The Insured’s Burden
It is axiomatic that in every contract of insurance or reinsurance the insured bears the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage.
The First Circuit Court of Appeal was asked to resolve a reinsurance dispute between an American insurance company and a Canadian insurance company in
OneBeacon America Insurance Company v. Commercial Union Assurance Company of Canada, No. 11-2072 (1st Cir. 07/11/2012). The American company, Plaintiff-Appellant OneBeacon America Insurance Company (“OneBeacon”), claims that the Canadian company, Defendant-Appellee Aviva Insurance Company of Canada (“Aviva”), is obligated to reinsure OneBeacon for policies OneBeacon issued to certain entities in the early 1980s. Both parties filed cross-motions for summary judgment, and the district court denied summary judgment to OneBeacon and granted summary judgment to Aviva. OneBeacon appealed.
In the early 1980s, OneBeacon and Aviva were both affiliated members of the Commercial Union group of insurance companies (the two companies are no longer affiliated). The 1980 OneBeacon Policy was effective from March 28, 1980 through April 1, 1981 and was identified as policy no. C8-9101-002. The Policy contained “Endorsement Number 4,” (the “1980 OneBeacon Endorsement Number 4″) which provides:
“It is understood and agreed that this policy or any renewal thereof is 100% reinsured by [Aviva] policy number 6687287 effective 3/28/80 to 4/1/81. ¶ It is further agreed that cancellations of this policy C8-9101-002 or any renewal thereof or policy 6687287 or any renewal thereof shall be reason for automatic cancellations of the other policy.”
Also on March 28, 1980, Aviva issued an insurance policy (the “1980 Aviva Policy”) to Harrisons & Crosfield (Canada) Ltd. (“Harrisons Canada”) with the policy no. 6687287. The 1980 Aviva Policy contains a “Differences in Conditions Endorsement” (the “1980 Aviva Endorsement”), which states: “In consideration of the premium charged, the Insurer agrees that this policy is placed in conjunction with and reinsures Policy No. CL C8-9191-002 issued by [OneBeacon], or any renewal thereof, in respect of: Insured: Harrisons & Crosfield(America)Inc., Harrisons & Crosfield(Pacific)Inc. ¶ Exceptions: This insurance differs from the policy which it follows in the following particulars: (a) Premium: $45,530 (Canadian Funds-Deposit) The Limit of Liability under either or both policies shall not exceed $1,000,000.00 as set forth in Policies 6687 and CL C8-9101-002 or any renewal policies issued by this Insurer.”
On November 26, 1980, Aviva issued to OneBeacon “reinsurance certificate No. 9009419″ (the “Facultative Certificate”) for the “reinsurance term” of March 28, 1980 to April 1, 1981. The Facultative Certificate states that Aviva reinsures policy no. C8-9101-002 (the 1980 OneBeacon Policy), and the reinsurance premium listed is $45,530.00 Canadian. The Facultative Certificate’s policy period was never extended, nor does a separate facultative certificate exist for any subsequent policy period. The Facultative Certificate is the only direct written agreement between Aviva and OneBeacon on the record.
Aviva sent the Facultative Certificate to OneBeacon via a letter dated November 26, 1980, along with a check for $4,553 Canadian. The letter states: “Further to yours of July 1st, 1980. Attached is our Reinsurance Certificate along with our cheque in the amount of $4,553.00 Canadian being your override commission of 10% of the premium which was $45,530.00 Canadian.”
In 1981, OneBeacon issued a policy to Harrisons US, effective April 1, 1981 to April 1, 1982. Around the same time, Aviva issued an endorsement (the “1981 Aviva Endorsement”) to the 1980 Aviva Policy that extended the policy period from March 28, 1981 to March 28, 1982. Significantly, the 1981 Aviva Endorsement explicitly excluded Harrisons US from coverage under the 1980 Aviva Policy.
In 1998, OneBeacon received notice of lawsuits against Harrisons US for asbestos-related injuries. Based upon the coverage it issued to Harrisons US under the 1980, 1981, and 1982 OneBeacon Policies, OneBeacon entered into a defense cost-sharing arrangement with Harrisons US’s other insurers for claims arising from the covered period. In November 2007, OneBeacon requested that Aviva fully indemnify OneBeacon for costs incurred in connection with the Harrisons US claims. Aviva responded that it would reimburse OneBeacon for only one-third of defense expenses and indemnity payments.
On February 2, 2010, OneBeacon filed suit against Aviva in the U.S. District Court for the District of Massachusetts. OneBeacon sought a declaration that Aviva had a contractual obligation to reinsure the 1980, 1981, and 1982 OneBeacon Policies issued to Harrisons US, and also sought damages for Aviva’s alleged breach of contract. On June 24, 2011, OneBeacon and Aviva filed cross-motions for summary judgment. On August 18, 2011, the district court denied OneBeacon’s motion and granted Aviva’s. The court pointed out that the Facultative Certificate was the only contract on the record between the two parties. The court then held that because the Facultative Certificate unambiguously stated that the term of reinsurance ended after April 1, 1981, Aviva did not reinsure the 1981 or 1982 OneBeacon Policies. The court further concluded that the other evidence on the record also suggested that Aviva reinsured only the 1980 OneBeacon Policy.
Under Massachusetts law, and that of almost every state, the insured bears the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage. It is OneBeacon’s burden to prove that Aviva agreed to reinsure the 1981 and 1982 OneBeacon Policies.
The 1981 Aviva Endorsement explicitly changed the scope of Aviva’s obligations. The Differences in Condition Endorsement in the original 1980 Aviva Policy stated that Aviva would reinsure OneBeacon’s coverage to Harrisons US. However, the 1981 Aviva Endorsement stated that Harrisons US was “specifically excluded from this policy which shall not inure to [its] benefit in any way”.
The fact that there is no Facultative Certificate between Aviva and OneBeacon for the second and third policy years suggests that the relationship between the two companies changed after the first year. Secondly, and most importantly, the evidence regarding the flow of premium payments supports the view that Aviva terminated its reinsurance obligation after the first year. In the first year, in which both parties agree that Aviva reinsured OneBeacon, Aviva received a premium payment of $45,530 Canadian and remitted a 10% fee to OneBeacon. Moreover, the OneBeacon ledger shows that there was a reinsurer for the 1980 OneBeacon policy – identified with the code “C44.” In the second year, however, the OneBeacon ledger reflects that OneBeacon directly received the full $24,000 U.S. premium payment. Furthermore, the ledger does not indicate that there was a reinsurer for the 1981 or 1982 OneBeacon Policies. Further, OneBeacon has not pointed to any evidence that it shared the second- or third-year premium with Aviva. OneBeacon was, therefore, asking the First Circuit reach a result that OneBeacon kept all of the premiums for the 1981 and 1982 policy years, but that it bore none of the risk. Because there is no evidence that Aviva agreed to provide reinsurance beyond the term of the first policy year, OneBeacon is not entitled to judgment as a matter of law.
Since it is OneBeacon’s burden to prove Aviva’s reinsurance obligation, which OneBeacon cannot do, summary judgment for Aviva was appropriate. Accordingly, we affirm the grant of summary judgment to Aviva.
Insurance companies, when dealing with reinsurance, like insureds dealing with insurance should know that for insurance to be effective it must be in writing. As Sam Goldwyn allegedly said back in the golden age of movies: “Your oral contract ain’t worth the paper it’s printed on!”
A person suing on a contract of insurance must, primarily, be able to present to the court a written contract. OneBeacon failed to present a contract. OneBeacon failed to show it paid premium for more than the first year. The court destroyed One Beacon’s case as follows:
OneBeacon would have this Court reach a result that OneBeacon kept all of the premiums for the 1981 and 1982 policy years, but that it bore none of the risk. Such a conclusion would defy economic sense.
The lessons taught by this case include the following:
- Don’t sue on a contract that you cannot produce.
- Be certain, before filing suit, that you can carry the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage.
- Only make arguments to a court that make economic sense.
© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.
He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant.
Mr. Zalma recently published the e-books, “Zalma on Insurance Fraud – 2012″; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.