Petition — Security Mutual Casualty Co. v. Century Casualty Co.
Supreme Court brief1976
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MICHAEL RODAK, JR_CLERK
IN THE
Supreme Court of the United States
OcTOBER TERM, 1976
N
” 6-84 «4
Sgcurnity Mutvuar Casuatty Company, Petitioner
v.
Cu.sTuRY CaSUALTY COMPANY, Respondent
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
Wa ter A, STEELE and
JOHN E. CLOUGH
Lincoln Center Building
1660 Lincoln Street
Denver, Colorado 80203
Attorneys for Petitioner
Parss or Brrow S. Apams Parntine, Inc., Wasuineton, D. C.
Page
GR SI vp Rbsd dct ccndederscocacsedacensenes 2
SEL ccedeys eed buheeans ss cdcqpekendon denies 2
CD ON iis vc ons cc ctenccescbessnecscar 2
Or Cee oc. cwacccanesekaceseanes 3
ID oo 6 is ha datenk bceve kncdesecsicsdkeeseuss 5
Appendix A: Opinion of the United States Court of
Appeals for the Tenth Cireuit—Security Mutual
Casualty Company v. Century Casualty Company la
Appendix B: Opinion of the United States Court of
Appeals for the Seventh Cireuit—Keehn v. Excess
Bs Sh Oe IUD <6 bh. ns 6'o Se cteude cs caesewdoes 15a
TABLE OF AUTHORITIES
Anderson Aviation Sales Company, Inc. v. Perez, 508
P.2d 87 (Arizona Appeals 1973) ............... +
Barkley, et al. v. London Guaranty Accident Company,
Ltd., 46 Colo. 558, 105 P.2d 865 .............008.
Keehn v. Excess Insurance Company of America, 129
, | Fy &: S | era 2, 3, 5, 6, 8
Simmon y. Iowa Mutual Casualty Company, 111 N.E.
ME cckb44n Ghd ueike euiwaddent oak eubeuans 7,8
13 Couch on Insurance 2d § 49:19 .................. 7
13 Couch on Insurance 2d § 49:21 ...............00. 7
IN THE
Supreme Court of the United States
OcTOBER TERM, 1976
No.
Security Mutua. Casua.tty ComMPAny, Petitioner
v.
CENTURY CASUALTY CoMPANY, Respondent
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
Security Mutual Casualty Company, prays that a
Writ of Certiorari issue to review the judgment of
the United States Court of Appeals for the Tenth Cir-
cuit entered in the above entitled cause on March 12,
1976. A Petition for rehearing before the Honorable
David T. Lewis, Chief Judge, the Honorable Delmas
C. Hill, and the Honorable James E. Barrett, Cireuit
Judges of the United States Court of Appeals for the
Tenth Circuit was denied by that Court on April 5,
1976.
2
CITATION TO OPINION BELOW
The opinion of the United States Court of Appeals
for the Tenth Circuit and the denial of the petition for
rehearing are contained in Appendix A to this Peti-
tion and said opinion is reported in 531 F.2d 974 (10
Cir. 1976).
JURISDICTION OF THIS COURT
The statutory provision conferring jurisdiction of
this Court to review the judgment of the United States
Court of Appeals for the Tenth Circuit by writ of cer-
tiorari is contained in 28 U.S.C. § 1254.
QUESTION PRESENTED FOR REVIEW
The United States Court of Appeals—Tenth Circuit,
Lewis, Chief Judge, Hill and Barrett, United States
Circuit Judges, sitting, determined in their opinion
that a Notice provision in the insurance treaty (con-
tract) between the Petitioner and Respondent was a
covenant and not a condition precedent so that a breach
thereof by the defendant, respondent, did not void the
treaty but merely constituted a breach of covenant.
The place of the treaty was Chicago, Illinois, and the
place where notice was to be given pursuant to +he
Notice requirement of the treaty was the home offic:
of the plaintiff at Chicago, Illinois. This decision «
the United States Court of Appeals—Tenth Circuit is
in direct conflict with a decision of the United States
Court of Appeals for the Seventh Circuit on the same
question. The United States Court of Appeals of the
Seventh Circuit deciding the case of Keehn v. Excess
Insurance Company of America, 129 Fed. 503 (7th
Cir. 1942), directly held that a failure to give notice
to the reinsuror of the accident in compliance with the
ee ere —
3
provision of the contract was a condition precedent
and a bar to recovery by the plaintiff, and further that
although the contract failed to designate this notice
provision as a condition precedent and did not contain
a declaration of forfeiture for non-compliance con-
stituted a condition precedent. This issue which is in
conflict between the United States Court of Appeals
for the Tenth Circuit and the United States Court of
Appeals for the Seventh Circuit is of great importance
to and will have a significant impact upon the insur-
ance industry in the United States. The opinion of
the United States Court of Appeals for the Seventh
Cireuit in the Keehn case, supra, is contained in Ap-
pendix B to this Petition.
A further question presented for review is that the
United States Court of Appeals for tle Tenth Cireuit
has rendered a decision in conflict with the applicable
law of the State of Colorado.
STATEMENT OF THE CASE
Security Mutual Casualty Company, the Petitioner,
brought an action seeking a declaratory judgment de-
termining its rights and liabilities under a reinsurance
treaty with Century Casualty Company, the Respond-
ent. Security Mutual also sought to recover damages
incurred as a result of a judgment against Century’s
insured, Anderson Aviation Sales Company, Inc.
Security Mutual claimed it had no liability as rein-
suror because Century Casualty failed to give timely
notice of the fatalities and resulting claims involved
in the Anderson Aviation litigation. Trial court held
that, under the reinsurance treaty, notice was a condi-
tion precedent to Security Mutual’s liability to indem-
nify Century Casualty. The Court found as a matter
4
of fact that notice was not given and entered judgment
for Security Mutual.
The two companies entered into the reinsurance
treaty in March 1966. Security Mutual agreed to re-
insure a specified portion of Century Casualty’s losses
under its primary insurance contracts in return for a
portion of the premiums. During 1969, Century Cas-
ualty insured Anderson Aviation, an Arizona corpo-
ration, in the business of leasing airplanes to the public.
The poli¢y was within the scope of the reinsurance
treaty. On September 3, 1969, an Anderson Aviation
plane crashed in Blythe, California, killing the pilot
and five (5) passengers and destroying the plane. Suit
was brought in State Court of Arizona, on behalf of
the passengers against the passengers’ employer, the
pilot, and Anderson Aviation. Anderson Aviation was
held liable under theory of negligent entrustment. The
judgment, in the amount of Three Hundred Eighty-
five Thousand Dollars ($385,000.00) plus costs and in-
terest, was affirmed on Appeal. Anderson Aviation
Sales Company, Inc. v. Perez, 508 P.2d 87 (Arizona
Appeals 1973).
Century Casualty received notice of the death claims
and the claims for hull damage to the airplane shortly
after September 8, 1969. Century paid the claim for
damage to the airplane and submitted a reinsurance
claim on December 1, 1969, for the hull damage. Se-
curity Mutual without notice of the fatalities paid the
reinsurance claim two (2) weeks later. Suit was filed
on the death claims on September 12, 1970, but the
trial Court found Security Mutual received no notice
of the deaths or the lawsuits until April 27, 1971, after
the verdict had been returned against Century’s in-
sured and the post-trial motions had been denied. Cen-
5
tury Casualty provided the defense in the Arizona
trial Court but requested Security Mutual’s assistance
in the Appeal. Security posted Three Hundred Eight
Thousand Dollars ($308,000.00) and Anderson Avia-
tion posted Eighty-two Thousand Dollars ($82,000.00)
on the supersedeas bond. Security Mutual and Cen-
tury Casualty cooperated in the unsuccessful Appeal.
Security in the lower Court sought to establish that
it was not liable under the reinsurance treaty for any
part of the Arizona judgment against Century Casu-
alty’s insured. It also sought to recover its expenses
in prosecuting the Appeal from that judgment. The
trial Court determined as a matter of fact that notice
was not given as required by the treaty and determined
as a matter of law that the notice provision of the
treaty was a condition precedent which was breached
by Century. The sole question on Appeal to the United
States Court of Appeals—Tenth Circuit was whether
the notice of the deaths and subsequent claims is a con-
dition precedent to Security Mutual’s liability under
the reinsurance treaty.
United States Court of Appeals—Tenth Circuit in
their opinion decided that the notice provision of the
treaty is a covenant by Century and not a condition
precedent to Security’s duty to make payment.
The Keehn case, supra, was presented to the Court
with no opposing cases cited by counsel for the re-
spondent. Several Colorado cases were cited by the
petitioner in support of the law in Colorado, which
petitioner feels is the same as the law of Illinois. No
cases were cited contra by the respondent. The United
States Court of Appeals for the Tenth Circuit stated
that the law of Illinois did not apply, therefore the
Keehn case did not apply, and that the law of Colorado
6
was contra to the law of Dlinois as set forth in the
Keehn case.
Petitioner asks that this Court review the questions
presented, determine that the law of Illinois applies
pursuant to the opinion of the United States Court of
Appeals for the Seventh Circuit in the Keehn ease,
supra, and that such law is also the law of Colorado,
that a notice provision as found in the treaty between
the parties in this case is a condition precedent to lia-
bility under the contract, thereby resolving the conflict
between the decision of the United States Court of
Appeals for the Tenth Circuit and the decision of the
United States Court of Appeals for the Seventh Circuit
and the law of the State of Colorado.
ARGUMENT
The law applicable to the construction of the con-
tract with respect to the notice provision in the con-
tract is the law of Illinois. Since the place of the con-
tract is Chicago, Illinois, and of necessity the place
where notice would be given pursuant to the notice
requirement would be the home office of the plaintiff
at Chicago, Illinois, the case of Keehn v. Excess In-
surance Company of America, supra, would apply in
this case. The opinion in the Keehn case, supra, states
in this regard as follows:
“‘the Court below held that the failure to give no-
tice to the defendant of the snow accident, in com-
pliance with this provision of the contract was
such as to bar recovery by the plaintiff. In doing
so, it held contrary to plaintiff’s contention that
the provision was not controlling for the reason
that the contract failed to designate this provision
as a condition precedent, nor did it contain a dee-
laration of forfeiture for non-compliance.”
7
The law in Colorado is not different from the law in
Illinois. There are no reinsurance cases in Colorado,
and although the cases cited in Colorado refer to pri-
mary insurance where the notice provision is found
under the general heading of ‘‘Conditions’’, it does not
follow that a provision in a reinsurance treaty requir-
ing notice of claims must be construed as a promise
rather than a condition precedent. Similar primary
insurance cases where the notice requirement is set
forth under the word ‘‘Condition’’ are also found in
the Illinois Courts. As an example see the case of Sim-
mon v. Iowa Mutual Casualty Company, 111 N.E.2d
376.
Provisions in insvrance policies and reinsurance
treaties that require notice of death, injury to loss be
given within a specified time after the happening
thereof, are held to be “‘conditions precedent”’. 13
Couch on Insurance 2d § 49: 19 and cases cited in Note
17 thereof. The notice requiremerts in the reinsur-
ance treaty in this case require that the notice be given
‘‘immediately’’ and *‘prompt”’.
An express provision for notice is to be construed
under the law of the State where the contract was
made. This contract was made in Illinois and Illinois
therefore applies. 13 Couch on Insurance 2d § 49: 21.
The Keehn case, supra, is controlling.
In addition to the preceeding argument, petitioner
contended that the notice provision was expressly made
a condition precedent by the following clauses in page 1
of the reinsurance treaty:
‘*WiITNESSETH: That in consideration of the mu-
tual covenants hereinafter contained and upon the
terms and conditions hereinbelow set forth, the
8
parties hereto agree as follows: Article I—Poli-
cies Covered: the reinsuror hereby agrees to in-
demnify the company in respect to the net excess
liability which may accrue to the company under
its policies ** * 9?
‘*subject to the terms, conditions, and limitations
of this agreement and of the exhibits * * * ”’
Similar clauses were considered sufficient to create
an express condition precedent in the Colorado case of
Barkley, et al. v. London Guaranty Accident Company,
Ltd., 46 Colo. 558, 105 P.2d 865. The Barkley case,
supra, is similar to the Simmon case, supra, indicating
that the law of Colorado is the same as the law of Llli-
nois. There are no cases contrary cited by the re-
spondent nor are there any cases in Colorado which
are contrary to the law of Illinois. Colorado and Illi-
nois law are similar in the insurance field and the other
areas of the law (example the long arm statute which
Colorado adopted from the Lllinois long arm statute).
The Keehn case, supra, is still current law and totally
applicable to the facts of this case.
The decision in this case is extremely significant to
the insurance industry of the United States in that the
treaty which is the subject matter of this case is simi-
lar to treaties between primary and reinsurance com-
panies across the country. It is an important element
of the relationship between reinsuror and primary car-
rier that notice of fatalities and claims be made pur-
suant to the notice treaty so that proper reserves can
be set up thereby affecting the financial condition of
the company and its ability to write insurance, the
right to employ counsel of the reinsurer’s choice to
assist in the defense of the action to negotiate a settle-
ment, the right to charge premiums concomitant with
9
the risk involved based upon the loss experience of the
primary carrier and the right to prevent fraud and
injustice. It is a question which transcends state lines
and affects greatly a major industry of the United
States.
Respectfully submitted,
Watter A. STEELE and
JOHN E. CLoucH
Lincoln Center Building
1660 Lincoln Street
Denver, Colorado 80203
Attorneys for Petitioner
APPENDIX
la
APPENDIX A
[Argued August 20, 1975; Decided March 12, 1076;
Rehearing Denied April 5, 1976]
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
No. 74-1809
Securtry Mutua Casuatty Company, Plaintiff-Appellee,
v.
Century Casuatty Company, Defendant-Appellant.
APPEAL FROM THE UniTep States District Court
FOR THE DistricT oF COLORADO
(D. C. No. C-4311)
Michael F. Scott, Denver, Colorado (Roger D. Bush and
James H. Mosley, Denver, Colorado, on the brief), for
defendant-appellant.
A. Denison Weaver (John E. Clough, Denver, Colorado,
on the brief), for plaintiff-appellee.
Before Lewis, Chief Judge, and Hrut and Barrett, Circuit
Judges.
Hu, Circuit Judge.
Security Mutual Casualty Company, the appellee, brought
this action seeking a declaratory judgment determining its
rights and liabilities under a reinsurance treaty with Cen-
tury Casualty Company, the appellant. Security Mutual
also sought to recover damages incurred as a result of a
judgment against Century’s insured, Anderson Aviation
Sales Company, Ince.
Security Mutual claimed it had no liability as reinsurer
because Century Casualty failed to give timely notice of
the fatalities and resulting claims involved in the Ander-
son Aviation litigation. The trial court held that, under
2a
the reinsurance treaty, notice was a condition precedent
to Security Mutual’s liability to indemnify Century Cas-
ualty. The court found as a matter of fact that notice was
not given and entered judgment for Security Mutual.
The two companies entered into the reinsurance treaty
in March, 1966. Security Mutual agreed to reinsure a
specified portion of Century Casualty’s losses under its
primary insurance contracts in return for a portion of the
premiums. During 1969, Century Casualty insured Ander-
son Aviation, an Arizona corporation in the business of
leasing airplanes to the public. The policy was within the
scope of the reinsurance treaty. On September 3, 1969, an
Anderson Aviation plane crashed in Blythe, California,
killing the pilot and five passengers and destroying the
plane. Suit was brought in the state court of Arizona on
behalf of the passengers against the passengers’ employer,
the pilot, and Anderson Aviation. Anderson Aviation was
held liable on the theory of negligent entrustment. The
judgment, in the amount of $385,000 plus costs and inter-
ests, was affirmed on appeal. Anderson Aviation Sales Co.,
Inc. v. Perez, 19 Ariz.App. 422, 508 P.2d 87 (1973).
Century Casualty received notice of the death claims and
the claims for hull damage to the airplane shortly after
September 8, 1969. Century paid the claim for damage
to the airplane and submitted a reinsurance claim on De-
cember 1, 1969. Security Mutual paid the reinsurance
claim two weeks later. Suit was filed on the death claims
on September 12, 1970, but the trial court found Security
Mutual received no notice of the deaths or lawsuits un-
til April 27, 1971, after the verdict had been returned
against Century’s insured and the post-trial motions had
been denied. Century Casualty provided the defense in
the Arizona trial court, but requested Security Mutual’s
assistance in the appeal. Security posted $308,000 and
Anderson Aviation posted $82,000 on the supercedeas bond.
3a
Security Mutual and Century Casualty cooperated in the
unsuccessful appeal.
In the present action Security Mutual seeks to establish
that it is not liable under the reinsurance treaty for any
part of the Arizona judgment against Century Casualty’s
insured. It also seeks to recover its expenses in prosecut-
ing the appeal from that judgment. The trial court in this
case determined, as a matter of fact, that notice was not
given as required by the treaty. The sole question on ap-
peal is whether notice of the deaths and subsequent claims
is a condition precedent to Security Mutual’s liability un-
der the reinsurance treaty. If it is, the judgment must be
affirmed. We conclude it is not and therefore reverse the
judgment.
We have been cited to only one case deciding whether
notice from the primary insurer to its reinsurer is a con-
dition precedent to the reinsurer’s liability. In Keehn v.
Excess Insurance of America, 129 F.2d 503 (7th Cir. 1942),
the court held notice of loss was a condition precedent
under the terms of the contract there in dispute. Keehn
was decided under Illinois law, and we do not believe Colo-
rado law compels the same result. Moreover, every con-
tract must be interpreted according to its own terms.
The Colorado cases cited by appellant involve primary
insurance rather than reinsurance. In Colorado, notice of
loss may be expressly made a condition precedent to an in-
surer’s liability. Barclay v. London Guaranty & Accident
Co., 46 Colo. 558, 105 P. 865 (1909); see Dairyland Insur-
ance Co. v. Cunningham, 360 F. Supp. 139 (D. Colo. 1973).
However, a provision for notice will not be construed as a
condition precedent unless that intention is clearly and un-
equivocally stated in the contract. Connecticut Fire In-
surance Co. v. Colorado Leasing Mining & Milling Co., 50
Colo. 424, 116 P. 154 (1911); Preferred Accident Insur-
ance Co. v. Fielding, 35 Colo. 19, 83 P. 1013 (1905). The
same rule is stated in 13 Couch on Insurance 2d § 49: 20 as
4a
follows: ‘‘[S]tipulations for notice will not be construed
as conditions precedent if reasonably open to another con-
struction.”’
Before we may apply these rules of construction, how-
ever, we must attempt to determine the intent of the par-
ties by interpreting the language of the contract. A court
will not force an ambiguity in order to resolve it against an
insurer. Massachusetts Mutual Life Insurance Co. v. De-
Salvo, 482 P.2d 380 (Colo. 1971); Southern Surety Co. v.
MacMillan Co., 58 F.2d 541 (10th Cir. 1932), cert. denied,
287 U.S. 617, 53 S.Ct. 18, 77 L.Ed. 536. The notice provi-
sion of the Security Mutual-Century Casualty reinsurance
treaty states:
The Company [Century] shall immediately give no-
tice to the Reinsurer [Security] on all claims reserved
in excess of the Company’ [sic] retention and also shall
give prompt notice to the Reinsurer on claims which,
in the judgment of the Company could develop into
losses involving reinsurance hereunder. Further, as
respects bodily injuries, the Company shall report to
the Reinsurer all claims involving fatalities, . . . re-
gardless of ability, where the policy limits (or Work-
men’s Compensation Benefits) applicable to such losses
exceed the retention of the Company....
We do not believe this language plainly states a condi-
tion precedent. It is significant, in a contract as carefully
drawn as an insurance contract, that none of the usual
words indicating a condition precedent are present. Sce
Southern Surety Co. v. MacMillan Co., supra. Perhaps
more significant is the inclusion of language expressly
designating compliance with another contract clause a con-
dition precedent. The arbitration clause states, ‘‘[A]s a
condition precedent to any right of action hereunder, the
parties to this agreement shall submit the matter in dis-
pute to arbitration.’’ Certainly the omission of similar
5a
language from the notice clause is some indication it was
not considered a condition precedent.
Security Mutual argues that the notice provision is ex-
pressly made a condition precedent by the following clauses
in page one of the reinsurance treaty:
Witnesseth:
That in consideration of the mutual covenants here-
inafter contained and upon the terms and conditions
hereinbelow set forth, the parties hereto agree as
follows:
Articie I
Pouicres CovERED:
The Reinsurer hereby agrees to indemnify the Com-
pany in respect to the net excess liability which may
accrue to the Company under its policies ....
subject to the terms, conditions and limitations of this
Agreement and of the Exhibits....
Security points out that a similar clause was considered
sufficient to create an express condition precedent in Bar-
clay v. London Guarantee & Accident Co., supra. We agree
that a catch-all conditioning clause at the beginning of a
contract may be sufficient when all the clauses following
are true conditions. In an ordinary insurance contract,
like that in Barclay, this may often be the case. A pri-
mary insurance contract is essentially unilateral in nature.
The entire relationship is based upon a promise and a con-
dition. The insurer promises to pay a sum of money upon
the happening of an uncertain and fortuitous event, con-
ditioned upon the payment of premiums by the insured.
The insured makes no return promise to pay the premiums
and the other duties placed on the insured are usually stated
as conditions rather than promises. 3A Corbin on Con-
6a
tracts § 731 (1960). We believe this explains the court’s
holding in Barclay.
In contrast, a reinsurance treaty is a contract for in-
surance, not a contract or policy of insurance, 19 Couch
on Insurance 2d § 80:2 (1965). In a reinsurarice treaty, the
reinsured contracts to cede all or part of its risks to the
reinsurer. The reinsurer contracts to accept the risks in
return for a portion of the premiums. 13 Appleman, In-
surance Law and Practice § 7681 (1945). A treaty is a
bilateral contract containing mutual covenants. The Se-
curity Mutual-Century Casualty treaty contains provisions,
such as those pertaining to loss reserves and taxes and to
commencement and termination of the contract, which ap-
pear to be covenants rather than conditions. We cannot
say that a clause stating the agreement is made ‘‘upon the
terms and conditions hereinbelow set forth’’ makes every
provision in the succeeding 12 pages of the contract a plain
and unequivocal condition precedent, especially when the
clause also refers to ‘‘mutual covenants hereinafter con-
tained.”’
In this regard, our case is closely akin to Southern
Surety Co. v. MacMillan Co., supra, where the court found
the word ‘‘provided,’’ which usually indicates a condition
precedent, had been indiscriminately used to introduce some
paragraphs that might be conditions and others that might
be covenants. The court held that the use of condition
precedent language did not remove the ambiguity and re-
sorted to the rules of construction to enforce the contract.
We are likewise unable to determine the intent of the par-
ties by interpreting the language of the contract and must
apply the rules of construction.
We noted above that Colorado law does not favor con-
struing ambiguous terms as conditions precedent. A con-
struction as covenants rather than conditions is desirable
because it avoids forfeitures. Southern Surety Co. v. Mac-
7a
Millan Co., supra; 13 Couch on Insurance 2d § 49 :20 (1965).
In addition, it has been held that any ambiguity in a re-
insurance contract is to be resolved against the reinsurer
unless the language is that of the original insurer. Justice
v. Stuyvesant Insurance Co., 265 F. Supp. 63 (D. W. Va.
1967). Applying these rules to the contract before us, we
hold that the notice provision is a covenant by Century
and not a condition precedent to Security’s duty to make
payment.
We believe our construction of the reinsurance treaty
is consistent with the main purpose of the contract. The
purpose of notice and proof of loss clauses in primary in-
surance contracts is to afford the insurer an opportunity
to form an intelligent estimate of its liabilities, to afford
it an opportunity to investigate the claim while witnesses
and facts are available, and to prevent fraud and imposi-
tion upon it. 44 Am. Jur. 2d Insurance § 1455 (1969). In
reinsurance contracts, like the one before us, the investiga-
tion and defense of the claim is usually left to the primary
insurer. Although Security was given the right to asso-
ciate in the defense of claims, when it so desired, such
participation was not so essential as it is for a primary
insurer. Century had as much reason as Security to see
that the death claims in Anderson Aviation litigation were
properly investigated and defended. Between the two in-
surers, there was little danger of fraud or imposition. Had
Security shown any pecuniary injury from Century’s fail-
ure to give them notice, we believe damages would have
been an adequate remedy. Our construction of the con-
tract does not deny the reinsurer the protection it needs,
and it does give the reinsured the security and returns
for which it paid. See 1 Couch on Insurance 2d § 15:26
(1965).
Finally, we should emphasize the public policy consider-
ations that support our judgment. -The Colorado Commis-
sioner of Insurance is charged with the duty of protecting
8a
the State’s insurance-buying public. Colo. Rev. Stat. Ann.
§ 10-1-108 (1973). Pursuant to this duty, he must assure
the solvency of insurers doing business in Colorado. This
is accomplished primarily by requiring certain minimum
capital reserves. However, Colo. Rev. Stat. Ann. § 10-3-
118 (1973) provides that an insurer ‘‘may take credit for
reserves on risks ceded to a reinsurer.’’ In an amicus
curiae brief filed in the trial court and incorporated in
Century Casualty’s brief before this Court, the Commis-
sioner points out that the credit for reinsurance is neces-
sary to keep many small but highly competitive companies
in the insurance business. If this credit is to be allowed,
the Commissioner must be certain the reinsurance will be
available when a claim is made. In this regard, § 10-3-
118(e) provides: ‘‘No credit shall be allowed for rein-
surance where the reinsurance contract does not result in
the absolute transfer to the reinsurer of the risk of lia-
bility’”’
For the Commissioner to accurately determine whether
the transfer of liability is absolute cr conditional, we think
the language of the contract must be plain and unequivocal.
lo allow an insurer to obtain credit for reserves on a re-
insurance contract that contains obscure conditions prece-
dent, and then allow the reinsurer to subsequently deny
liability, would substantially impair the function of the
Commissioner of Insurance. Moreover, it would substan-
tially increase the danger to the public. An apparently
solvent insurer might be plunged into insolvency through
its reinsurer’s reliance on the nonperformance of an am-
biguous condition precedent. If we require any condition
that might result in forfeiture to be clearly stated, it will
enable the Commissioner to accurately determine when a
credit against reserves for reinsurance should be given.
A different holding in this case would undermine the Com-
missioner’s ability to ascertain the solvency of Colorado
insurance companies.
9a
We reverse the judgment insofar as it holds Security
Mutual is not liable under the reinsurance treaty for the
Anderson Aviation judgment. The amount of its liability
should be determined under the terms of the reinsurance
treaty. Therefore, the judgment for damages is also re-
versed. Century Casualty has not appealed from the part
of the judgment declaring that Security Mutual is en-
titled to terminate the reinsurance treaty, and it will
be allowed to stand. We remand with directions to enter
judgment consistent with this opinion.
10a
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
No. 74-1809
Security Mutuau Casuatty Company, Plaintiff-Appellee,
vs.
Century Casuatty Company, Defendant-Appellant.
APPEAL FROM THE Unrrep Srates District Court
FOR THE District or CoLORADO
Petition for Rehearing
Comes Now the Plaintiff-Appellee, by its attorneys,
White & Steele, P.C., and A. Dennison Weaver, and peti-
tion this Court for a rehearing of the issues on appeal in
this action for the reasons that the Court has misappre-
hended the law applicable to the construction of the con-
tract in question and has misapprehended the effect of the
Court’s ruling on the damage award.
1. The law applicable to the construction of the con-
tract with respect to the notice provision in the contract
is the law of Illinois.
a. The place of the contract is Chicago, Illinois, and of
necessity, the place where notice would be given pursuant
to the notice requirement would be the home office of the
plaintiff at Chicago, Illinois. The case of Keehn v. Excess
Insurance Company of America, 129 F.2d 503 (Seventh
Cireuit, 1942) which this Court agrees held that notice of
the loss was a condition precedent under the terms of the
contract even where the notice provision did not spell out
that it was a condition precedent, would apply in this
case. The opinion in the Keehn case, supra, states in this
regard as follows:
‘‘The Court below held that the failure to give notice
to the defendant of the Snow accident, in compliance
with this provision of the contract was such as to bar
recovery by the plaintiff. In doing so, it held contrary
lla
to plaintiff’s contention that the provision was not
controlling for the reason that the contract failed to
designate this provision as a condition precedent, nor
did it contain a declaration of forfeiture for noncom-
pliance.”’
b. The law in Colorado is not different from the law in
Illinois. There are no reinsurance cases in Colorado and
although the cases cited in Colorado refer to primary
insurance where the notice provision is found under the
general heading of ‘‘Conditions’’, it does not follow that
a provision in a reinsurance treaty requiring notice of
claims must be construed as a promise rather than a
condition precedent. Similar primary insurance cases
wherein the notice requirement is set forth under the word
‘‘Condition’’? are also found in the Illinois courts. As
example see the case of Simmon v. Iowa Mutual Casualty
Company, 111 N.E.2d 374, quoted earlier by Plaintiff-
Appellee in its brief.
ce. All of the other provisions of the insurance treaty
do not spell out that they are conditions precedent and
certainly it could not be construed t! >t the agreement to
indemnify the primary company by the reinsurance insur-
ance company wou'd not be a condition precedent or that
the payment of premiums by the primary company would
not be a condition precedent or that the provisions for
cancellation and the requirements thereunder would not
be conditions precedent. Because the words ‘‘condition
precedent’’ were not used does not mean that these pro-
visions are not conditions precedent to the effectiveness
of the contract.
d. Provisions in insurance policies and reinsurance
treaties that require notice cf death, injury or loss be
given within a specified time after the happening thereof,
are held to be ‘‘conditions precedent’’. 13 Couch on
Insurance 2nd § 49:19 and eases cited in Note 17 thereof.
The notice requirements in the reinsurance treaty in this
12a
case require that the notice be given ‘‘immediately’’ and
‘‘prompt’’.
In summary an express provision for notice is to be con-
strued under the law of the state where the contract was
made. This contract was made in Illinois and Illinois law
therefore applies. 13 Couch on Insurance 2nd § 49:21. The
Keehn case, supra. is controlling.
2. The Court erroneously set aside the award of damages
due to the failure of defendant to give notice pursuant to
the terms of the notice provision of the contract of insur-
ance.
The Court stated in its opinion that damages would be
an adequate remedy for security. If the Court continues
to maintain that the notice provision is a covenant and
not a condition precedent then Plaintiff-Appellee should
have the opportunity to request the lower court to set the
damages sustained as the result of Defendant-Appellant’s
failure to give notice. Such damages would include costs
expended as a result of the primary carrier’s failure to
give notice as well as the increased premiums which would
have been prorated if the company had heen properly given
notification to the claims pursuant to the terms of the
contract.
3. The Court misapprehended the effect of the failure of
primary carrier of failing or refusing to give notice to the
reinsurer.
The premiums to be paid by Century depend upon the
claims that are reported by them to the reinsurance com-
pany. According to the testimony of the underwriters,
the premiums are determined based upon ‘‘experience’’.
This Court stated in its opinion that ‘‘there was little
danger of fraud or imposition between the two insurers.
Because the primary carrier does not report claims and
hopes that the claim will not reach fruition where any judg-
ment has to be paid out, then their experience determines
that a lesser premium will be paid by them to the rein-
13a
surance carrier. If all claims are reported as required
under the notice provisions of the reinsurance treaty, then
the true experience of the primary carrier is shown and
the premium is appropriately determined. This amount
could be quite substantial and would be in this case. It
should have been clear from the record that it was the
reinsurer’s contention that th). was the motivation behind
the primary carrier’s failure or refusal to give notice of
this claim until appeal had been taken.
This Court should amend its opinion to remand this
action to the lower court for a rehearing concerning appro-
priate damages to be awarded to Plaintiff. \ppellee as a
result of the failure of Defendant-Appellant to give notice
pursuant to the notice provisions of the policy if this
Court continues to maintain that this notice provision was
not a condition precedent but was a convenant under the
policy from which damages would flow.
4. This Court’s dictum statement that the allowance by
the Insurance Commissioner of the State of Colorado that
an insurer ‘‘may take credit for reserves on risks ceded to
a reinsurer’’ is a basis in public policy for their deter-
mination that the notice provisions of the reinsurance
treaty were not conditions precedent, has no substance in
the facts of this case for the reason that no reserves were
ever set by the primary carrier for the claims that were
made in this case. In looking at the public policy question
the Court should take into consideration the fact that the
original plaintiffs in this action have been paid the judg-
ments that were rendered against Anderson Aviation Com-
pany by virtue of the supercedeas bond that was put up by
the Plaintiff-Appellee. This Court should also take into
consideration the fact that insurance companies such as
the Defendant-Appellant who engage in the kind of activi-
ties that were engaged in in this case should not be allowed
to conduct business in the fashion that took place in this
case.
l4a
ConcLUSION
The notice provision of an insurarce contract such as
the one in the insurance contract between the parties gives
substantial rights to the reinsurer to among other things,
defend, investigate, settle, ete. in an effort to protect the
reinsurer from just what happened in this case. Any
sums over and above the amouat paid by Century on the
original hull loss would have to be paid by the reinsurer.
The primary carrier, by failing to give notice attempted
to prevent an increase in the premiums that would be due
to the reinsurer thereby creating an imposition upon the
reinsurer. If the notice provision of the policy is merely
a convenant from which only nominal damages, if any, are
allowed then the condition and requirement of the primary
carrier to give notice is hollow and a useless effort and a
denial of the rights and property of the Plaintiff-Appellee.
The law of the state where the contract was made, which
is Illinois, applies in this case and the Keehn v. Excess
Insurance case, supra., is controlling that the notice pro-
vision of this reinsurance contract even though it does not
use the words ‘‘condition precedent’’ is a condition pre-
eedent which was breached by the Defendant-Appellant.
Plaintiff-Appellee petitions this Court for a rehearing
of the issues on appeal, particularly the issue of the legal
effect of the notice requirement of the insurance contract
between the parties.
Respectfully submitted,
A. Dennison WEAVER AND
Wuire & Streetz, P. C.
By /s/ Joun E. Clovecn (913)
Attorneys for Plaintiff-
Appellee
1660 Lincoln Center Building
Denver, Colorado 80203
(222-2591)
[Certificate Omitted in Printing]
l5a
APPENDIX B
CIRCUIT COURT OF APPEALS, SEVENTH CIRCUIT
June 17, 1942
No. 7880
KEEHN V. EXCESS INS. CO. OF AMERICA
* ca _ _ * - *
* * *
Appeal from the District Court of the United States for
the Northern District of Illinois, Kast ivision;
hai, Sc , Hastern Division; J. Leroy
Suit by Roy D. Keehn, as receiver of Central Mutual
Insurance Company of Chicago, against the Excess In-
surance Company of America, a corporation, to recover
upon a reinsurance contract issued by defendant to Central
Mutual Insurance Company, whereby the defendant insured
Central Mutual on third party automobile publie liability
risks above certain amounts assumed by the Central Mu-
tual. From an adverse judgment, plaintiff appeals,
Judgment affirmed.
Charles F. Hough, William H. Beckman and George H.
Braasch, all of Chicago, Ill. (Ferre C. Watki i
. , Ill. . Watkins
Ill., of counsel), for appellant. eee
L. Dunean Lloyd, C. H. G. Heinfelden
. , . . e . > and L
Martin, all of Chicago, IIl., for appellee. eonard F.
Before Mason, Kerner, and Minton, Circuit Judges.
Magsor, Circuit Judge.
This is an appeal from a judgment in fa
fendant, entered June 4, 1941, . suit filed by Sua
predecessor against the defendant February 26, 1935. The
action was predicated upon a reinsurance contract issued
by the defendant to the Central Mutual Insurance Com.
pany, January 10, 1935, whereby the defendant insured
Central Mutual on third party automobile publie liability
16a
risks above certain amounts assumed by the latter com-
pany. It was sought to recover the excess amount paid by
Central Mutual by virtue of its policy issued to Hartliep
Transit Company on account of recovery by Barton Snow
and his wife for injuries sustained in an accident within
the terms of the policy issued by Central Mutual.
The suit by Snow and his wife against Hartliep Transit
Company was instituted February 26, 1935, for injuries
sustained in an automobile collision which occurred Febru-
ary 12, 1935. This suit was defended by Central Mutual
and resulted in a verdict and judgment in favor of the
plaintiff. Central Mutual refused to pay the judgment
and on October 28, 1935, garnishment proceedings were
instituted against it which resulted in a judgment from
which an appeal was taken on April 7, 1936, to the Appel-
late Court of Illinois, Second District. The judgment was
affirmed November 30, 1936, and leave to appeal to the
Supreme Court of Illinois denied April 6, 1937. Hartliep
Transit Co. v. Central Mut. Ins. Co., 288 Ill. App. 140, 5
N.E.2d 879. The judgment was paid by the surety company
on the appeal bond furnished by Central Mutual out of
funds deposited with it as security for the appeal bond.
The reinsurance contract, upon which plaintiff’s cause
of action was predicated, contained the following provision:
‘Section IX. The Company shail notify the Reinsurer
immediately after it has had notice of any accident in which
this reinsurance is or may probably be involved. Such
notice shall be given to the Reinsurer on Preliminary Loss
Advice on forms as per copy attached, and when final
settlement is made the Reinsurer shall advise on Final
Loss Advice on forms as per copy attached.
‘‘The Reinsurer shall have the right and opportunity to
associate with the Company in the defense and control of
any claim or suit or proceeding relative to an accident
where the claim or suit involves this reinsurance.’’
17a
The court below held that the failure to give notice to the
defendant of the Snow accident, in compliance with this
provision of the contract, was such as to bar recovery by
the plaintiff. In doing so, it held contrary to plaintiff’s
contention that the provision was not controlling for the
reason that the contract failed to designate this provision
as @ condition precedent, nor did it contain a declaration
of forfeiture for non-compliance.
The actual time as to when defendant received notice of
the Snow accident is a matter of controversy here as it
was in the court below. Plaintiff contends that the de-
fendant had notice on numerous dates, particularly in the
latter part of June or the first part of July, 1935, September
2, 1935, and February 25, 1936. The court below specifically
found that defendant received no notice on the various
dates claimed by the plaintiff, that notice was first received
by the defexdant on or about October 5, 1936, and that on
October 14, 1936, it wrote Central Mutual that by reason
of its delay in giving notice, the defendant declined all
liability in the matter. Plaintiff contends that there is no
substantial evidence to support the court’s finding as to
the time of notice. We have read the testimony upon which
the plaintiff relies and we do not agree with this contention.
We are convinced that the court’s findings are amply sup-
ported—in fact, there is no competent substantial evidence
which would support a finding that notice was given at a
date earlier than that found by the court.
So we have a situation where the accident, out of which
the liability arose, occurred February 12, 1935, judgment
in a suit against Hartliep Transit Company entered Octo-
ber 25, 1935, garnishment proceedings instituted against
Central Mutual October 28, 1935, judgment against the lat-
ter March 6, 1936, and an appeal to the Appellate Court on
April 7, 1936, all prior to the date (October 5, 1936) when
defendant received notice from Central Mutual.
18a
Plaintiff cites and discusses authorities from a number
of jurisdictions, as well as numerous text books, in support
of his contention as to the majority rule in construing a
provision in insurance contracts as to notice and proof of
loss. In our view, a review of such authorities would serve
no good purpose—in fact, it would be wasted energy. What
may be the rule in some other jurisdiction, or what rule
is supported by the weight of authority, is of little con-
sequence since Erie R. Co. v. Tompkins, 304 U.S. 64, 58
S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487. We must look
for guidance to the Illinois decisions and those only.
Unfortunately for plaintiff, the effect to be given the
provision of the contract in dispute has been decided fa-
vorably to defendant’s contention in Niagara Fire Insur-
ance Co. v. Seammon, 100 Ill. 644, and Scammon v. Ger-
mania Insurance Co., 101 Ill. 621. We see no occasion to
analyze or discuss these cases for the reason that plaintiff,
in his brief, frankly concedes they support the position of
the defendant. Nor is it claimed that the rule of those
eases has been subsequently overruled or modified by the
Supreme Court. It is sought to dissipate their effect by
reference to what is claimed to be the majority rule and
by general statements appearing in certain decisions of
the Appellate Courts of Illinois, apparently not in har-
mony with what the Supreme Court held in the Scammon
eases. As already stated, however, we can not accept any
so-called majority rule contrary to that announced by the
Illinois Supreme Court, and likewise, we would not be jus-
tified in repudiating a holding of that court because of cer-
tain language appearing in decisions of Appellate Courts
apparently to the contrary. We shall, therefore, not dis-
cuss the Appellate Court decisions relied upon by the
plaintiff.
The court also found that the failure to give notice de-
prived defendant of the right and opportunity to associate
with Central Mutual in defense and control of the Snow
suit, and that the rights of defendant were prejudiced
19a
thereby. Plaintiff argues there is no justification for ‘his
finding, as there was no proof that the results would have
been different if the defendant had been permitted so io
do. In view of the decisions in the Scammon cases, the
finding of the court in this respect was perhaps immaterial,
but even if so, we think it was justified. The right was
provided by the terms of the contract and we are of the
view that the deprivation of such right would constitute
prejudice without any actual proof that the results of the
litigation would have been different.
Plaintiff also relies upon a contention that the defend-
ant, by its conduct, waived the giving of notice in compli-
ance with the contract requirement. The court below ex-
pressly found that the facts relied upon by the plaintiff
did not constitute waiver. We are convinced there was no
error in this respect. In support of its position in this
regard, plaintiff sought to prove that notice given to the
defendant was oftentimes informal and did not conform to
the provisions of the reinsurance contract. Five such in-
stances are cited in plaintiff’s brief, which we assume are
the strongest in support of its position. Three of such
instances, however, are covered by a non-waiver agreement
which was executed by Central Mutual and the defendant
dated August 7, 1935. It is evident from the record the
defendant, at this time, had become aware that Central
Mutual was not giving prompt notice of claims, and on
that date defendant’s representative visited the office of
Central Mutual for the purpose of investigating its rec-
ords. These three cases were discovered and listed in the
so-called non-waiver agreement. In other words, as we
understand, the defendant ag’eed to consider the matter of
liability on these claims without prejudice to its rights
under the insurance contract. It is difficult to perceive
how this situation furnishes any support to plaintiff’s
claim of waiver.
In one instance relied upon, the accident happened July
7, 1935, and defendant was given notice September 3, 1935,
20a
but prior to trial. In the other instance, the accident hap-
pened May 21, 1935, and was reported October 5, 1935.
We do not think these isolated instances selected from a
large number of claims covered by the contract can be re-
garded as sufficient to sustain the contention that defend-
ant waived the terms of the contract concerning notice.
Especially is this true in view of the fact that defendant
had complained to Central Mutual concerning its delay in
reporting accidents.
Plaintiff also stresses a telegram from the defendant to
Central Mutual, found in the files of the latter, dated Feb-
ruary 25, 1936, in the following language: ‘‘Sorry but our
records do not confirm Snow-Hartliep ever reported;
please give us complete information.’’ It is plaintiff’s
theory that inasmuch as the telegram failed to deny lia-
bility, it constituted a waiver of notice. The exact occasion
for this telegram is somewhat a matter of conjecture. It is
evident from the record that Central Mutual made no reply
thereto. Defendant’s explanation of this telegram is to the
effect that its representative, in the latter part of Febru-
ary, 1936, was called on the telephone by an official of
Central Mutual and told there was a case coming up the
following day and that the defendant should have someone
there because it was a serious case. Defendant’s repre-
sentative inquired as to the title of the case. This infor-
mation was conveyed to the defendant, which, it is pointed
out, was probably the occasion for the telegram. It is of
interest and perhaps of importance to note that a hearing
in the garnishment proceedings against Central Mutual
was to be heard on February 28, 1936. The only signifi-
eance which can be reasonably attached to this telegram,
in our opinion, is that the defendant had had no notice of
the Snow accident and was requesting information. It has
been held that an insurer must have knowledge of all the
material facts before its conduct can constitute a waiver.
Ferrero v. National Council of Knights & Ladies of Secu-
rity, 309 Ill. 476, 481, 141 N.E. 130. From the telegram it
2la
is apparent that the defendant had no knowledge of the
facts of the case. Without knowledge of the date of the
accident, its nature, the amount of the claim involved, or
the history of the litigation which had been had, it cer-
tainly did not waive any of the contract provisions by the
information thus sought.
Plaintiff also advances a theory that because the suit
was instituted by him as Receiver, he has greater legal
rights than the corporation would have had if the suit had
been instituted by it. In other words, it is contended that
some sort of an estoppel should be invoked in the instant
situation, which admittedly could not have been done
against the corporation. We do not believe this position
is tenable. The Receiver was appointed January 11, 1937.
Long prior thereto, as pointed out heretofore, the claim
against the defendant was barred for failure to give notice
of loss in accordance with the terms of the insurance con-
tract. We know of no rule of law which will permit the
maintenance of a suit by a Receiver which was barred u.
the time of the Receiver’s appointment. Under such cir-
cumstances, so we think, a Receiver acquires no greater
right than that had by the Corporation at the time of his
appointment. People v. Depositors State Bank, 377 Ill. 602,
37 N.E.2d 326. Furthermore, this contention appears to
have been an afterthought on the part of the plaintiff. In
the amended complaint, plaintiff alleged performance of
all conditions of the contract. In its answer defendant
alleged, among other things, that Central Mutual failed to
give notice as required by the reinsurance contract and
that plaintiff’s claim was thereby barred. The point now
under discussion was not raised in the lower court, nor was
it asserted in the alleged errors, designated in the court
below, to be relied on upux appeal.
We therefore conclude that the record contains no re-
versible error and the judgment of the District Court is
affirmed.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.