Century Indemnity Co. v. OneBeacon Insurance

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
CENTURY INDEMNITY COMPANY, AS IN THE SUPERIOR COURT OF
SUCCESSOR TO CCI INSURANCE PENNSYLVANIA
COMPANY, AS SUCCESSOR TO
INSURANCE COMPANY OF NORTH
AMERICA AND PACIFIC EMPLOYERS
INSURANCE COMPANY
Appellee
v.
ONEBEACON INSURANCE COMPANY
F/K/A CGU INSURANCE COMPANY F/K/A
GENERAL ACCIDENT INSURANCE
COMPANY OF AMERICA
Appellant No. 1280 EDA 2016
Appeal from the Judgment Entered April 26, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): July Term, 2012 No. 002928
BEFORE: OTT, J., RANSOM, J., and FITZGERALD, J.*
MEMORANDUM BY OTT, J.: FILED SEPTEMBER 01, 2017
OneBeacon Insurance Company F/K/A CGU Insurance Company F/K/A
General Accident Insurance Company of America (hereinafter “OneBeacon”),
appeals from the judgment entered on April 26, 2016,1 in the Philadelphia
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*
Former Justice specially assigned to the Superior Court.
1
We note that OneBeacon filed its notice of appeal from the March 15, 2016,
order denying its post-trial motions. See Notice of Appeal, 4/14/2016.
However, “an appeal properly lies from the entry of judgment, not from the
denial of post-trial motions.” Gold v. Rosen, 135 A.3d 1039, 1040 n.1 (Pa.
Super. 2016). In the present case, judgment was subsequently entered on
(Footnote Continued Next Page)
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County Court of Common Pleas in this action seeking reinsurance2 coverage
for defense expenses. Following a non-jury trial, the court entered
judgment against OneBeacon and in favor of Century Indemnity Company,
as successor to CCI Insurance Company, as successor to Insurance
Company of North America (hereinafter “Century”), in the amount of
$4,772,520.44, plus prejudgment interest, and in favor of Pacific Employers
Insurance Company (hereinafter “PEIC”), in the amount of $2,426,478.42,
plus prejudgment interest.3 On appeal, OneBeacon challenges the ruling of
the trial court that the reinsurance facultative certificates4 at issue provided
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(Footnote Continued)
the verdict on April 26, 2016. Therefore, we will consider this appeal as
properly filed after the entry of judgment. See id. See also Pa.R.A.P.
905(a)(5). Further, we direct the Prothonotary to correct the caption
accordingly.
2
Reinsurance is defined as:
the ceding by one insurance company to another of all or a
portion of its risks for a stipulated portion of the premium, in
which the liability of the reinsurer is solely to the reinsured,
which is the ceding company, and in which contract the ceding
company retains all contact with the original insured, and
handles all matters prior to and subsequent to loss[.]
Reid v. Ruffin, 469 A.2d 1030, 1033 (Pa. 1983) (citation and emphasis
omitted). In other words, it is insurance coverage for insurance companies.
3
We note Century and PEIC are proceeding jointly in this appeal,
represented by the same attorneys. Therefore, we will refer to them
collectively as “Century/PEIC.”
4
“Facultative reinsurance reinsures one particular risk,” as opposed to
“treaty reinsurance [which] reinsures a program, for example, a collection of
homeowners’ risks underwritten by a ceding company.” Koken v. Legion
(Footnote Continued Next Page)
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coverage for defense expenses in excess of the liability cap, and that
Century/PEIC were entitled to interest on certain proofs of loss issued prior
to early 2013. For the reasons below, we affirm.
The relevant facts and procedural history underlying this appeal are as
follows. In 1983, Century’s predecessor issued an Excess Blanket
Catastrophe Liability Policy to a subsidiary of Formosa Plastics Corporation
that provided $25,000,000.00 in umbrella liability for covered losses. During
the same period, PEIC issued a similar policy to Gould Pumps, Inc. 5 Both of
the underlying policies included a “second obligation to provide coverage for
defense costs.” Trial Court’s Findings of Fact and Conclusions of Law,
2/23/2016, at 2. Thereafter, Century’s predecessor and PEIC both obtained
facultative certificates from OneBeacon’s predecessor to reinsure a certain
layer of the underlying Formosa and Gould policies. Both the underlying
policies and the facultative certificates were renewed the following year;
Century’s certificate was renewed via an endorsement, and PEIC was issued
a new certificate.
Each of the certificates at issue consists of a double-sided, pre-printed
form and contains the identical, relevant, policy language. The front of the
_______________________
(Footnote Continued)
Ins. Co., 831 A.2d 1196, 1210 (Pa. Commw. 2003), aff'd, 878 A.2d 51 (Pa.
2005).
5
See Trial Court’s Findings of Fact and Conclusions of Law, 2/23/2016, at
¶¶ 3-11.
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certificate named the reinsured, i.e. Century’s predecessor or PEIC, and
thereafter states: “In consideration of the payment of the premium and
subject to the general conditions set forth on the reverse side hereof,
the reinsurer does hereby reinsure” the underlying policy. Complaint,
7/23/2012, Exhibit A, Certificate 4513 (hereinafter “Certificate”) (emphasis
added).6 After providing information regarding the underlying policy, the
certificate includes four sections under the heading, “Details of Reinsurance
Afforded.” Id. Section I, II, and III list the type of insurance, the
underlying policy limits, and the ceding company’s retention. See id.Section IV is entitled “Reinsurance Accepted” and provides the reinsurance
policy limit for the certificate.7 Id.The back of each certificate lists nine general conditions, three of
which are relevant to this appeal:
1. The [Reinsured] Company [Insurance Company of North
America] warrants to retain for its own account, subject to
Treaty Reinsurance, the amount of liability specified in Section
III, and the liability of the Reinsurer [OneBeacon]
specified in Section IV shall follow that of the Company
and expect as otherwise specifically provided herein, shall
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6
The facultative certificates issued to PEIC are attached to the complaint at
Exhibits B and C. Since, as noted above, the relevant certificate language is
identical, we will refer only to the certificate issued to Century.
7
The Century certificate issued in 1983 included a “Reinsurance Accepted”
amount of $3,000,000.00, and the 1984 endorsement provided for the same
coverage. See Complaint, 7/23/2012, Exhibit A. The PEIC certificates
included a “Reinsurance Accepted” amount of $2,000,000.00 for 1983, and
$3,000,000.00 for 1984. See Complaint, 7/23/2012, Exhibit B, C.
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be subject in all respects to all the terms and conditions of
the Company’s policy. The Company shall furnish the
Reinsurer with a copy of its policy and all endorsements thereto
which in any manner affect this certificate, and shall make
available for inspection and place at the disposal of the
Reinsurer at reasonable times any of its records relating
to this reinsurance or claims in connection therewith.
****
3. All claims involving this reinsurance, when settled by
the Company, shall be binding on the Reinsurer, who shall
be bound to pay its proportion of such settlements, and in
addition thereto, in the ratio that the Reinsurer’s loss payment
bears to the Company’s gross loss payment, its proportion of
expenses, other than Company salaries and office expenses,
incurred by the Company in the investigation and settlement of
such claims or suits and, with the prior consent of the Reinsurer
to trial court proceedings, its proportion of court costs and
interest on any judgment or award.[8]
4. Payment of its proportion of loss and expense paid by the
Company will be made by the Reinusurer to the Company
promptly following receipt of proof of loss.
Id. at 2 (emphasis supplied).
Both Century and PEIC paid significant amounts in losses to their
underlying insureds for asbestos-related claims pursuant to the 1983 and
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8
General Conditions (1) and (3) are typically referred to as “following form”
or “follow the fortunes” clauses in reinsurance contracts.
The doctrine of “follow the fortunes” has been defined as
meaning that “the reinsurer will follow the fortunes or be placed
in the position of the [insurer].” Basically, the doctrine burdens
the reinsurer with those risks which the direct insurer bears
under the direct insurer’s policy covering the original insured.
Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d
910 (2nd Cir. 1990) (citations omitted).
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1984 underlying policies. When OneBeacon failed to promptly pay
Century/PEIC under the facultative certificates, the companies jointly filed a
breach of contract and declaratory judgment action against OneBeacon on
July 23, 2012. While the action was pending, OneBeacon paid Century/PEIC
the limits listed in the “Reinsurance Accepted” section of the facultative
certificates, but refused to pay any amount above that limit for defense
expenses.
The case proceeded through discovery. On January 20, 2015,
OneBeacon filed a motion for summary judgment. It argued that it had
already paid Century/PEIC “$11 million, a sum equal to the total dollar
amounts stated as the ‘Reinsurance Accepted’ in the facultative reinsurance
certificates at issue in this case[,]” and that under authoritative case law,
and the unambiguous language of the certificates at issue, it was not
obligated to pay defense expenses “in excess of the stated Reinsurance
Accepted amount[.]” OneBeacon’s Motion for Summary Judgment,
1/20/2015, at ¶¶ 1-2. OneBeacon further argued: (1) Century/PEIC were
collaterally estopped from seeking defense costs in excess of the
Reinsurance Accepted limits as a result of “prior adverse decisions” rendered
against them, and (2) it owed no interest to Century/PEIC on the $11 million
previously submitted because it “had no duty to pay either [company] prior
to the respective dates of OneBeacon’s actual payments.” Id. at ¶¶ 3-4. On
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January 21, 2015, Century/PEIC filed a motion for partial summary
judgment on the issue of prejudgment interest.9
The trial court entered two orders disposing of the motions on March
27, 2015: (1) denying OneBeacon’s motion for summary judgment, and (2)
granting Century/PEIC’s motion for partial summary judgment. See Orders,
3/27/2015. With regard to OneBeacon’s motion, the trial court determined:
(1) the certificates were ambiguous, and, consequently, Century/PEIC could
present extrinsic evidence at trial, and (2) Century/PEIC were not collaterally
estopped from asserting their claims based on prior decisions. See Trial
Court Opinion, 3/27/2015 (OneBeacon’s Motion), at 5-8. The court granted
Century/PEIC’s motion for partial summary judgment, concluding OneBeacon
had a duty to pay Century/PEIC promptly following receipt of proof of loss.
See Trial Court Opinion, 3/27/2015 (Century/PEIC’s Motion), at 4-6.
Accordingly, the court found both Century and PEIC were entitled to
prejudgment interest, Century in the amount of $275,760.45 and PEIC in
the amount of $152,071.35. See id. at 6. Judgment was entered on these
amounts in favor of Century/PEIC and against OneBeacon on April 9, 2015.
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9
Century/PEIC had sought summary judgment on this issue twice before in
motions filed in July of 2012 and December of 2013. They withdrew the first
motion without prejudice in October of 2013. On April 10, 2014, the trial
court denied the second motion, concluding there were genuine issues of
material fact precluding the entry of summary judgment. See Order,
4/10/2014. When ruling on the third motion, the court found “[t]hose
questions no longer remain.” See Trial Court Opinion, 3/27/2015
(Century/PEIC’s Motion), at 1 n.1.
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On April 27, 2015, OneBeacon filed two motions, requesting the trial
court amend each of its March 27, 2015, orders to certify them for an
interlocutory appeal pursuant to 42 Pa.C.S. § 702(b). The trial court denied
OneBeacon’s motions to amend on May 21, 2015, and this Court
subsequently denied OneBeacon’s petition for review. See Century
Indemnity Co. et al. v. OneBeacon Insurance Co. et. al., 95 EDM 2015,
Order, 7/29/2015. A three-day, non-jury trial commenced on January 11,
2016. On February 23, 2016, the trial court entered an order, accompanied
by findings of fact and conclusions of law, finding in favor of Century/PEIC,
and against OneBeacon. See Order, 2/23/2016.10 OneBeacon filed post-
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10
Specifically, the court found in favor of Century and against OneBeacon
“in the amount of $4,772,520.44 plus pre-judgment interest at the statutory
rate of 6% per annum in the amount of $431,497.17 (through January 11,
2016) and additional pre-judgment interest in the amount of $784.52 for
each day between January 12, 2016 and the date of this finding.” Order
2/23/2016, at 1. With regard to PEIC, the court entered a finding against
OneBeacon “in the amount of $2,426,478.42 plus pre-judgment interest at
the statutory rate of 6% per annum in the amount of $363,262.43 (through
January 11, 2016 and additional pre-judgment interest in the amount of
$398.87 for each date between January 12, 2016 and the date of this
finding.” Id. at 1-2.
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trial motions on March 3, 2016, which the trial court denied on March 15,
2016. This timely appeal followed.11, 12
In its first issue, OneBeacon argues the trial court erred in denying its
motion for summary judgment and finding the facultative certificates at
issue were ambiguous as to whether the “Reinsurance Accepted” amount
capped OneBeacon’s liability for both losses and defense expenses. See
OneBeacon’s Brief at 17-32.
Our review of a trial court’s order denying a motion for summary
judgment is well-established:
We view the record in the light most favorable to the non-
moving party, and all doubts as to the existence of a genuine
issue of material fact must be resolved against the moving party.
Pennsylvania State University v. County of Centre, 532 Pa.
142, 615 A.2d 303, 304 (1992). Only where there is no genuine
issue as to any material fact and it is clear that the moving party
is entitled to a judgment as a matter of law will summary
judgment be entered. Skipworth v. Lead Industries Ass'n,
Inc., 547 Pa. 224, 690 A.2d 169, 171 (1997). Our scope of
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11
We note OneBeacon filed three notices of appeal: (1) from the April 9,
2015, entry of partial judgment (Docket No. 1282 EDA 2016); (2) from the
March 27, 2015, order denying its motion for summary judgment (Docket
No. 1281 EDA 2016); and (3) from the March 15, 2016, order denying its
post-trial motions (Docket No. 1280 EDA 2016). By order entered June 7,
2016, this Court, sua sponte, quashed the appeals at Docket Nos. 1281 EDA
2016 and 1282 EDA 2016, as duplicative.
12
The trial court did not direct OneBeacon to file a concise statement of
errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). Although the
court filed an opinion pursuant to Pa.R.A.P. 1925(a) on May 9, 2016, it relied
on its prior opinions disposing of the parties’ motions for summary
judgment, as well as its February 23, 2016, findings of fact and conclusions
of law. See Trial Court Opinion, 5/9/2016, at 1-2.
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review of a trial court’s order granting or denying summary
judgment is plenary, O'Donoghue v. Laurel Savings Ass'n,
556 Pa. 349, 728 A.2d 914, 916 (1999), and our standard of
review is clear: the trial court’s order will be reversed only
where it is established that the court committed an error of law
or abused its discretion. Cochran v. GAF Corp., 542 Pa. 210,
666 A.2d 245, 248 (1995).
Pappas v. Asbel, 768 A.2d 1089, 1095 (Pa. 2001), cert. denied sub nom,
United States Healthcare Systems of Pennsylvania, Inc. v.
Pennsylvania Hosp. Ins. Com., et al., 536 U.S. 938 (2002).
Here, OneBeacon’s argument focuses on an interpretation of the
parties’ contract, in this case, the facultative certificates.
In interpreting the terms of a contract, the cardinal rule
followed by courts is to ascertain the intent of the contracting
parties. If the contractual terms are clear and unambiguous on
their face, then such terms are deemed to be the best reflection
of the intent of the parties. If, however, the contractual terms
are ambiguous, then resort to extrinsic evidence to ascertain
their meaning is proper. A contract’s terms are considered
ambiguous “‘if they are subject to more than one reasonable
interpretation when applied to a particular set of facts.’”
Com. ex rel. Kane v. UPMC, 129 A.3d 441, 463 (Pa. 2015) (internal
citations omitted).
OneBeacon asserts the certificates at issue are unambiguous, and
specifically provide that “the dollar amount listed as the ‘Reinsurance
Accepted’ in Section IV on the front page constitutes the maximum
amount for which OneBeacon can be liable under the certificate, including
for all expenses that can be billed to the reinsurer.” OneBeacon’s Brief at
17-18 (emphasis added). It insists the trial court’s contrary conclusion is
based upon the court’s misinterpretation of the certificate language, and its
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non-application of controlling caselaw, in particular the Second Circuit’s
seminal decision in Bellefonte Reinsurance Co. v. Aetna Casualty &
Surety Co., 903 F.2d 910 (2nd Cir. 1990).
Because our research confirms the trial court’s conclusion that “this is
13
a case of first impression for Pennsylvania courts,” we begin with an
examination of Bellefonte, which is the leading decision concerning whether
a reinsurer is obligated to pay defense expenses incurred in the underlying
litigation which exceed the “Reinsurance Accepted” limit stated on the
facultative certificate.14
The Bellefonte case arose during litigation over the Dalkon Shield
intrauterine device. See Bellefonte, supra, 903 F.2d at 911. The
manufacturer of the device filed a declaratory judgment action against
Aetna, the underlying insurer, seeking a determination that Aetna was
required to pay defense costs even if those costs exceeded the liability limits
stated in the policies. See id. Subsequently, the parties settled the claim
and “Aetna agreed to pay an amount substantially in excess of the cap
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13
Trial Court Opinion, 3/27/2015 (OneBeacon’s Motion), at 4.
14
Although decisions of the Second Circuit Court of Appeals, the federal
district courts, and our sister states are not binding on this Court, they may
provide persuasive authority, particularly where, as here, neither this Court
nor the Pennsylvania Supreme Court has considered this issue. See
Umbelina v. Adams, 34 A.3d 151, 159-160 n.2-n.3 (Pa. Super. 2011),
appeal denied, 47 A.3d 848 (Pa. 2012).
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stated in the policies.” Id. Aetna’s six reinsurers, however, did not
participate in the settlement.
Thereafter, Aetna asked its reinsurers to pay their proportionate share
of the defense costs. The reinsurers filed a declaratory judgment action,
requesting the court “limit[] their liability to the amount stated in the
reinsurance certificates.” Id. The district court granted the reinsurers’
motion for summary judgment, holding the “Reinsurance Accepted” amount
was an “overall limitation and that the reinsurance certificates were cost-
inclusive and capped by that amount.” Id. at 912. Aetna then appealed to
the Second Circuit, which affirmed the decision of the district court.
In affirming that decision, the Bellefonte Court first rejected Aetna’s
claim that the “follow the fortunes” doctrine “obligates a reinsurer to
indemnify a reinsured for all of the reinsured’s defense expenses and costs,
even when those expenses and costs” exceed the “Reinsurance Accepted”
amount listed on the certificate. Id. Similar to “General Condition (1)” in
the present case,15 the certificates in Bellefonte included a provision that
stated: “The Company warrants to retain for its own account ... the amount
of liability specified ... above, and the liability of the Reinsurer specified ...
above [i.e., amount of reinsurance accepted] shall follow that of the
Company[.]” Id. at 911 (emphasis added). The Second Circuit held the
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15
See Certificate at 2, General Condition (1).
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“follow the fortunes” clause did not “render a reinsurer liable for an amount
in excess of the bargained-for coverage.” Id. at 913. The Court explained:
To read the reinsurance certificates in this case as Aetna
suggests—allowing the “follow the fortunes” clause to override
the limitation on liability—would strip the limitation clause and
other conditions of all meaning; the reinsurer would be obliged
merely to reimburse the insurer for any and all funds paid. Such
a reading would be contrary to the parties’ express agreement
and to the settled law of contract interpretation.
The “follow the fortunes” clauses in the certificates are
structured so that they coexist with, rather than supplant, the
liability cap. To construe the certificates otherwise would
effectively eliminate the limitation on the reinsurers' liability to
the stated amounts.
Id. (citation omitted).
Next, the Bellefonte Court also rejected Aetna’s argument that the
certificates required the reinsurers to pay defense expenses “in addition” to
liability limits. Id. Similar to “General Condition (3)” in the present case,16
the fourth provision in the Aetna certificates stated, in relevant part:
All claims involving this reinsurance, when settled by the
Company, shall be binding on the Reinsurer, which shall be
bound to pay its proportion of such settlements, and in
addition thereto, in the ratio that the Reinsurer’s loss payment
bears to the Company’s gross loss payment, its proportion of
expenses ... incurred by the Company in the investigation and
settlement of claims or suits....”
Id. at 911 (emphasis supplied). The Bellefonte Court found the “‘in
addition thereto’ provision merely outlines the different components of
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16
See Certificate at 2, General Condition (3).
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potential liability under the certificate [and] does not indicate that either
component is not within the overall limitation.” Id. at 913.
In doing so, the Bellefonte Court also emphasized the “subject to”
clause in the certificates, which made all of the provisions subject to the
liability limits. Specifically, the first provision in the Aetna certificates
stated, in pertinent part, that the reinsurer “[d]oes hereby reinsure Aetna ...
subject to the terms, conditions and amount of liability set forth herein,
as follows[.]” Id. at 911 (emphasis supplied). The Second Circuit held:
Whatever the demand, the reinsurers’ entire obligation is
quantitatively limited by the dollar amount the reinsurers agreed
to reinsure. Once the reinsurers have paid up to the certificate
limits, they have no additional liability to Aetna for defense
expenses or settlement contributions. Any other construction
of the reinsurance certificates would negate the phrase
“the reinsurer does hereby reinsure Aetna ... subject to
the ... amount of liability set forth herein.” (emphasis
added). The reinsurers are liable only to the extent of the risk
they agreed to reinsure. They cannot be liable for the insurer’s
action in excess of the agreement.
We hold that the “in addition thereto” language of the
fourth provision of the reinsurance certificates does not exempt
defense costs from the overall limitation on liability set forth in
the first two provisions of each certificate. Rather, we hold that
these costs are “subject to” the express cap on liability in each
certificate.
Id. at 914 (emphasis supplied).
Most courts that have considered this issue have relied upon the
Bellefonte decision and held that reinsurers are not required to pay defense
expenses that exceed the “Reinsurance Accepted” amount listed on the
certificates. The Second Circuit considered the issue again in Unigard Sec.
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Ins. Co. Inc. v. North River Ins. Co., 4 F.3d 1049 (2nd Cir. 1993). There,
the reinsured/appellant attempted to distinguish Bellefonte by relying on a
“follow the form” clause in its certificate, which provided that “the liability of
the reinsurers, ‘except as otherwise provided by this Certificate, shall be
subject in all respects to all the terms and conditions of [the underlying
policy].” Id. at 1070-1071 (emphasis in original). The reinsured/appellant
argued that this clause, not considered by the Bellefonte Court, was
significant because the reinsured was ordered to pay expenses via binding
arbitration, rather than pursuant to a settlement agreement which the
reinsurer did not participate in, as in Bellefonte. However, the Court of
Appeals did not find the facts in Unigard distinguishable. Rather, it
emphasized the certificate at issue contained the same “subject to” clause as
in Bellefonte, which limited all of the reinsurer’s obligations in the
certificate to the amount listed as “Reinsurance Accepted.” Id. at 1071.
Moreover, the Unigard Court noted: “The efficiency of the reinsurance
industry would not be enhanced by giving different meanings to identical
standard contract provisions depending upon idiosyncratic factors in
particular lawsuits.” Id.The United States District Court for the Eastern District of
Pennsylvania relied upon Bellefonte and Unigard in Aetna Cas. & Sur.
Co. v. Philadelphia Reinsurance Corp. (“PRC”), No. 94-2683, 1995 WL
217631 (E.D. Pa. 1995), and Pacific Employers Ins. Co. v. Global
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Reinsurance Corp. of America (“Global/PEIC I”), No. 09-6055, 2010 WL
1659760 (E.D. Pa. 2010).
In both cases, the district court ruled in favor of the reinsurer, finding
the language in the facultative certificates at issue was nearly identical to
the language of the certificates in Bellefonte and Unigard. See PRC,
supra, 1995 WL 217631 at *1; Global/PEIC I, supra, 2010 WL 1659760,
at *1. Both certificates included a provision that required the reinsurer to
pay its proportionate share of losses, and “in addition thereto” its
proportionate share of expenses. PRC, supra, 1995 WL 217631 at *1;
Global/PEIC I, supra, 2010 WL 1659760, at *1. Moreover, both
certificates included an introductory clause that stated the latter provisions
were made “in consideration of the payment of the premium and subject to
the … amount [or limits] of liability set forth herein[.]” PRC, supra, 1995
WL 217631 at *1; Global/PEIC I, supra, 2010 WL 1659760, at *1.
(citation omitted and emphasis in original).
In PRC, the district court granted summary judgment in favor of the
reinsurer, finding that the reinsured, Aetna, was bound by the ruling in
Bellefonte since it was also a party in that case. PRC, supra, 1995 WL
217631 at *4. Aetna attempted to distinguish the facts in Bellefonte by
asserting that the underlying policies were different: in Bellefonte, the
underlying insurance policy was cost-inclusive, while in PRC, the underlying
policy was cost-supplemental. See id. However, the district court rejected
this claim, stating: “The Bellefonte decision did not depend on whether or
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not the underlying policy included costs in the limit of liability, i.e., was cost-
inclusive.” Id. at *3. The court also refused to consider Aetna’s evidence
regarding custom in the reinsurance industry because it determined the
certificate at issue was unambiguous. See id.
In Global/PEIC I, the district court granted the reinsurer’s motion for
judgment on the pleadings, noting:
[I]f the parties intended to exclude expenses from the total
liability limit, they could have made that clear through [the
“Reinsurance Accepted”] language or another part of the
Facultative Certificate. They did not do so.
Id. at *3. Consistent with prior case law, the Global/PEIC I Court found
the “in addition thereto” provision “merely outlined the two separate
proportions to losses and expenses that [the reinsurer] is obligated to
pay[.]” Id. at *4. Moreover, the Court emphasized the “subject to” clause
which made all of the provisions in the certificate, including the one
providing for the payment of expenses “in addition” to losses, subject to the
liability limit.17 Id.
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17
However, as we will discuss infra, the ruling in Global/PEIC concerning
the cap on expenses is of limited precedential value. On appeal after further
proceedings, the Third Circuit reversed the judgment against the reinsurer
and remanded for entry of a “judgment of non-liability” based on the
reinsured’s failure to comply with a condition precedent. Pacific Employers
Ins. Co. v. Global Reinsurance Corp. of Am. (“Global/PEIC II”), 693
F.3d 417, 440 (3d Cir. 2012). Significantly, the Third Circuit declined to
review the reinsured’s challenge to the expense cap issue finding the claim
“moot.” Id. at 425 n.3.
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It also merits mention that the New York Court of Appeals followed the
Bellefonte and Unigard decisions in Excess Ins. Co. Ltd. v. Factory Mut.
Ins. Co., 822 N.E.2d 768 (N.Y. 2004), and held the reinsurer was not
required to pay “loss adjustment expenses in excess of the stated limit in
the reinsurance policy.” Id. at 771. In that case, the reinsurance policy
explicitly provided a “limit” of “$7 million per occurrence.” Id. at 771. The
Excess Court concluded: “Once the reinsurers have paid the maximum
amount stated in the policy, they have no further obligation to pay [the
reinsured] any costs related to loss adjustment expenses.” Id.
Further, the Court rejected the reinsured’s attempt to distinguish the
case from Bellefonte and its progeny because the underlying contract at
issue was property insurance rather than liability insurance. See id. at 772.
Moreover, the Excess Court found the parties could have anticipated “the
possibility of incurring loss adjustment expenses in settling a claim,” and
“nothing prevented [the reinsured] from insuring that risk either by
expressly stating that the defense costs were excluded from the
indemnification limit or otherwise negotiating an additional limit for loss
adjustment expenses[.]” Id. The Excess Court stated: “Failing this, the
reinsurers were entitled to rely on the policy limit as setting their maximum
risk exposure.” Id. See also Utica Mut. Ins. Co. v. Clearwater Ins. Co.
(“Clearwater”), No. 6:13-CV-1178, 2014 WL 6610915 (N.D. N.Y. 2014)
(relying upon Bellefonte and Excess in granting summary judgment in
favor of reinsurer; certificate was unambiguous, and did not expressly
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exclude costs from liability cap); Continental Casualty Co. v. Midstates
Reinsurance Corp., 24 N.E. 3d 122, 127-128 (Ill. App. Ct., 1st Dist. 2014)
(affirming order granting judgment on the pleadings to reinsurer; relying
upon “similar” provisions in Bellefonte, to find certificate language “clearly
and unambiguously” caps expenses under policy limit), appeal denied, 31
N.E. 3d 767 (Ill. 2015).
Nevertheless, both the Second Circuit Court of Appeals and the United
States District Court for the Northern District of New York have found the
language in other facultative certificates ambiguous, thereby precluding the
entry of summary judgment. See Utica Mut. Ins. Co. v. Munich
Reinsurance America Inc. (“Munich”), 594 F. App’x 700 (2nd Cir. 2014);
Utica Mut. Ins. Co. v. R & Q Reinsurance Co. (“R & Q”), 2015 WL
4254074 (N.D. N.Y. 2015).
In Munich, the certificate explicitly stated the reinsurer “agrees to
indemnify [the reinsured] against losses or damages … subject to the
reinsurance limits shown in the Declarations[.]” Munich, supra, 594 F.
App’x at 703 (emphasis supplied and citation omitted). The certificate also
included a later provision making the reinsurer “liable for its proportion of
allocated loss expenses incurred by the [reinsured] in the same ratio that
the Reinsurer’s share of the settlement or judgment bears to the total
amount[.]” Id.
Based on the above provisions, the Munich Court found the language
in the certificates was ambiguous as to whether or not the reinsurer was
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obligated to pay defense expenses in excess of the stated liability limits. On
the one hand, the Court stated:
the Certificate can be read to exclude expenses from [the
reinsurer’s] $5 million limit of liability. The fact that [the
reinsurer’s] obligation to indemnify [the reinsured] against
“losses or damages” is expressly made “subject to” the
Certificate’s limit of liability suggests that the parties intended to
exclude [the reinsured’s] liability for expenses—which is not
expressly made “subject to” the limit of liability—from that limit.
Id. However, the Court also noted that while the “subject to” provision did
not expressly include settlement payments, the reinsured “does not argue
that the limit of liability excludes settlements.” Id. Accordingly, the Court
found “the Certificate is ambiguous as to whether its limit of liability includes
expenses” and remanded for the district court’s consideration of extrinsic
evidence. Id.
In doing so, the Court of Appeals specifically found the facts in
Bellefonte, Unigard and Excess distinguishable. The Court opined:
In holding that the Certificate’s limit of liability unambiguously
includes expenses, the district court [herein] concluded that
three prior decisions—two from this Court and one from the New
York Court of Appeals—established a presumption that limits of
liability in facultative reinsurance certificates are unambiguously
expense-inclusive. But those decisions interpreted different
policies than the one at issue in this case. The former two
cases [Bellefonte and Unigard] turned on a provision in the
policies at issue that expressly made all of the reinsurers’
obligations “subject to” the limit of liability; they did not hold
that a limit of liability, without such “subject to”
language, is presumptively expense-inclusive. In the third
case, Excess … the Court of Appeals arguably extended the
rationale of our earlier decisions and suggested that a limit of
liability, standing alone, is presumptively expense-inclusive
because it serves to cap a reinsurer’s total exposure (for losses
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and expenses) at a specific, negotiated amount. This
presumption may best reflect the contracting parties’ intentions
in the mine run of cases, but in the reinsurance context as in any
other, a party is bound by the terms to which it has agreed. And
unlike the district court, we do not read Excess as holding
that any presumption of expense-inclusiveness can be
rebutted only through express language or a separate
limit for expenses. As we have explained, the Certificate’s
statement that “losses or damages” are “subject to” the limit of
liability reasonably implies that expenses are not. Although this
negative implication is not strong enough—in the context of the
Certificate as a whole—to demonstrate that expenses are
unambiguously excluded from the limit of liability, we think it is
sufficient to render the Certificate ambiguous, even in light of
Excess.
Id. at 704 (emphasis supplied and internal citations omitted). Therefore,
the Munich Court interpreted the certificate based on the language provided
therein, and rejected the presumption created by the Excess Court that
defense costs are capped by the liability limits unless they are explicitly
excluded elsewhere in the certificate.
In R & Q, supra, the District Court for the Northern District of New
York considered whether defense costs were capped by the liability limits
when the certificate at issue provided, inter alia: (1) the reinsurance was
“subject to the terms hereon and the general conditions set forth on the
reverse side hereof[;]” (2) the reinsurer agreed to indemnify the reinsured
“against loss or damage … subject to the Reinsurance Accepted limits shown
in the Declarations[;]” and (3) when a reinsured settles an underlying claim,
should the reinsured’s “policy limit include expenses, the Reinsurer’s
maximum amount of liability shall be as stated in Item 4, of the
Declarations.” R & Q, supra, 2015 WL 4254074, at *1-2.
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The R & Q Court first held the “subject to” clause at issue, while
similar to the language in Bellefonte and Unigard, was nonetheless
distinguishable. The Court explained:
The preamble in this case makes the reinsurer’s obligations
“subject to the terms hereon and the general conditions” of the
Certificate. This “subject to” clause is, as R & Q argues, similar
to those in Bellefonte and Unigard because one of the “terms
hereon” is the amount of reinsurance accepted. But the “subject
to” clause in this case does not unambiguously cap R & Q's
liability for expenses to that policy limit because it does not
expressly refer to the liability limit and, as set forth below, two
of the conditions in the Certificate can be interpreted to support
Utica's claim that R & Q is liable for expenses in excess of the
policy limit.
Id. at *8 (emphasis in original).
Next, the Court found that the R & Q certificate contained language
nearly identical to that in Munich, by which the reinsurer agreed to
indemnify the reinsured “against loss or damage … subject to the
Reinsurance Accepted limits[.]” Id. at *9 (emphasis removed). The R & Q
Court noted that, as in Munich, this language “reasonably implied that
expenses are not subject to those limits.” Id.
Lastly, the Court emphasized the following certificate language,
applicable when the reinsured settles an underlying claim: “[S]hould the
[reinsured’s] policy limit include expenses, the Reinsurer’s maximum limit of
liability shall be stated in Item 4, of the Declaration [i.e., $1 million].” Id.
(citation omitted). The R & Q Court commented: “[T]he fact that the
Certificate states one particular instance in which [the reinsurer’s] liability
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limit includes expenses implies that its liability limit does not include
expenses in other instances.” Id. Accordingly, the Court found the contract
language ambiguous with regard to whether expenses were capped by the
liability limits. Id. at *10.
With this background in mind, we consider the trial court’s ruling in the
present case. In comparing the language of the facultative certificates at
issue herein with that in Bellefonte, the trial court determined that “while
similar” the language of the present certificates contain “slight variations
which lead[] to a different conclusion.” Trial Court Opinion, 3/27/2015
(OneBeacon’s Motion), at 5. The trial court emphasized that in Munich, the
Second Circuit “clarified that Bellefonte did not establish a blanket rule that
all limits of liability are presumptively expense-inclusive,” and that each
certificate must be analyzed “as a whole to discern its meaning[.]” Id.
With respect to the certificate language, the trial court opined:
First, the language on the front side of the certificates states the
premium is “subject to the general conditions set forth on the
reverse side hereof ….” General Condition 1 reinforces this
premise as it states that “[t]he liability … shall be subject … to all
the terms and conditions of the Company’s policy.” The
difference between this language and that of Bellefonte cannot
be ignored. Instead of the terms and conditions being
subject to the liability as in Bellefonte, the liability is
subject to the terms and conditions. This places greater
emphasis on the conditions themselves, which may trump other
aspects of the certificates. As a result, a condition that
excludes expenses in calculating the total loss limit holds
more weight than the amount of “Reinsurance Accepted”
when interpreting these certificates.
Bellefonte highlighted the importance of the “subject to”
clause, and [Munich] demonstrated the ability of a court to
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reach a different interpretation. If anything, the terms of the
certificates may have created a presumption of expense-
exclusiveness. Having scrutinized the precise terms on their
own, and the viewing the certificate as a whole, this court finds
that [OneBeacon] is not entitled to summary judgment on this
issue.
Id. at 5-6 (some emphasis in original; some emphasis added).
OneBeacon argues, however, that the language of the facultative
certificates unambiguously limits its liability, for both losses and expenses,
to the “Reinsurance Accepted” amount in Section IV. OneBeacon’s Brief at
17-18.
First, it contends the “Reinsurance Accepted” section does not
distinguish between losses and expenses; therefore, it caps both. Id. at 23.
Second, OneBeacon claims that while General Condition (3) lists the two
components of the reinsurance – losses and expenses – it does not “in any
way differentiate between ‘loss’ and ‘expenses’ with respect to application of
the Reinsurance Accepted amount.” Id. at 21. Third, OneBeacon
emphasizes the language in General Condition (1) – the “following form”
clause – which provides “the liability of [OneBeacon] specified in Section
IV shall follow that of [Century/PEIC.]” Id. at 23, quoting Certificate at 2,
General Condition (1). Because the Condition does not state “the liability …
specified in Section IV” applies only to losses, OneBeacon maintains it
must apply to expenses as well. Id. at 24. Moreover, while General
Condition (1) further states the reinsurance is “subject in all respects” to the
underlying policy’s terms - which supports concurrency between the
reinsurance and the underlying policy – OneBeacon stresses that the
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language is precipitated by the clause “expect as otherwise specifically
provided herein[.]” Certificate at 2. OneBeacon argues “because the
‘Reinsurance Accepted’ amount is ‘specifically provided’ in Section IV … [it]
constitutes an exception to the general condition that the certificate is
subject to the terms and conditions of the [underlying] policy.” 18
OneBeacon’s Brief at 24.
____________________________________________
18
We note OneBeacon also repeatedly challenges the trial court’s
“misquotation” of the certificate language. OneBeacon’s Brief at 18-19, 22-
23. Specifically, it points to Finding of Fact # 27 in the court’s post-trial
findings of fact and conclusions of law, where the trial court states the
following:
27. Section 1 of each certificate - which states that the “liability
of the reinsurer shall be subject to the terms and conditions of
the condition’s policy”-provides that “liability of the reinsurer
shall follow that of the ceding company” and that Section 3
provides that the “expenses will be paid in addition to limits.”
[See N.T. 1/11/16 PM pp. 45-46].
Trial Court’s Findings of Fact and Conclusions of Law, 2/23/2016, at ¶ 27.
OneBeacon claims the trial court “alters and omits crucial language in the
actual text” of General Condition (1), and incorrectly quotes the language in
General Condition (3), which states “expenses will be paid in addition to
loss,” not limits. OneBeacon’s Brief at 22-23 (emphasis in original).
However, we find this argument is a red herring. Finding of Fact 27 appears
under the heading “Industry Custom and Usage.” Trial Court’s Findings of
Fact and Conclusions of Law, 2/23/2016, at ¶ 27. The trial court was
quoting the testimony of Century/PEIC’s reinsurance industry expert, Robert
Hall, regarding his interpretation of the certificate language, not the actual
language itself. See Trial Court’s Findings of Fact and Conclusions of Law,
2/23/2016, at ¶ 27. Our analysis, for purposes of reviewing the summary
judgment ruling, is limited to the certificate language.
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Furthermore, OneBeacon argues “a consistent line of case law,” led by
Bellefonte, supports its interpretation of the facultative certificates.
OneBeacon’s Brief at 27. It maintains:
[S]tate and federal courts around the country have followed
Bellefonte on multiple occasions in interpreting facultative
certificates under Pennsylvania, New York, or Illinois law, and
holding that the “Reinsurance Accepted” amount stated in a
facultative certificate unambiguously sets forth the full extent of
the reinsurer’s liability.
Id. at 30. OneBeacon insists “[t]here is no material difference” between the
relevant language at issue herein and that in Bellefonte. Id. at 29. In
addition, it emphasizes that the certificates in Excess, Clearwater, and
Continental Casualty did not contain the “subject to” clause, which the
trial court found to be lacking herein. Id. at 35. Moreover, OneBeacon
argues Munich and R & Q are distinguishable since those certificates
explicitly stated that the “reinsurer’s obligation to pay ‘losses or damages’
was subject to the ‘Reinsurance Accepted’ amount, but did not provide that
the obligation to pay expenses was subject to that restriction.” Id. at 36
(emphasis omitted).
Conversely, Century/PEIC maintain the certificate language is
ambiguous, particularly in light of the presumption of concurrency in the
reinsurance industry. See Century/PEIC’s Brief at 21. They explain this
presumption is necessary so that the “reinsurer, which typically agrees to
accept a portion of the policy risk in exchange for the same portion of the
policy premium, is actually taking on risk proportional to its premium share.”
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Id. at 22 (emphasis omitted). Therefore, the “following form” language in
General Condition (1) ensures that where the underlying policy covers
defenses expenses above the liability limits, so does the reinsurance policy.
See id. at 23-24. Furthermore, Century/PEIC maintain Bellefonte and its
progeny are distinguishable based on their facts.
Considering the certificates herein, we agree General Conditions (1)
and (3) contain language almost identical to that in Bellefonte. However,
as the trial court points out, the “subject to” clause in the present case is
materially different.
In Bellefonte and its progeny, the “subject to” clause stated the
reinsurance was “subject to the terms, conditions and amount of liability
set forth herein.” Bellefonte, supra, 903 F.2d at 911 (emphasis added).19
In the present case, however, the “subject to” clause states the reinsurance
is “subject to the general conditions set forth on the reverse side.”
Certificate at 1. It does not expressly provide that all of the coverage is
subject to the “Reinsurance Accepted” limit.20
____________________________________________
19
See also Unigard, supra, 4 F.3d at 1071 (“subject to the terms,
conditions, limits of liability and Certificate provisions set forth herein.”)
(emphasis and citation omitted); PRC, supra, 1995 WL 217631 at *1
(“subject to the terms, conditions and amount of liability set forth herein”)
(emphasis and citation omitted); Global/PEIC I, supra, 2010 WL 1659760,
at *1 (“subject to the terms, conditions and limits of liability set forth
herein”) (citation omitted and emphasis in original).
20
Nor, however, does the certificate language herein imply that only “losses
or damages” are subject to the “Reinsurance Accepted” amount as in
(Footnote Continued Next Page)
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Furthermore, Century/PEIC’s “underlying policies provide coverage for
expenses in addition to the limits.” Trial Court’s Findings of Fact and
Conclusions of Law, 2/23/2016, at ¶ 29, citing N.T., 1/11/2016 (afternoon
session), at 43-44. Therefore, because the reinsurance certificate “follows”
that of the underlying policy, it would cover expenses above the liability
limit. This is factually different from the situation in Bellefonte, where the
_______________________
(Footnote Continued)
Munich and R & Q. The language of the certificates at issue does not
explicitly include or implicitly exclude defense expenses from the
“Reinsurance Accepted” cap.
We note OneBeacon argues the “subject to” clause distinction is
irrelevant because, while the certificates do not expressly state expenses are
subject to the “Reinsurance Accepted” amount, they also do not expressly
state losses are subject to that limit either. Accordingly, OneBeacon argues
under Century/PEIC’s reasoning, there would be “no cap whatsoever on
either component of reinsurer liability[.]” OneBeacon’s Brief at 22 n.11. We
disagree with this characterization. Clearly, the “Reinsurance Accepted”
amount limits OneBeacon’s liability to pay for losses. Nonetheless, it is the
language advocating concurrency (and the fact the underlying policy exclude
expenses from their limits), and the acknowledgment that expenses will be
paid “in addition to” losses, which muddles the meaning of the certificate as
a whole.
Furthermore, OneBeacon asserts Century/PEIC’s own expert, Robert
Hall, conceded at trial that the “inclusion or absence of the ‘subject to’ the
‘amount of liability’ language found in Bellefonte is irrelevant” and his
interpretation of the certificates would be the same even if they included the
Bellefonte “subject to” clause. See OneBeacon’s Brief at 35. However,
OneBeacon is comparing apples to oranges. Hall’s testimony concerned his
opinion regarding the custom and usage of reinsurance contracts in the early
1980’s. See N.T., 1/11/2016 PM, at 74-75 (Hall explaining, “I’m not here to
testify about my legal opinion. I’m here to testify about the understanding
of the industry at the time.”). The relevancy of the “subject to” clause in
Bellefonte, however, depends upon our interpretation of a legal decision.
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defense costs were paid as part of the reinsured’s settlement agreement
with the underlying insured – an agreement to which the reinsurer was not a
party. Accordingly, absent language providing the entire certificate is
“subject to” the “Reinsurance Accepted” amount, a reasonable interpretation
of the language is that where the underlying policy covers expenses in
addition to liability limits, the reinsurance certificate provides the same
coverage.21
Nor do we find the language in General Condition (1) compels a
different result. OneBeacon emphasizes that General Condition (1) states its
____________________________________________
21
We note the PRC Court found the fact that expenses were not included in
the underlying policy in Bellefonte insignificant, stating: “The Bellefonte
decision did not depend on whether or not the underlying policy included
costs in the limit of liability, i.e., was cost-inclusive.” PRC, supra, 1995 WL
217631, at *3. However, it merits emphasis that the decision in PRC also
did not turn on this fact. Rather, the PRC Court concluded that Aetna, who
was the reinsured in both Bellefonte and PRC, was “estopped” by the
holding in Bellefonte. Id. at *4.
Moreover, the District Court for the Southern District of New York
rejected a similar claim in Global Reinsurance Corp. of American v.
Century Indemnity Co. (“Global/Century I”), 2014 WL 4054260, *5
(S.D.N.Y. 2014), citing Unigard as support. However, as we will discuss
infra, on appeal, the Second Circuit questioned the legitimacy of the
Global/Century I decision, before ultimately certifying that exact question
to the New York Court of Appeals. See id. at 128 (certifying question to
New York Court of Appeals to decide if the decision in Excess, supra,
“impose[d] either a rule of construction, or a strong presumption, that a per
occurrence liability cap in a reinsurance contract limits the total reinsurance
available under the contract to the amount of the cap regardless of whether
the underlying policy is understood to cover expenses[.]”). Therefore, the
case law that undermines the significance of the coverage in the underlying
policies is far from settled.
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liability as “specified in Section IV” follows that of the reinsured, and notes
the terms and conditions of the certificate follow that of the underlying policy
“except as otherwise specifically provided herein.” Certificate at 2. It
asserts that because the language does not specify the amount applies only
to losses, its “liability” specified in Section IV must include expenses as well.
See OneBeacon’s Brief at 24. Further, OneBeacon argues that because the
“Reinsurance Accepted” limit is “specifically provided [therein],” the
certificate coverage follows the terms and conditions of the underlying policy
only to the extent of the “Reinsurance Accepted” amount. Id.
However, viewing the certificate as a whole, we do not find the
language unambiguously limits OneBeacon’s entire liability for losses and
expenses to the “Reinsurance Accepted” amount. A reasonable
interpretation of the certificate’s reference to OneBeacon’s “liability …
specified in Section IV” is that it refers only to liability for losses. This is
particularly true in light of General Condition (3), which requires the
reinsurer to pay its proportion of losses, “and in addition thereto” its
proportion of expenses. Certificate at 2. Similarly, the “except as otherwise
provided herein” language is also ambiguous because the certificate does
not explicitly state that expenses are included in (or “subject to”) the
“Reinsurance Accepted” limit. Pursuant to this reasoning, if the certificate
follows the underlying policy, expenses must be reimbursed in addition to
the policy limits. Accordingly, because we agree with the conclusion of the
trial court that the certificate language is ambiguous as to whether defense
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expenses are limited by the “Reinsurance Accepted” amount, the court
properly denied OneBeacon’s motion for summary judgment, and
OneBeacon is entitled to no relief on its first claim.
Next, OneBeacon argues the trial court “compounded” its pretrial
ruling - finding the language of the facultative certificates was ambiguous
and permitting Century/PEIC to present extrinsic evidence - by relying on
testimony that was “inadmissible and does not support the trial court’s
interpretation of the certificates.”22 OneBeacon’s Brief at 38 (footnote
omitted). Specifically, OneBeacon asserts the trial court cited no evidence in
support of its factual finding that OneBeacon’s share of the premium
corresponded with the share of the risk it undertook. See id. at 30, citing
Trial Court’s Findings of Fact and Conclusions of Law, 2/23/2016, at ¶ 24.
Moreover, OneBeacon contends the testimony of Century/PEIC’s
underwriters, Ronald Moreland and William Greene, was “unpersuasive” for
the following reasons:
(i) neither has any independent recollection of the placement of
the reinsurance certificates at issue; and (ii) neither
communicated to OneBeacon’s predecessor [Century/PEIC’s]
purported intent that expenses would be covered in excess of
“Reinsurance Accepted” amounts (and there is no other evidence
demonstrating that OneBeacon’s predecessor knew, or had
reason to know of [this] purported intent).
____________________________________________
22
We note that OneBeacon couples these two objections together and fails
to differentiate how the testimony was inadmissible, as opposed to
unpersuasive.
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OneBeacon’s Brief at 39 (record and case citation omitted). Further,
OneBeacon claims the testimony of Century/PEIC’s expert witness, Robert
Hall, was inadmissible because Hall offered only his own interpretation of the
certificate language, and did not establish that any of the words used in the
certificate had a “specialized meaning in the reinsurance industry.”
OneBeacon’s Brief at 41.
When considering a trial court’s verdict in a non-jury trial, we must
bear in mind the following:
Our standard of review in non-jury trials is to assess whether the
findings of facts by the trial court are supported by the record
and whether the trial court erred in applying the law. Upon
appellate review the appellate court must consider the evidence
in the light most favorable to the verdict winner and reverse the
trial court only where the findings are not supported by the
evidence of record or are based on an error of law. Allegheny
County Housing Authority v. Johnson, 908 A.2d 336, 340
(Pa.Super.2006). Our scope of review regarding questions of
law is plenary. Id.Skiff re Bus., Inc. v. Buckingham Ridgeview, LP, 991 A.2d 956, 962
(Pa. Super. 2010). Moreover, “[t]he [trial] court’s findings are especially
binding on appeal, where they are based upon the credibility of the
witnesses, unless it appears that the court abused its discretion or that the
court’s findings lack evidentiary support or that the court capriciously
disbelieved the evidence.” Infante v. Bank of Am., N.A., 130 A.3d 773,
776 (Pa. Super. 2015) (quotation omitted), appeal denied, 138 A.3d 5 (Pa.
2016).
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Here, our review of the record reveals ample support for the trial
court’s factual findings. Although, as OneBeacon contends, the court did not
provide a record citation to support Finding of Fact #24 - pertaining to
proportionality between the share of the premium and the corresponding
share of the risk - Century’s underwriter, Ronald Moreland, testified that
“one of the cardinal rules of reinsurance was that everybody be treated
equally with regard to risk and the premiums payable on that … if one
company was taking one-fifth of the risk, they got one-fifth of the
premium.”23 N.T., 11/11/2016 AM, at 101. See also N.T., 1/11/2016 PM,
at 48-49 (Hall reviewing Exhibit P-13, Century’s Memorandum of
Reinsurance, showing reinsurer received same percentage of the premium
____________________________________________
23
Moreland later explained, however, that the proportion of the premium
was not paid in the exact same percentage as the risk. See N.T.,
1/11/2016, at 15-16. For example, OneBeacon’s predecessor did not
receive 12% of the premium although it insured 12% of the risk, which
would have been $3 million of $25 million. Id. at 15. Rather, Moreland
testified the risk was layered with $5 million in the bottom layer, another $5
million in the middle layer, and $15 million in the top layer. Id. He further
explained:
And a premium was determined for each of those three layers
based upon the risk. Usually the bottom – we call it the bottom
layer, the first 5 million, which has the most potential for risk,
would get a larger premium, certainly larger than the second 5
million, and then the 15 would get even a smaller premium[.]
Id. at 16.
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as the percentage of the risk it assumed; “If you do the math, … 80 percent
of the risk, 80 percent of the premium went to the reinsurers.”).24
Furthermore, with regard to OneBeacon’s objection to the testimony of
Century/PEIC’s underwriters, Moreland and Greene, we note both testified
that at the time the facultative certificates herein were issued, it was their
intention, and, indeed, a requirement of their employer, that the reinsurance
provide concurrent coverage with the underlying policies. See N.T.,
1/11/2016 AM, at 85-86 (Moreland, the underwriter for Century’s
predecessor, testifying that all reinsurance certificates were reviewed by
underwriters to ensure concurrency with the underlying policy; “the
____________________________________________
24
In its Reply Brief, OneBeacon emphasizes that, in addition to their
proportionate share of the commission, Century/PEIC retained a ceding
commission of up to 32.5% of the gross premium. OneBeacon’s Reply Brief
at 20-21. Because this ceding commission “could or did include ‘income’ or
a ‘fee’” for Century/PEIC, OneBeacon argues “the economics of the
transactions contradict [Century/PEIC’s] contention that the certificates
should be construed to hold OneBeacon liable for a proportionate share of
[their] expenses irrespective of the ‘Reinsurance Accepted’ caps.” Id. at 22
(emphasis removed).
Both Moreland and Greene testified Century/PEIC took a ceding
commission which covered administrative expenses and overhead. Moreland
explained Century’s ceding commission of 27.5% included 15% for the
insurance broker who brought the underlying insured to Century, and the
remaining was for “premium taxes” and “overhead.” N.T., 1/11/2016 PM, at
22. Greene testified PEIC retained a 7.5% override of the ceding
commission that was used to pay “administrative expenses, paid their board,
their taxes, and I’m sure there was income for – a fee from the use of the
paper.” Deposition of William H. Greene, 12/3/2014, at 92. Indeed,
Century/PEIC handled all of the paperwork for the claims, and brought the
business to the reinsurers. Moreover, there was no testimony this ceding
commission was contemplated to cover defense expenses.
- 34 -
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important thing was to make sure that if [a policy] was reinsured, it was a
hundred percent reinsured”); Deposition of William H. Greene, 12/3/2014, at
122-123 (Greene, PEIC’s underwriter, explaining “it was paramount that the
reinsurance which was purchased was concurrent with the policy,” and that
his “job security depended upon [it]”). To the extent OneBeacon argues this
testimony was inadmissible because neither Moreland nor Greene had an
independent recollection of the certificates at issue, we agree with
Century/PEIC that this criticism relates to the credibility, not the
admissibility, of the underwriters’ testimony. Here, the trial court, sitting as
fact-finder, concluded their testimony was credible, and we find no basis to
disturb the court’s determination. See Infante, supra.
We also reject OneBeacon’s contention that the testimony of Moreland
and Green was “not only inadmissible but unpersuasive” because neither
communicated to OneBeacon their subjective intent that the “Reinsurance
Accepted” amount was expense-exclusive. See OneBeacon’s Brief at 39. In
support of this claim, OneBeacon focuses on to the following language in a
40-year-old decision of this Court: “Also, a statement by one of the parties
as to his understanding of ambiguous terms, even if made when the policy
was being negotiated, is not material unless it was communicated to the
other party.” Celley v. Mut. Benefit Health & Acc. Ass'n, 324 A.2d 430,
435 (Pa. Super. 1974). However, we find the factual posture of Celley
distinguishable from the present matter.
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In Celley, the testimony at issue was being offered to explain the
insured’s understanding of the term “eye trouble” in an elimination
endorsement of a medical insurance policy. Id. at 432. The insured and his
agent believed the term excluded only medical issues involving the insured’s
right eye, because he had surgery on his right eye in the past. Id. at 433.
However, the insurance company interpreted the endorsement to exclude
coverage on both eyes. Id. Significantly, the insured also signed a
document acknowledging the insurance company was not bound by any
statements made by or to an agent. Id. At trial, the court declined to
permit the insurance agent to testify regarding his conversations with the
insured, and their mutual understanding regarding the policy exclusion. Id.
In that context, it was evident neither the insurance agent nor the insured
communicated their mutual understanding regarding the exclusion to the
insurance company. Here, however, Moreland and Greene’s testimony
regarding their intent in obtaining reinsurance coverage did not concern their
“subjective” intent of otherwise unambiguous terms; rather, their testimony
reflected the industry’s custom at that time. Accordingly, we find no abuse
of discretion of the part of the trial court in permitting and considering their
testimony.
With regard to the testimony of Century/PEIC’s expert, Robert Hall, we
reiterate: “[t]he admission of expert testimony is a matter of discretion
[for] the trial court and will not be remanded, overruled or disturbed unless
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there was a clear abuse of discretion.” Portside Inv'rs, L.P. v. N. Ins. Co.
of N.Y., 41 A.3d 1, 12 (Pa. Super. 2011) (quotation omitted).
OneBeacon contends the court erred in admitting Hall’s testimony
because he “simply offered his own inadmissible interpretation of the
certificates.” OneBeacon’s Brief at 41. Again, we disagree. Hall offered
expert testimony on custom and usage regarding the language in facultative
certificates issued during the early 1980’s. See N.T., 1/11/2016 PM, at 39-
40. The Pennsylvania Supreme Court has held custom and usage testimony
may be relevant in contract disputes:
Where terms are used in a contract which are known and
understood by a particular class of persons in a certain special or
peculiar sense, evidence to that effect is admissible for the
purpose of applying the instrument to its proper subject matter.
Resolution Trust Corp. v. Urban Redevelopment Auth. of Pittsburgh,
638 A.2d 972, 975 (Pa. 1994). See id. at 973 (finding that trial court erred
in granting partial summary judgment because “mortgage guaranty
insurance company, in the absence of a policy provision, may show through
custom in the trade that the mortgagee financial institution is responsible for
the misrepresentations of a mortgagor[.]”).
Accordingly, we find no abuse of discretion on the part of the trial
court in permitting Hall to testify “on custom and usage in the facultative
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reinsurance industry,”25 particularly since OneBeacon presented its own
expert, Jack Koepke, who disputed Hall’s findings. Here, Hall opined:
My conclusion was that it was the understanding of the industry
at the time that the reinsurance accepted portion of these
facultative certificates was not a cap on liability and expenses.
It was only a cap on indemnity.
N.T., 1/11/2016 PM, at 40. Conversely, Koepke testified that, based on his
experience, he did not “think there was an understanding of that nature in
the industry at that time.” N.T., 1/12/2016, at 28. Rather, Koepke stated,
“The underwriting intent is expressed in the contract as written, and the way
it is written, there is no intent to cover expenses in addition to limits.” Id.
at 29-30. The trial court, sitting as fact finder, reconciled these differing
opinions in favor of Century/PEIC.26 See Infante, supra. No relief is
warranted.
Next, OneBeacon argues the trial court erred in refusing to find as a
matter of law that Century/PEIC were collaterally estopped from “asserting
that any certificate at issue obligates OneBeacon to pay expenses in excess
____________________________________________
25
Trial Court’s Findings of Fact and Conclusions of Law, 2/23/2016, at ¶ 25.
26
We note the trial court did not explicitly state Hall’s expert testimony was
more credible than Koepke’s expert testimony. See Trial Court’s Findings of
Fact and Conclusions of Law, 2/23/2016, at ¶¶ 25-29. Rather, the court
stated: “The evidence provided by the expert witnesses … while not
dispositive, did provide some assistance in placing the certificate language in
context with the policy provisions.” Id. at ¶ 26. Nevertheless, one can infer
from the court’s analysis of the certificate language and citation to the
record, that it relied upon Hall’s interpretation. See id. at ¶¶ 27-29.
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of its ‘Reinsurance Accepted’ amount.” OneBeacon’s Brief at 42.
Specifically, OneBeacon maintains the court erred in denying its motion for
summary judgment on this claim, and later, in refusing to address it
following trial. See id. at 49-51.
Collateral estoppel bars the re-litigation of a previously decided issue
in a later action. Balent v. City of Wilkes-Barre, 669 A.2d 309, 313 (Pa.
1995). Collateral estoppel applies only when all of the following elements
are met:
(1) the issue decided in the prior case is identical to one
presented in the later case; (2) there was a final judgment on
the merits; (3) the party against whom the plea is asserted was
a party or in privity with a party in the prior case; (4) the party
or person privy to the party against whom the doctrine is
asserted had a full and fair opportunity to litigate the issue in the
prior proceeding and (5) the determination in the prior
proceeding was essential to the judgment.
Heldring v. Lundy Beldecos & Milby, P.C., 151 A.3d 634, 644 (Pa. Super.
2016) (citation omitted). Moreover, a federal court judgment is entitled to
“due force and full effect in state courts.” Weissberger v. Myers, 90 A.3d
730, 733 (2014) (quotation omitted).
Here, OneBeacon asserts the decisions of the federal district courts in
Global/Century I, supra, and Global/PEIC I, supra, bar Century/PEIC’s
claim herein. In both cases, the court considered the same question raised
here, that is, whether the reinsurer’s obligation to pay defense expenses was
capped by the “Reinsurance Accepted” amount listed on the parties’
certificate. See Global/Century I, supra, 2014 WL 4054260, at *4;
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Global/PEIC I, supra, 2010 WL 1659760, at *2. Furthermore, in both
cases, the district court, citing Bellefonte and its progeny, found the
language of the certificates limited the reinsurer’s total liability, inclusive of
expenses, to the “Reinsurance Accepted” amount. See Global/Century I,
supra, 2014 WL 4054260, at *5 (referring to “subject to” clause and
stating, “[h]ere the relevant language in Global’s Certificates is nearly
identical to the language relied on by the Second Circuit in Bellefonte.”);
Global/PEIC I, supra, 2010 WL 1659760, at *5 (noting preamble in
certificate “makes clear that Global’s reinsurance obligations,” including
payment of expenses are “‘subject to the … limits of liability’ contained in
the Declarations[;]” finding Bellefonte “well-reasoned, persuasive
authority”) (emphasis removed). Because the identical argument is
presented in this case, and Century/PEIC were both parties in the former
cases and had “a full and fair opportunity” to litigate this issue, OneBeacon
maintains they are bound by district court rulings in the Global decisions.
OneBeacon’s Brief at 43, 46, 48.
In denying OneBeacon’s motion for summary judgment, the trial court
stated:
[OneBeacon] also moves for summary judgment on the
grounds that [Century/PEIC] are collaterally stopped from
arguing their case due to the holdings in [Global/PEIC I], and
[Global/Century I]. However, these cases do not hold the
necessary weight of final judgments at this juncture in order to
apply collateral estoppel against [Century/PEIC].3 Also, this
court shall not apply collateral estoppel on the basis that the
slightly different wording of the “subject to” clause may prove to
be an influential factor in the interpretation of the certificate.
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__________
3
In PEIC v. Global, due to its finding on another issue,
the Third Circuit chose not to consider the “limit-of-liablity”
issue and dismissed it as moot. PEIC, 693 F.3d at 425
n.3. The court in Global v. Century referred the matter
to a Magistrate judge so the parties could negotiate the
terms of a final order. Global, 2014 WL 4054260; see
also [OneBeacon’s] Motion for Summary Judgment, at 27.
Since the finding remains subject to a motion for
reconsideration and has not been appealed, it does not
qualify as a final judgment.
Trial Court Opinion, 3/27/2015 (OneBeacon’s Motion), at 7-8.
We find no error or abuse of discretion in the ruling of the trial court.
See Pappas, supra. Although the issue in Global/Century I and
Global/PEIC I was identical to the issue in the present case, OneBeacon
glosses over the fact that the language in the reinsurance certificates under
review is different. Indeed, OneBeacon maintains “[t]he facultative
certificates at issue in the Global cases are identical in all relevant respects
to the certificate at issue in this case.” OneBeacon’s Brief at 43. We
disagree. As explained supra, the “subject to” clause in the present case is
materially different from that in Bellefonte, and those in the Global
decisions. Here, as noted above, the “subject to” clause states the
reinsurance is “subject to the general conditions set forth on the reverse
side,”27 rather than “subject to the terms, conditions and amount [or
limits] of liability set forth herein[,]” as the certificates in Bellefonte and
____________________________________________
27
Certificate at 1 (emphasis added).
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the Global cases.28 Therefore, OneBeacon’s certificate does not expressly
provide that all of the coverage (including expenses) is subject to the
“Reinsurance Accepted” limit. Consequently, we conclude the materially
different language in the certificates herein precludes the operation of
collateral estoppel. See Restatement (Second) of Judgments § 27 (1982),
Comment (c) (“Preclusion ordinarily is proper if the question is one of the
legal effect of a document identical in all relevant respects to another
document whose effect was adjudicated in a prior action.”) (emphasis
supplied).
Furthermore, we also agree with the trial court’s determination that
the Global decisions do not constitute final judgments for purposes of
collateral estoppel. With regard to Global/PEIC I, after granting the
reinsurer’s (Global’s) motion for judgment on the pleadings on the expense
issue, the district court later denied Global’s motion for summary judgment
on its claim that the PEIC had breached another part of the contract, which
relieved Global of its obligation to provide coverage. See Pacific
Employers Ins. Co. v. Global Reinsurance Corp. of Am. (“Global/PEIC
II”), 693 F.3d 417, 425 (3d Cir. 2012). Following this ruling, the parties
stipulated to the entry of a final judgment, with Global’s coverage, including
____________________________________________
28
Bellefonte, supra, 903 F.2d at 911 (emphasis added); Global/Century
I, supra, 2014 WL 4054260, at *5; Global/PEIC I, supra, 2010 WL
1659760, at *4.
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defense costs, capped by the “Reinsured Accepted” amount on the
certificate. Both parties appealed, and PEIC specifically challenged the
court’s earlier ruling that Global’s obligation to pay expenses was capped by
the liability limit. See id.On appeal, the Third Circuit found the district court’s summary
judgment ruling was erroneous, and that PEIC’s failure to comply with a
condition precedent excused Global’s obligation to provide any coverage
under the certificate. See id. at 439-440. Therefore, the Third Circuit
“reverse[d] the District Court’s Final Order and Judgment, and remand[ed]
with instructions that the Court enter a judgment of non-liability in Global’s
favor.” Id. at 440. The Third Circuit also explained that as a result of its
ruling, PEIC’s expense cap issue was moot:
Because Global is entitled to a judgment of non-liability as a
result of our holding, PEIC’s limit-of-liability appeal is moot.
Thus we have no occasion to consider the Second Circuit’s
decision in Bellefonte Reinsurance Co. v. Aetna Cas. & Sur.
Co., 903 F.2d 910 (2d Cir.1990), which PEIC asserts is much
maligned in the reinsurance industry.
Id. at 425 n.3.
With regard to Global/Century I, following the district court’s ruling
granting Global’s motion for summary judgment on the expense cap issue,
Century appealed the decision to the Second Circuit Court of Appeals. See
Global Reinsurance Corp. of Am. v. Century Indemnity Co., 843 F.3d
120 (2d. Cir. 2016) (“Global/Century II”). Significantly, the Second
Circuit questioned the viability of its prior ruling in Bellefonte, stating:
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[W]e find it difficult to understand the Bellefonte court’s
conclusion that the reinsurance certificate in that case
unambiguously capped the reinsurer’s liability for both loss and
expenses. Looking only to the language of the certificate, we
think it is not entirely clear what exactly the “Reinsurance
Accepted” provision in Bellefonte meant. Evidence of industry
custom and practice might have shed light on this question, but
the Bellefonte court did not consider any such evidence in its
decision, although it is unclear if any was presented.
The purpose of reinsurance is to enable the reinsured to
“spread its risk of loss among one or more reinsurers.” If the
amount stated in the “Reinsurance Accepted” provision is an
absolute cap on the reinsurer’s liability for both loss and
expense, then Century’s payments of defense costs could be
entirely unreinsured. This seems to be in tension with the
purpose of reinsurance. … Interpreting the “Reinsurance
Accepted” provision as a cap for both losses and expenses, as
we did in Bellefonte, could permit Global to receive 50% of the
premium while taking on less than 50% of the risk.
Id. at 126 (emphasis in original and citation omitted). However, while the
Court found “these arguments worthy of reflection[,]” it was also concerned
with “the principle of stare decisis” and overruling prior precedent. Id.
Therefore, recognizing “[t]he interpretation of the certificates at issue
here is a question of New York Law[,]” the Second Circuit sought guidance
from the New York Court of Appeals as to “whether a consistent rule of
construction specifically applicable to reinsurance contracts exists[.]” Id. at
127. The Court acknowledged the holding in Excess, supra, which Global
argued was controlling, but found the facts of that case were distinguishable.
Namely, in Excess: (1) the parties agreed the policy contained a per
occurrence “liability cap;” (2) the cap provision was labeled “Limit” rather
than “Reinsurance Accepted;” and (3) the reinsured sought coverage for loss
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adjustment expenses, rather than general defense expenses. Id.
Therefore, the Second Circuit certified the following question to the New
York Court of Appeals:
Does the decision of the New York Court of Appeals in Excess
[supra,] impose either a rule of construction, or a strong
presumption, that a per occurrence liability cap in a reinsurance
contract limits the total reinsurance available under the contract
to the amount of the cap regardless of whether the underlying
policy is understood to cover expenses such as, for instance,
defense costs?
Id. at 128.
Consequently, neither the ruling in Global/PEIC I nor
Global/Century I constituted a final judgment for purposes of collateral
estoppel. The decision in Global/PEIC I was rendered moot after the Third
Circuit found Global had no duty at all to provide reinsurance coverage
based on PEIC’s breach of the certificate terms, and explicitly reversed the
district court’s order. Likewise, the ruling in Global/Century I is not a final
judgment because the Second Circuit has certified the question to the New
York Court of Appeals. Accordingly, OneBeacon’s collateral estoppel claim is
without merit.29
____________________________________________
29
Because we have found that the first two requirements for application of
the doctrine of collateral estoppel – i.e., identical issues and a final judgment
– have not been met, we need not consider the remaining elements. See
Heldring, supra, 151 A.3d at 644 (“For collateral estoppel to apply, all of
these elements must be met.”).
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OneBeacon’s fourth and final claim pertains to damages. Specifically,
it asserts the trial court erred in (1) awarding damages to Century because
its evidence did not support the award, and (2) granting Century/PEIC’s
motion for partial summary judgment on the issue of prejudgment interest.
See OneBeacon’s Brief at 51-58.
First, OneBeacon maintains that Century failed to prove its damages
because “the amounts shown on [its] summary [trial] exhibit for periods
prior to August 23, 2013 bear no relationship to the aggregate billings
actually issued to OneBeacon.” OneBeacon’s Brief at 51. Preliminarily, we
note that our review of the voluminous certified record in this case has failed
to uncover the summary trial exhibit of which OneBeacon complains of, P-
180(b).30 We remind OneBeacon that “[i]t is an appellant's duty to insure
that the certified record contains all documents necessary for appellate
review[,]” and when a necessary document is not included in the certified
record, we may find the issue waived on appeal. Love-Diggs v. Tirath,
911 A.2d 539, 541 (Pa. Super. 2006). Nevertheless, we find our review is
not hampered by the missing exhibit.
OneBeacon complains the billing information included on the summary
trial exhibit “b[ore] no relationship to the aggregate billings actually issued
to OneBeacon.” OneBeacon’s Brief at 51. Moreover, it argues Century’s
____________________________________________
30
We note that Century/PEIC moved Exhibit P-180(b) into evidence at the
close of its case-in-chief. See N.T., 1/11/2016 PM, at 79.
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Vice President, Head of Reinsurance, Christine Russell, “could not explain
this discrepancy.” Id. at 52. However, the record belies OneBeacon’s claim.
Russell testified that Century changed its billing in August 2013. N.T.,
1/11/2016 AM, at 58. Prior to that date, Century billed on a “combined
product and non-product basis.” Id. at 57. In August of 2013, Century
began to separately bill for products only. Id. Russell explained the
discrepancy between the earlier billings and the summary trial exhibit was
due to this billing change:
[T]o figure out when we changed the billing, to take out the non-
products, you can’t just take out the amount billed for non-
products. You have to go back and reevaluate the loss from
ground up. So the total dollars – if you’re looking at the proof of
loss, the total dollars in your top right box paid loss would be
less, and you have to go back and recalculate the whole thing
from [the] ground up. And so what this is showing is what the
dollars would have been and how much would have hit of the bill
at the point in time, based on a reevaluating of the whole loss
from [the] ground up. There are fewer total dollars, so it’s going
to proceed up the layers slower than it would have before.
Id. at 63-64. Therefore, Century did provide an explanation for the
discrepancy in the amounts due as reflected on the exhibit, compared with
the actual billings.
Furthermore, in determining Century’s damage award, the court
considered all of the proofs of loss supplied by Century in support of the
total amount due listed on the summary trial exhibit. See Trial Court’s
Findings of Fact and Conclusions of Law, 2/23/2016, at ¶¶ 32-34, citing
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N.T., 1/11/2016 AM, Trial Exhibits P-178-A to P-178-L. Accordingly, we find
Century met its burden of proving damages.
OneBeacon also claims the trial court erred when it granted partial
summary judgment to both Century and PEIC on the issue of prejudgment
interest. It contends Century is not entitled to interest on proofs of loss
issued prior to August 23, 2013, because OneBeacon could not ascertain the
correct amount due before that date as a result of Century’s improper
billings. See id. at 53-55. Moreover, with regard to PEIC, OneBeacon
asserts PEIC failed to provide requested information regarding its billing until
May 14, 2013. See id. at 56. Because it was contractually obligated to
make the information available, OneBeacon contends PEIC is not entitled to
interest accruing prior to July 13, 2013, in other words, 60 days after PEIC
provided the requested information.31 See id.
In TruServ Corp. v. Morgan's Tool & Supply Co., 39 A.3d 253 (Pa.
2012), our Supreme Court explained how prejudgment interest is awarded in
breach of contract cases:
In Fernandez[ v. Levin, 548 A.2d 1191 (Pa. 1988)], this Court
adopted Section 354 of the Restatement (Second) of Contracts
____________________________________________
31
As noted above, the certificates required OneBeacon to pay Century/PEIC
“promptly following receipt of proof of loss.” Certificate at 2, General
Condition (4) (emphasis added). Although the certificates did not specify a
particular time period that would satisfy the prompt payment requirement,
both OneBeacon and Century/PEIC agree that payment within 60 days of
proof of loss constitutes prompt payment. See OneBeacon’s Brief at 54-55;
Century/PEIC’s Brief at 47.
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as the law of this Commonwealth with respect to the recovery of
interest as damages in breach of contract actions. Section 354,
titled “Interest As Damages,” provides:
(1) If the breach consists of a failure to pay a definite sum
in money or to render a performance with fixed or
ascertainable monetary value, interest is recoverable from
the time for performance on the amount due less all
deductions to which the party in breach is entitled.
(2) In any other case, such interest may be allowed as
justice requires on the amount that would have been just
compensation had it been paid when performance was
due.
Restatement (Second) of Contracts § 354. In adopting Section
354, we stated:
For over a century it has been the law of this
Commonwealth that the right to interest upon money
owing upon contract is a legal right. West Republic
Mining Co. v. Jones & Laughlins, 108 Pa. 55 (1885).
That right to interest begins at the time payment is
withheld after it has been the duty of the debtor to make
such payment. Palmgreen v. Palmer's Garage, Inc.,
383 Pa. 105, 108, 117 A.2d 721, 722 (1955).
Fernandez, 519 Pa. at 379, 548 A.2d at 1193.
With regard to prejudgment interest, we have explained,
“[i]nterest has been defined ‘to be a compensation allowed to
the creditor for delay of payment by the debtor,’ and is said to
be impliedly due ‘whenever a liquidated sum of money is
unjustly withheld.’” School Dist. of City of Carbondale v.
Fidelity & Deposit Co. of Maryland, 346 Pa. 491, 492, 31
A.2d 279, 280 (1943) (citations omitted). However, “as
prerequisites to running of prejudgment interest, the debt must
have been liquidated with some degree of certainty and the duty
to pay it must have become fixed.” Id. at 493, 31 A.2d at 280;
Restatement (Second) of Contracts § 354(1) (“If the breach
consists of a failure to pay a definite sum of money or to render
a performance with fixed or ascertainable monetary value,
interest is recoverable.”).
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Id. at 263-264 (footnotes omitted). See also Cresci Const. Servs., Inc.
v. Martin, 64 A.3d 254 (Pa. Super. 2013).
In other words,
prejudgment interest is a matter of right where the amount is
ascertainable from the contract. Where the amount due and
owing is not sufficiently definite, prejudgment interest is
awardable at the discretion of the trial court.
Ely v. Susquehanna Aquacultures, Inc., 130 A.3d 6, 15 (Pa. Super.
2015) (citation omitted), appeal denied, 136 A.3d 982 (Pa. 2016). “Our
review of an award of pre-judgment interest is for abuse of discretion.”
Kaiser v. Old Republic Ins. Co., 741 A.2d 748, 755 (Pa. Super. 1999).
With regard to Century’s award of prejudgment interest, OneBeacon
argues it “had no duty to pay any proofs of loss until after Century corrected
its billings on August 23, 2013[.]” OneBeacon’s Brief at 54. It claims
Century was awarded interest on the $6 million dollar payment it made in
2013 based upon the summary exhibit that demonstrated the $6 million
became due between 2011 and January of 2013. Id. at 53. However,
OneBeacon maintains that the proofs of loss, which were issued prior to the
corrected billing, included both product and non-product losses and it was
“impossible for OneBeacon to ascertain the amount of ‘products’ losses and
expenses that were actually due[.]” Id. It also claims that Century
“conceded” this point, referring to the deposition testimony of
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Century/PEIC’s designated corporate representative, Stefanie Walterick.32
See id., citing Deposition of Stefanie Walterick, 11/19/2014, at 159-160.
Moreover, OneBeacon asserts the “incoherent” explanation of how the
amounts due were calculated on summary trial exhibit, which involved a
“ground up analysis,” provided by Century’s Vice President, Head of
Reinsurance, Russell, further supports its claim that it could not ascertain
the proper amount of product losses and expenses due prior to August 2013.
Id. at 54.
Preliminarily, we note that Century did not concede that it was
impossible for OneBeacon to determine its proportionate share of product
losses until Century changed its billing in August of 2013. While Walterick
acknowledged that it was “impossible to break out” the products only billings
if OneBeacon “just look[ed] at the proof[s of loss] in a vacuum and [] never
look[ed] at anything else,” she explained that the proofs of loss were
accompanied by billing letters that provided the requisite detailed
information. Deposition of Stefanie Walterick, 11/19/2014, at 159-160.
In granting Century’s motion for partial summary judgment the trial
court opined:
____________________________________________
32
Walterick testified that she is an assistant vice-president for the
Brandywine Group of Insurance & Reinsurance Companies, which includes
both Century and PEIC. See Deposition of Stefanie Walterick, 11/19/2014,
at 18-19.
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The parties have supported their arguments with a substantial
amount of evidence, including the copies of the billings
themselves and depositions of individuals involved with the
claims. Based on the record, [OneBeacon] had sufficient
information to calculate within a reasonable degree the amount
owed under the Century certificates, and therefore is required to
pay Century prejudgment interest for late payments under the
certificates.
Trial Court Opinion, 3/27/2015 (Century/PEIC’s Motion), at 5-6. We find no
abuse of discretion on the part of the trial court. OneBeacon’s argument
consists of parsing out excerpts from the testimony of Century’s witnesses in
an attempt to demonstrate Century knew its billings were incomprehensible.
The trial court, however, reviewed the actual proofs of loss and
accompanying billing letters before concluding OneBeacon could ascertain
“within a reasonable degree” the amount due under the facultative
certificates. Id. See Affidavit of Stefanie Walterick, 1/20/2015, Exhibits B-
F.33 Accordingly, we find no abuse of discretion, and no relief is warranted.
See Ely, supra, 130 A.3d at 15 (“Where the amount due and owing is not
sufficiently definite, prejudgment interest is awardable at the discretion of
the trial court.”).
____________________________________________
33
In particular, Exhibit F to Walterick’s affidavit is a chart that calculates the
interest due for all of the Century/PEIC billings. See id. at Exhibit F. The
earlier interest for the Century (Formosa) billings began to run on November
27, 2011, 60 days after OneBeacon received the proofs of loss on
September 28, 2011. See id. As for PEIC, the earliest interest began to run
on July 22, 2012, 60 days after OneBeacon received the proofs of loss on
May 23, 2012. See id. The trial court used these calculations for its pretrial
award of pre-judgment interest. See Trial Court Opinion, 3/27/2015
(Century/PEIC’s Motion), at 6.
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As for the award of prejudgment interest to PEIC, OneBeacon argues it
had no duty to pay until July 14, 2013, 60 days after PEIC provided
OneBeacon with information it had requested to verify the amount it was
being billed was correct. See OneBeacon’s Brief at 55-56. OneBeacon
further contends it made written requests for this information in June of
2012, and April of 2013, but PEIC did not provide the materials until May 14,
2013. The facultative certificates require the reinsured to “make available
for inspection and place at the disposal of the Reinsurer at reasonable times
any of its records relating to [the] reinsurance or claims in connection
therewith.” Certificate at 2, General Condition (1). OneBeacon maintains
PEIC “failed to fulfill this obligation, as it did not make the records available
at OneBeacon’s disposal until May 14, 2013,” and, consequently,
OneBeacon’s duty to pay the proofs of loss was discharged until that time.
OneBeacon’s Brief at 57.
The trial court disposed of this claim as follows:
Here, the fourth provision of the certificate simply provides
that “[p]ayment … will be made by [OneBeacon] to [PEIC]
promptly following receipt of proof of loss.” No other conditions
are attached. [OneBeacon’s] obligation to make payment was
triggered once it received proof of loss. While the parties are
bound by all of the terms in the contract, the policy cannot be
interpreted so that the fourth provision has no effect on the
parties until, and only until, all of the other enumerated terms
have first been satisfied. Moreover, the first provision of the
certificates merely requires [PEIC] to “make available for
inspection and place at the disposal of [OneBeacon] at
reasonable times any of its records relating to this reinsurance or
claims in connection therewith.” (emphasis added).
[OneBeacon’s] request that PEIC mail OneBeacon specific
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records relating to the proofs of loss, while seemingly
reasonable, and perhaps commonplace, technically goes beyond
what is required of [PEIC]. Since [PEIC] only had to “make
available” the records at [OneBeacon’s] “disposal,” the onus was
on [OneBeacon] to actively seek and collect the records, rather
than passively wait for [PEIC] to satisfy its requests. In
conclusion, [OneBeacon] was required to make payment
promptly upon receiving proof of loss, and its failure to do so
entitles [PEIC] to the resulting interest.
Trial Court Opinion, 3/27/2015 (Century/PEIC’s Motion), at 4-5 (footnote
omitted).
Again, we find no abuse of discretion on the part of the trial court. As
PEIC points out in its brief, OneBeacon did not contend “that the PEIC proofs
of loss left it unable to calculate how much it owed under the Gould
certificates.” Century/PEIC’s Brief at 48 (emphasis supplied). Rather,
OneBeacon sought additional information “to verify that it was being
properly billed.” OneBeacon’s Brief at 11. Further, while OneBeacon
emphasizes PEIC’s corporate representative, Walterick, conceded that
OneBeacon’s request for information was not “unreasonable,” it fails to
acknowledge Walterick’s additional testimony that she sent OneBeacon a
response to its June 2012 request four months later. See Deposition of
Stefanie Walterick, 11/19/2014, at 256-260. See also id. at 258 (“I think
we provided a good response to [OneBeacon’s] queries and provided a
substantive and complete response.”).
Here, the trial court concluded that General Condition (4) explicitly
required OneBeacon to promptly pay PEIC following receipt of proofs of loss,
and was not dependent upon PEIC’s duty under General Condition (1) to
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make records available for inspection. See Trial Court Opinion, 3/27/2015
(Century/PEIC’s Motion), at 4-5. As a panel of this Court previously stated,
even “[w]here the amount due and owing is not sufficiently definite,
prejudgment interest is awardable at the discretion of the trial court.” Ely,
supra, 130 A.3d at 15. Accordingly, no relief is due on this claim.34
Because we find no error or abuse of the trial court, we affirm the
judgment entered in favor of Century/PEIC and against OneBeacon.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/1/2017
____________________________________________
34
We note OneBeacon requests that this Court take “judicial notice” of the
pleadings in a federal district court case, filed in the District of Connecticut,
in which Century, “PEIC’s sister-company and co-plaintiff,” purportedly took
the position of OneBeacon herein, that is, Century (as a reinsurer) “refused
to pay more than $6 million … due to [the reinsured’s] failure to provide
information requested by Century.” OneBeacon’s Brief at 57. However, we
decline to take judicial notice of pleadings in an unrelated federal court
case.
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