. Hincks, with whom Wynter N. Lavier and Mintz Levin
Cohn Ferris Glovsky and Popeo, P.C., were on brief for appellee.
July 11, 2012
TORRUELLA, Circuit Judge. This case concerns a
reinsurance dispute between an American insurance company and a
Canadian insurance company. The American company, Plaintiff-
Appellant OneBeacon America Insurance Company ("OneBeacon"), claims
that the Canadian company, Defendant-Appellee Aviva Insurance
Company of Canada ("Aviva"), is obligated to reinsure OneBeacon for
policies OneBeacon issued to certain entities in the early 1980s.
Both parties filed cross-motions for summary judgment, and the
district court denied summary judgment to OneBeacon and granted
summary judgment to Aviva. OneBeacon now appeals, challenging both
summary judgment rulings. After careful review, we affirm the
district court's denial of summary judgment to OneBeacon and award
of summary judgment to Aviva.
I. Background
A. The 1980 OneBeacon Policy and the 1980 Aviva Policy
In the early 1980s, OneBeacon and Aviva were both
affiliated members of the Commercial Union group of insurance
companies (the two companies are no longer affiliated); OneBeacon
was based in the U.S., while Aviva was based in Canada.1 On
March 28, 1980, OneBeacon issued an insurance policy (the "1980
OneBeacon Policy") to two U.S.-based subsidiaries of Harrisons &
Crosfield (Canada) Ltd: Harrisons & Crosfield (America), Inc. and
1
During this time period, OneBeacon was known as the Commercial
Union Insurance Company, and Aviva was known as the Commercial
Union Assurance Company of Canada.
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Harrisons & Crosfield (Pacific) Inc. (collectively, "Harrisons
US"). The 1980 OneBeacon Policy was effective from March 28, 1980
through April 1, 1981 and was identified as policy no. C8-9101-002.
The Policy contained "Endorsement Number 4,"2 (the "1980 OneBeacon
Endorsement Number 4") which provides:
It is understood and agreed that this policy
or any renewal thereof is 100% reinsured by
[Aviva] policy number 6687287 effective
3/28/80 to 4/1/81.
It is further agreed that cancellations of
this policy C8-9101-002 or any renewal thereof
or policy 6687287 or any renewal thereof shall
be reason for automatic cancellations of the
other policy.
The premium listed on the 1980 OneBeacon Policy is "Canadian
$45,530." The "Producer" code for the 1980 OneBeacon Policy is
"02-20211."
Also on March 28, 1980, Aviva issued an insurance policy
(the "1980 Aviva Policy") to Harrisons & Crosfield (Canada) Ltd.
("Harrisons Canada") with the policy no. 6687287. The 1980 Aviva
Policy contains a "Differences in Conditions Endorsement" (the
"1980 Aviva Endorsement"), which states:
In consideration of the premium charged, the
Insurer agrees that this policy is placed in
conjunction with and reinsures Policy No. CL
C8-9191-002 issued by [OneBeacon], or any
renewal thereof, in respect of:
2
An "endorsement" is "an amendment to an insurance policy."
Black's Law Dictionary 607 (9th ed. 2009).
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Insured: Harrisons & Crosfield(America)Inc.,
Harrisons & Crosfield(Pacific)Inc.
. . .
Exceptions: This insurance differs from the
policy which it follows in the following
particulars:
(a) Premium: $45,530 (Canadian Funds-Deposit)
The Limit of Liability under either or both
policies shall not exceed $1,000,000.00 as set
forth in Policies 6687 and CL C8-9101-002 or
any renewal policies issued by this Insurer.
On November 26, 1980, Aviva issued to OneBeacon
"reinsurance certificate No. 9009419" (the "Facultative
Certificate")3 for the "reinsurance term" of March 28, 1980 to
April 1, 1981. The Facultative Certificate states that Aviva
reinsures policy no. C8-9101-002 (the 1980 OneBeacon Policy), and
the reinsurance premium listed is $45,530.00 Canadian. The
Facultative Certificate's policy period was never extended, nor
does a separate facultative certificate exist for any subsequent
policy period. The Facultative Certificate is the only direct
written agreement between Aviva and OneBeacon on the record.
Aviva sent the Facultative Certificate to OneBeacon via
a letter dated November 26, 1980, along with a check for $4,553
Canadian. The letter states: "Further to yours of July 1st, 1980.
Attached is our Reinsurance Certificate along with our cheque in
3
A "facultative certificate" is a "contract of reinsurance
separately negotiated to cover risk under a single insurance
policy." Black's Law Dictionary 631 (8th ed. 2004).
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the amount of $4,553.00 Canadian being your override commission of
10% of the premium which was $45,530.00 Canadian."
B. The 1981 Aviva Endorsement and the 1981 and 1982 OneBeacon
Policies
In 1981, OneBeacon issued a policy to Harrisons US,
effective April 1, 1981 to April 1, 1982, with the policy no. C8-
9138-002 (the "1981 OneBeacon Policy"). Above the phrase "renewal
of or previous no." is the policy number C8-9101-002, which
corresponds to the 1980 OneBeacon Policy. The named insureds on
the 1981 OneBeacon Policy are Harrisons US and Harcros Inc.,4 and
the listed "Additional Insureds" are Harrisons & Crosfield Ltd. and
Wilkinson Linatex.5 The Producer code for the 1981 OneBeacon
Policy is "02-20020." The premium amount listed on the 1981
OneBeacon Policy is $24,000 U.S. The 1981 OneBeacon Policy does
not contain the 1980 OneBeacon Endorsement Number 4 or any similar
provision indicating that the 1981 OneBeacon Policy was reinsured
by any Aviva policy.
Around the same time, Aviva issued an endorsement (the
"1981 Aviva Endorsement") to the 1980 Aviva Policy that extended
the policy period from March 28, 1981 to March 28, 1982.
4
In 1979, Harrisons Canada formed Harcros Inc., a brokerage house
that placed insurance for Harrisons US and Harrisons Canada between
1979 and 1986.
5
The Additional Insureds are only insured "in respect of their
direct sales into the United States of America, its territories and
possessions."
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Significantly, the 1981 Aviva Endorsement explicitly excluded
Harrisons US from coverage under the 1980 Aviva Policy. The 1981
Aviva Endorsement provided:
It is further understood and agreed that the
following Corporations are specifically
excluded from this policy which shall not
inure to their benefit in any way:
...
Harrisons & Crosfield (America) Inc.
...
Harcros Inc.
...
Harrisons & Crosfield (Pacific) Inc.
In 1982, OneBeacon issued a policy to Harrisons US with
the policy no. C8-9138-007 (the "1982 OneBeacon Policy").
OneBeacon has not located a copy of the 1982 OneBeacon Policy, but
the parties agree that the 1982 OneBeacon Policy was a renewal of
the 1981 Policy. In addition, in 1982, Aviva again extended the
term of its policy issued to Harrisons Canada by one year, to
March 28, 1983.
C. Premium Evidence
The record contains a "ledger" from OneBeacon that
includes entries pertaining to payments received in connection with
the Harrisons US policies. The ledger entry for policy no. 9101-
002, the 1980 OneBeacon Policy, shows that OneBeacon received a
premium of $4,252 U.S., even though the premium amount listed on
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the 1980 OneBeacon Policy was $45,530 Canadian. In addition, the
"reinsurer" column in the entry for the 1980 OneBeacon Policy lists
a reinsurer identified as "C44." However, the "reinsurer" column
of the entry for policy no. 9138-002, the 1981 OneBeacon Policy, is
left blank, showing no reinsurer at all for the 1981 OneBeacon
Policy. This entry also indicates that OneBeacon received a
$24,000 premium, which corresponds exactly with the premium amount
listed on the 1981 OneBeacon Policy. The "reinsurer" column for
the entry corresponding to the 1982 OneBeacon policy is also blank.
The ledger does not indicate that OneBeacon ever shared any of the
premiums it received for the 1981 or 1982 OneBeacon Policies with
Aviva.
D. Procedural History
In 1998, OneBeacon received notice of lawsuits against
Harrisons US for asbestos-related injuries. Based upon the
coverage it issued to Harrisons US under the 1980, 1981, and 1982
OneBeacon Policies, OneBeacon entered into a defense cost-sharing
arrangement with Harrisons US's other insurers for claims arising
from the covered period. In November 2007, OneBeacon requested
that Aviva fully indemnify OneBeacon for costs incurred in
connection with the Harrisons US claims. Aviva responded that it
would reimburse OneBeacon for only one-third of defense expenses
and indemnity payments.
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On February 2, 2010, OneBeacon filed suit against Aviva
in the U.S. District Court for the District of Massachusetts.
OneBeacon sought a declaration that Aviva had a contractual
obligation to reinsure the 1980, 1981, and 1982 OneBeacon Policies
issued to Harrisons US, and also sought damages for Aviva's alleged
breach of contract. On June 24, 2011, OneBeacon and Aviva filed
cross-motions for summary judgment. On August 18, 2011, the
district court denied OneBeacon's motion and granted Aviva's. See
OneBeacon Am. Ins. Co. v. Commercial Union Assur. Co., 804 F. Supp.
2d 77 (D. Mass. 2011). The court pointed out that the Facultative
Certificate was the only contract on the record between the two
parties. See id. at 87. The court then held that because the
Facultative Certificate unambiguously stated that the term of
reinsurance ended after April 1, 1981, Aviva did not reinsure the
1981 or 1982 OneBeacon Policies. Id. The court further concluded
that the other evidence on the record also suggested that Aviva
reinsured only the 1980 OneBeacon Policy. Id. at 86-88.
OneBeacon now appeals both the denial of its motion for
summary judgment and the grant of summary judgment to Aviva.
II. Discussion
A. Standard of Review and Applicable Law
We review a grant or denial of summary judgment by the
district court de novo. Sarsfield v. Great Am. Ins. Co. of N.Y.,
335 F. App'x 63, 65 (1st Cir. 2009). "[W]e are not married to the
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trial court's reasoning but, rather, may affirm on any
independently sufficient ground made manifest by the record."
Cahoon v. Shelton, 647 F.3d 18, 22 (1st Cir. 2011). Where, as
here, we are presented with cross-motions for summary judgment, we
"must view each motion, separately," in the light most favorable to
the non-moving party, and draw all reasonable inferences in that
party's favor. Estate of Hevia v. Portrio Corp., 602 F.3d 34, 40
(1st Cir. 2010). "The presence of cross-motions neither dilutes
nor distorts [the de novo] standard of review," Mass. Museum of
Contemporary Art Found., Inc. v. Buchel, 593 F.3d 38, 52 (1st Cir.
2010)(internal quotation marks omitted), and thus we are obligated
to make a determination "based on undisputed facts whether either
the plaintiffs or the defendants deserve judgment as a matter of
law." Hartford Fire Ins. Co. v. CNA Ins. Co. (Europe) Ltd, 633
F.3d 50, 53 (1st Cir. 2011).
In order to prevail on a motion for summary judgment, the
moving party must show "that there is no genuine dispute as to any
material fact" and that it "is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(a); see Baltodano v. Merk, Sharp, and
Dohme (I.A.) Corp., 637 F.3d 38, 41 (1st Cir. 2011). "A fact is
material if it carries with it the potential to affect the outcome
of the suit under applicable law." Santiago-Ramos v. Centennial
P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir. 2000) (internal
quotation marks omitted). On issues where the movant does not have
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the burden of proof at trial, the movant can succeed on summary
judgment by showing "that there is an absence of evidence to
support the nonmoving party's case." Celotex Corp. v. Catrett, 477
U.S. 317, 325 (1986).
Both parties applied Massachusetts law in their arguments
before the district court, and both apply Massachusetts law in
their arguments before this Court. "[A] diversity court is free to
honor the parties' reasonable agreement" regarding which state's
law applies. Artuso v. Vertex Pharms., Inc., 637 F.3d 1, 5 (1st
Cir. 2011) (citing Borden v. Paul Revere Life Ins. Co., 935 F.2d
370, 375 (1st Cir. 1991)). Thus, we apply Massachusetts law in
this case.
Under Massachusetts law, the insured bears the burden of
demonstrating that a claim falls within a policy's affirmative
grant of coverage. Markline Co. v. Travelers Inc. Co., 424 N.E.2d
464, 465 (Mass. 1981). Therefore, as the party seeking insurance
coverage, it is OneBeacon's burden to prove that Aviva agreed to
reinsure the 1981 and 1982 OneBeacon Policies.
"The interpretation of an insurance contract and the
application of policy language to known facts present questions of
law for the judge to decide." Sarsfield, 335 F. App'x at 65
(internal quotation marks omitted); see also Merchs. Ins. Co. v.
U.S. Fid. and Guar. Co., 143 F.3d 5, 8 (1st Cir. 1998). The
interpretation of an insurance contract should be "according to the
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fair and reasonable meaning of the words in which the agreement of
the parties is expressed." Allmerica Fin. Corp. v. Certain
Underwriters at Lloyd's, London, 871 N.E.2d 418, 425 (Mass. 2007)
(internal quotation marks omitted). Additionally, every word in an
insurance contract "must be presumed to have been employed with a
purpose and must be given meaning and effect whenever practicable."
Id.B. OneBeacon's Motion for Summary Judgment
To prevail on summary judgment, OneBeacon must show that
there are no material facts in dispute and that as a matter of law
Aviva provided reinsurance coverage for both the 1981 OneBeacon
Policy and the 1982 OneBeacon Policy. As the district court noted,
the only direct agreement between OneBeacon and Aviva in the record
is the Facultative Certificate, which clearly indicates that the
term of Aviva's reinsurance obligation was from March 28, 1980 to
April 1, 1981. OneBeacon argues that the agreement between it and
Aviva was created by the 1980 OneBeacon and Aviva Policies rather
than by the Facultative Certificate. OneBeacon contends that the
1980 Aviva Policy reinsures the 1980 OneBeacon Policy and any
renewals, and that the Facultative Certificate, which was issued
several months after the 1980 Policies, was a mere confirmation of
the reinsurance relationship that already existed between the two
insurance companies.
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However, even if we assume arguendo that the 1980 Aviva
and OneBeacon Policies formed the parties' agreement in 1980, this
does not help OneBeacon. For if the various 1980 policies
established the original agreement between the parties, the record
makes clear that the parties changed the terms of their agreement
in 1981.
The 1981 Aviva Endorsement explicitly changed the scope
of Aviva's obligations. The Differences in Condition Endorsement
in the original 1980 Aviva Policy stated that Aviva would reinsure
OneBeacon's coverage to Harrisons US. However, the 1981 Aviva
Endorsement stated that Harrisons US was "specifically excluded
from this policy which shall not inure to [its] benefit in any way"
(emphasis added). OneBeacon suggests that the 1981 Aviva
Endorsement only eliminated Aviva's direct insurance obligations to
Harrisons US while leaving undisturbed Aviva's agreement to
reinsure the 1980 OneBeacon policy and its renewals. But the 1981
Aviva Endorsement explicitly states that it "form[s] part of Policy
No. 6687287" (i.e., the 1980 Aviva Policy) and that it excludes
Harrison US from that policy entirely. Moreover, OneBeacon claims
in its reply brief that "the very heart of [OneBeacon's] case" is
that Policy No. 6687287 and the 1980 OneBeacon policy combine to
"provide the terms of the Reinsurance Agreement between OneBeacon
and Aviva." Yet given that Harrisons US is excluded from Policy
No. 6687287, and given that Aviva is not a party to the 1980
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OneBeacon policy, it defies logic to say that the two policies in
combination create an ongoing obligation that Aviva reinsure
OneBeacon with respect to Harrisons US. As amended, Policy No.
6687287 has nothing to do with Harrisons US (Harrisons US is
"specifically excluded from this policy"), and the 1980 OneBeacon
policy on its own cannot bind Aviva (a non-party to that policy).
Moreover, the 1981 OneBeacon Policy, which OneBeacon
claims is a renewal of its 1980 Policy, does not contain the 1980
OneBeacon Endorsement Number 4 or any similar provision indicating
that the 1981 OneBeacon Policy was reinsured by Aviva. This
omission is consistent with Aviva terminating its reinsurance
relationship with OneBeacon and OneBeacon taking on the ultimate
insurance risk for Harrisons US in the 1981 policy period.
Similarly, there is no indication that the 1982 OneBeacon Policy
had the 1980 OneBeacon Endorsement Number 4 or any similar
provision. Thus, in contrast to the 1980 OneBeacon policy, the
1981 and 1982 OneBeacon Policies did not tell Harrisons US that
Aviva was standing behind OneBeacon as the reinsurer.
Furthermore, if there is some ambiguity regarding the
meaning of the 1981 Aviva Endorsement and the 1981 OneBeacon
Policy, Massachusetts law allows us to examine the extrinsic
evidence to determine whether the parties intended for the
reinsurance arrangement to continue after the end of the first
year. See Den norske Bank AS v. First Nat'l Bank, 75 F.3d 49, 52
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(1st Cir. 1996) ("Although not admissible either to contradict or
alter express terms, extrinsic evidence is admissible to assist the
factfinder in ascertaining the intent of the parties as imperfectly
expressed in ambiguous contract language." (citing Robert Indus.,
Inc. v. Spence, 291 N.E.2d 407, 410 (Mass. 1973))). Here, the
extrinsic evidence on the record convinces us that the reinsurance
arrangement did not continue.
Firstly, the fact that there is no Facultative
Certificate between Aviva and OneBeacon for the second and third
policy years suggests that the relationship between the two
companies changed after the first year. Secondly, and most
importantly, the evidence regarding the flow of premium payments
supports the view that Aviva terminated its reinsurance obligation
after the first year. In the first year, in which both parties
agree that Aviva reinsured OneBeacon, Aviva received a premium
payment of $45,530 Canadian and remitted a 10% fee to OneBeacon.
Moreover, the OneBeacon ledger shows that there was a reinsurer for
the 1980 OneBeacon policy -- identified with the code "C44." In
the second year, however, the OneBeacon ledger reflects that
OneBeacon directly received the full $24,000 U.S. premium payment.
Furthermore, the ledger does not indicate that there was a
reinsurer for the 1981 or 1982 OneBeacon Policies. Further,
OneBeacon has not pointed to any evidence that it shared the
second- or third-year premium with Aviva. OneBeacon would have
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this Court reach a result that OneBeacon kept all of the premiums
for the 1981 and 1982 policy years, but that it bore none of the
risk. Such a conclusion would defy economic sense.
Because there is no evidence that Aviva agreed to provide
reinsurance beyond the term of the first policy year, OneBeacon is
not entitled to judgment as a matter of law. Accordingly, we
affirm the district court's denial of OneBeacon's summary judgment
motion.
C. Aviva's Motion for Summary Judgment
As discussed above, the Facultative Certificate, which is
the only direct agreement between the parties on the record,
unambiguously provides that Aviva's reinsurance obligation
terminated after April 1, 1981. Further, also as previously
discussed, even if we assume arguendo that the 1980 Aviva and
OneBeacon Policies, rather than the Facultative Certificate, formed
the original agreement between the parties, OneBeacon cannot show
that the original agreement lasted beyond the end of the first
policy year. As explained above, both the language of subsequent
documents (the 1981 Aviva Endorsement and the 1981 OneBeacon
Policy) and the extrinsic evidence (the premium payments and the
lack of additional facultative certificates) show that whatever
reinsurance arrangement between OneBeacon and Aviva that existed in
the first policy year terminated at the end of that year.
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Since it is OneBeacon's burden to prove Aviva's
reinsurance obligation, which OneBeacon cannot do, summary judgment
for Aviva was appropriate. Accordingly, we affirm the grant of
summary judgment to Aviva.
III. Conclusion
The judgment of the district court is affirmed.
AFFIRMED.
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