Petition — Security Mutual Casualty Co. v. Century Casualty Co.

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1977

SEL RODAK, JR., CLERK

Supreme Court of the Anited States

76-1605

SECURITY MUTUAL CASUALTY COMPANY,

Petitiorer,

vs.

CENTURY CASUALTY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT.

WALTER A. STEELE AND

JOHN CLOUGH,

Lincoln Center Building,

1660 Lincoln Street,

Denver, Colorado 80203,

Attorneys for Petitioner.

Of Counsel:

A. DENISON WEAVER,

One IBM Plaza, Suite 4015,

Chicago, Illinois 60611.

Gunthorp-Warren Printing Company. Chicago e Financial 66565

——~e

ee

INDEX.

PAGE

i cas cao gb ed ducednc outdone 2

Statement of Jurisdictional Grounds ................. 2

Question Presented for Review ..................... 2

Statutes and Rules Involved ....................4.. 3

ech i ctevecneegenteswenselnt 5

GED Sees cv csencccccesosceccesconscccececs 11

TABLE OF AUTHORITIES.

Anderson Aviation Sales Company, Inc. v. Perez, 508 P.

2d 87 (Arizona Appeals 1973) .................. 5

Bushnell v. Crooke Mining & Smelting Co., 150 U. S. 82,

ce a Pr sicepineekcnccecnces 11

Dobson v. United States, 31 F. 2d 288 (2nd Cir. 1929)... 11

Ex parte Sawyer, 21 Wall. 235, 22 L. Ed. 617 (1875,

Ge EAD Win Set cede cndec cba ewes ew dedicd devteeec 12

Nachod et al. v. Engineering & Research Corporation, 108

iy ee CG HEED ccccccnceesccacscacese il

Roche v. “vaporated Milk Assn., 319 U. S. 21, 63 S. Ct.

es OP EE OED cccevconcccdeccastcccencoce 12

Watson v. Gallagher, 202 F. 2d 641 (6th Cir. 1963) .... 11

ii

Appendix A: Opinion of the United States Court of Ap-

peals for the Tenth Circuit—Century Casualty Com-

pany v. The United States District Court of Colorado

and The Honorable Sherman G. Finesilver, one of the

BU GENE oc cc cecdncccccctcaesstet sens: Al

Appendix B: Denial of Petition for Rehearing in the

United States Court of Appeals for the Tenth Circuit

—Century Casualty Company v. The United States

District Court of Colorado and The Honorable Sher-

man G. Finesilver, one of the Judges thereof....... AS

Appendix C: Complaint filed in the United States Dis-

trict Court for the District of Colorado—Security

Mutual Casualty Company v. Century Casualty

SED “vccuncdéensenencecadedusubentepestas A6

Appendix D: Opinion of the United States Court of

Appeals for the Tenth Circuit—Security Mutual

Casualty Company v. Century Casualty Company... Ai2

Appendix E: Reporter's Transcript of Court's Ruling in

the United States District Court for the District of

Colorado—Security Mutual Casualty Company v.

Century Casualty Company ................... A20

IN THE

Supreme Court of the Uniicd States

No.

SECURITY MUTUAL CASUALTY COMPANY,

Petitioner,

VS.

CENTURY CASUALTY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT.

Now comes Security Mutual Casualty Company, hereinafter

referred to as “Petitioner,” and respectfully prays that a Writ

of Certiorari issue to review the order of the United States

Court of Appeals for the Tenth Circuit entered on January

14, 1977, over the dissent of Chief Judge Lewis, ordering

the issuance of a Writ of Mandamus to the District Court,

directing the trial judge to halt all further proceedings and

enter a judgment in favor of Century Casualty Company, the

Respondent herein. The Petition for Rehearing was denied on

February 14, 1977, over the dissent of Chief Judge Lewis.

CITATION TO OPINION BELOW.

The order of the United States Court of Appeals for the

Tenth Circuit granting the Writ of Mandamus and the denial

of the Petition for Rehearing are unpublished as of this date,

but are set forth in Appendix A and B to this Petition.

STATEMENT OF JURISDICTIONAL GROUNDS.

The date of the order directing the issuance of a Writ of

Mandamus is January 14, 1977.

The denial of the Petition for Rehearing is dated February

14, 1977.

The statutory provision conferring jurisdiction of this Court

to review said order is found in 28 U. S. C. 1254.

QUESTION PRESENTED FOR REVIEW.

Whether the Tenth Circuit Court of Appeals can circumvent

the intent of Rule 41 and the appellate procedure established

by Rule 3 of the Uniform Rules of Appellate Procedure by

issuing a Writ of Mandamus after term time and denial of

certiorari, to recall its mandate, for the purpose of altering,

correcting or modifying the mandate and/or to prevent possible

error of the trial court, thereby denying a party of its right to

a hearing and appeal.

STATUTES AND RULES INVOLVED.

“The mandate of the court shall issue 21 days after

the entry of judgment unless the time is shortened or en-

larged by order. A certified copy of the judgment and a

copy of the opinion of the court, if any, and any direc-

tion as to costs shall constitute the mandate, unless the

court directs that a formal mandate issue. The timely

filing of a petition for rehearing will stay the mandate

until disposition of the petition unless otherwise ordered

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parte Hawk, 321 VU. ; ;

U.S. Alkali Export Assn. v. United States, 325 U. S. :

DeBeers Consol. Mines v. United States, 325 U. S. 212;

Ex parte Betz, 329 U. S. 672; Ex parte Fahey, 332 VU. S.

on April 5, 1976. The mandate issued seven days thereafter,

pursuant to Rule 41 of the Uniform Rules of Appellate Proce-

dure. That opinion (Appendix D) is reported at 531 F. 2d 974

(10th Cir. 1976), cert. den. eG... 9 oe @ Oe,

50 L. Ed. 2d 137 (1976).

The underlying action involved a dispute involving the inter-

pretation of a contract of reinsurance issued by Petitioner in

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“On page 10, the first full sentence, they state:

“*. .. Century had as much reason as Security to

see that the death claims in Anderson Aviation liti-

gation were properly investigated and defended. Be-

tween the two insurors, there was little danger of fraud

or imposition. Had Security shown any pecuniary in-

jury from Century's failure to give them notice, we

believe damages would have been an adequate rem-

“The fact that they used a past tense does not lead us

to the conclusion that matter has been adjudicated by the

appellate court other than if there was a failure to give

notice as required and there is found to be a breach of the

treaty which we found and any damages that can be es-

tablished to naturally flow from the breach of the covenant

are recoverable. That is how we interpret the Opinion.

“The last paragraph in the Opinion states:

“We reverse the judgment as it holds Security

Mutual is not liable under the reinsurance treaty for

the Anderson Aviation judgment... .”

“The Court states that the amount of its liability is to

be determined under the terms of the reinsurance treaty.

Therefore, the judgment for damages is also reversed and

we cannot hold that the question of damages has been ad-

judicated by the appellate court.

“We are going to rule on what we consider to be the

viable issues in this case and try to give you some direction

where I think the lawsuit should go at this time. As we

view it, the matter is before us on three basic issues. First

of all a counterclaim upon which default judgment has been

requested. Secondly, coverage under the reinsurance con-

tract, and third, damages for breach of covenant. This is

what we posture to be the three viable issues in the lawsuit.”

(A. 20-22.)

A copy of the Report of Proceedings of May 26, 1976, is incor-

porated into the Appendix hereto and designated as Appendix E.

In August of 1976, Respondent filed a Petition for a Writ

of Mandamus in the Tenth Circuit Court of Appeals seeking

a Writ of Mandamus to halt all proceedings in the District

»

9

Court. On January 14, 1977, after this Court had denied cert-

iorari, the Tenth Circuit Court of Appeals entered an order,

over the dissent of Chief Judge Lewis, granting the writ. In its

order, Appendix A hereto, the court, in discussing its original

opinion, stated:

“We reversed a judgment so finding on the ground the

notice provision was not clearly stated as a condition

precedent and should be construed against the reinsurer.

Therefore, we held the failure to give notice was only a

breach of contract. On remand the trial court has set

a hearing to allow presentation of evidence of damages for

breach of contract.”

The court then stated:

“Perhaps the mandate should have been more specific.”

The court then went on and sought to excuse its lack of speci-

ficity by stating:

“The reason the opinion was not more specific in fore-

closing any claim for damages under a breach of contract

theory is that we were not informed until the petition for

rehearing that Security had shown, could show, or desired

to show any damages under this theory. We were not in-

formed that Security desired a remand for this purpose.”

In conclusion, the court stated:

“The question is whether the mandate is sufficiently clear

so that any further proceedings violate the mandate and

may be halted by mandamus, or whether the only remedy

is a second appeal challenging Security's right to change its

theory of the case and obtain a new trial on the issue of

damages. We believe the mandate sufficiently indicates our

intent. We remanded for the entry of judgment, not for

further proceedings. The scheduled hearing should be con-

sidered a violation of the mandate.

“The trial court is directed to enter a judgment reversing

the case and in favor of Century Casualty Company.”

1. Apparently, the cour. misapprehended the theory upon which

suit was t, in that the Complaint sought damages

from breach of contract (A ix C).

10 il

Chief Judge Lewis filed a dissent, wherein he stated:

“I do not consider the issuance of a writ of mandamus

as the proper remedy in this case and consequently dissent ARGUMENT.

from the issuance of the writ. The writ should not be used

to prevent possible error at the trial level nor to clarify,

correct, or change a final decision of the court or its man- ' It is respectfully submitted that the question presented for

date.” (A. 1-4.) | review falls squarely within the ambit of Supreme Court Rule

19(b), in that:

| (1) The issuance of a Writ of Mandamus after term time,

| after denial of certiorari, and after the trial court had made

substantive rulings within the framework of the original man-

date, constituted a departure from the usual and accepted course

of judicial proceedings so that this Court’s supervision is required

in order to prevent the circuits, and particularly the Tenth

Circuit, from utilizing the extraordinary remedy of mandamus

from becoming an acceptable substitute for orderly appellate

procedures established pursuant to 28 U. S. C. A. 1291, and

(2) The basis upon which the writ was issued, as set

forth in the order, is in direct conflict with the guidelines

established by Supreme Court Rule 30, the opinions of this

Court, and the decisions rendered in the other circuits.

It is well settled that mandamus may not be resorted to as a

mode of review where a statutory method of appeal has

been prescribed. By statute, Congress has granted jurisdiction

to the Circuit Courts of Appeal only from final decisions of

the District Courts. 28 U. S. C. A. 1291. However, once that

jurisdiction has been exercised and the mandate has become

final, as in the instant case, the jurisdiction of the Court of

Appeals comes to an end. See Bushnell v. Crooke Mining &

Smelting Co., 150 U. S. 82, 14 S. Ct. 22, 37 L. Ed. 1007;

| Dobson v. United States, 31 F. 2d 288 at 288 (2nd Cir. 1929);

| Watson v. Gallagher, 202 F. 2d 641 at 641 (6th Cir. 1953);

) Nachod et al. v. Engineering & Research Corporation, 108

| F. 2d 594 at 594 (2nd Cir. 1939).

| Even though 28 U. S. C. 1651 enables the court to issue

extraordinary writs, including a Writ of Mandamus, that author-

—$—$$—$—_ $$ eer

12

ity is limited to the issuance of writs only “in aid of its juris-

diction.” Also see Roche v. Evaporated Milk Assn., 319 U. S.

21 at 24, 25, 63 S. Ct. 938, 87 L. Ed. 1185.

It is respectfully submitted that the Court of Appeals in the

instant case, having issued its mandate, lost jurisdiction over

the matter and cannot, nor should they be permitted to, employ

the extraordinary remedy of mandamus under the guise that

its issuance is in aid of its jurisdiction, where the function

actually performed by the writ was to recall the mandate for

the purpose of modifying or aliering it, and with the further

purpose of preventing the District Court from exercising its

discretion within the framework of the original opinion of the

Court of Appeals.

Even assuming, arguendo, that the court had jurisdiction

under 28 U. S. C. 1651, it is respectfully submitted that man-

damus was not the appropriate remedy, and its issuance was

in direct conflict with this Couri as well as the decisions from

the other circuits.

It is well settled that mandamus cannot be resorted to as a

substitute for the statutorily regulated modes of appeal as

established by the Uniform Rules of Appellate Procedure, and

particularly, Rules 3 and 4. See Roche v. Evaporated Milk

Assn., 319 U. S. 21 at 27, 28, 63 S. Ct. 958, 87 L. Ed. 1185.

Nor should it be employed as a means of circumventing the

requirements of Rule 41 of the Uniform Rules of Appellate

Procedure, which provides for the finality of mandates. In the

instant case, it is clear, in that the Court of Appeals admitted

in the course of its opinion granting the writ that its original

opinion and mandate lacked specificity (A. 2), that the origi-

nal opinion, including the mandate contained therein, gave dis-

cretion to the District Court in the manner in which it was to

be implemented.

In Ex parte Sawyer, 21 Wall. 235, 22 L. Ed. 617 (1875,

U. S.), this Court established the guidelines with respect to

the employment of the remedy of mandamus in conjunction

with its mandate, when it stated:

ee

13

“By the mandate already issued, we have required the

circuit court to proceed with the execution of its decree in

such manner as right and justice shall require. If the court

refuses to proceed under that order we may, by mandamus,

compel it to do so, but we have no power to control

its discretion while proceeding. A superior court may by

mandamus, set the machinery of an inferior court in

motion, but when that has been done its power under that

form of proceeding is at an end. The inferior court is

supreme within its own jurisdiction so long as it is acting.”

It is clear from the Report of Proceedings of May 26, 1976

(Appendix E), that the District Court, upon receipt of the

opinion, set the machinery in motion to conduct further pro-

ceedings consistent with that opinion. It is respectfully sub-

mitted that once that was accomplished, the Court of Appeals

could not bring a halt to those proceedings peremptorily by a

Writ of Mandamus, but could only act on an appeal taken

from the ultimate final decision.

The Court's attention is respectfully directed to the fact that

the Court of Appeals, in its opinion, did not pretend to find

any abuse of discretion by the District Court, nor did it find

that the court was failing to carry out any ministerial function.

In the absence of those findings, it is respectfully suggested that

the issuance of the writ constituted an abuse of judicial dis-

cretion and a conscious disregard for established precedent

controlling the employment of so drastic a remedy as mandamus.

Respectfully submitted,

WALTER A. STEELE AND

JOHN CLOUGH,

Lincoln Center Building,

1660 Lincoln Street,

Denver, Colorado 80203,

Attorneys for Petitioner

Of Counsel:

A. DENISON WEAVER,

One IBM Plaza, Suite 4015,

Chicago, Illinois 60611.

——— ——

Al

APPENDIX A.

NOVEMBER rome gry 1977

Before THe Honoras_rt Davip T. Lewis, Chief Judge, and

THE HONORABLE DeiMas C. HILt and James E. BARRETT,

United States Circuit Judges.

CenTuRY CASUALTY COMPANY, |

Petitioner,

VS.

Tue UNITED STATEs District CouRT

For THE District oF CoLorapo {

and THE HONORABLE SHERMAN G.

FINESILVER, one of the Judges

thereof.

No. 76-1707

Respondents. }

This case is before the Court on a petition for a writ of

mandamus. Petitioner seeks to halt any further proceedings in

the trial court relating to a breach of contract in Security

Mutual Casualty Co. v. Century Casualty Co., No. C-4311

(D. Colo., Judge Finesilver). Petitioner argues such proceed-

ings are in violation of this Corut’s mandate in a prior appeal,

No. 74-1809, Security Mutual Casualty Co. v. Century Casualty

Co. (March 12, 1976). Certiorari has now been deuied in

that case and Judges Hill and Barrett would grant the writ.

The case was originally tried and appealed on the theory

that Century Casualty’s failure to give notice to certain reinsur-

ance claims constituted nonfulfillment of a condition precedent.

We reversed a judgment so finding on the ground the notice

provision was not clearly stated as a condition precedent and

should be construed against the reinsurer. Therefore, we held

the failure to give notice was only a breach of contract. On

remand the trial court has set a hearing to allow presentation

of evidence of damages for breach of contract.

A2

Perhaps the mandate should have been more specific. In

its entirety it reads:

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 reversed. Century Casualty has not appealed from

the part of the judgment declaring that Security Mutual

is entitled to terminate the reinsurance treaty, and it will

be allowed to stand. We remand with directions to enter

judgment consistent with this opinion.

By this mandate we intended to order the entry of a judgment

finding that the reinsurance contract was binding and con-

trolled the extent of Security's liability to pay the Anderson

Aviation judgment. The failure to give notice was only a breach

of contract which entitled Security to subsequently terminate

the contract. Since the damages awarded were based on the

condition precedent theory, the judgment for damages was

reversed in toto with no provision for modification or for a

new award based on another theory. We intended this to be a

conclusive statement of the rights and liabilities of the parties

and directed the entry of judgment incorporating our holding.

We did not intend to authorize further proceedings.

The reason the opinion was not more specific in foreclosing

any claim for damages under a breach of contract theory is that

we were not informed until the petition for rehearing that

Security had shown, could show, or desired to show any damages

under this theory. We were not informed that Security desired

a remand for this purpose.

The statement in the opinion relied upon to authorize a

hearing on damages is as follows:

Had Security shown any pecuniary injury from Century's

failure to give them notice, we believe damages would

have been an adequate remedy.

A3

The statement was worded in the past tense and was intended

to note that Security had the opportunity to present proof of

such damages and chose not to do so. In its complaint Security

alleged the failure to give notice was both a breach of contract

and a failure of a condition precedent. Security pleaded no

damages under a breach of contract theory and is clearly seek-

ing to change its theory of the case on remand.

The question is whether the mandate is sufficiently clear so

that any further proceedings violate the mandate and may be

halted by mandamus, or whether the only remedy is a second

appeal challenging Security's right to change its theory of the

case and obtain a new trial on the issue of damages. We believe

the mandate sufficiently indicates our intent. We remanded for

the entry of judgment, not for further proceedings. The sched-

uled hearing should be considered a violation of the mandate.

The trial court is directed to enter a judgment reversing the

case and in favor of Century Casualty Company.

The Clerk shall certify a copy of this order to the United

States District Court for the District of Colorado, to the Honor-

able Sherman G. Finesilver, Judge thereof, and to the parties

hereto, as the writ of mandamus of this Court which is hereby

made absolute and shall issue forthwith.

Lewis, Chief Judge, dissents. The dissent is attached to this

(8) Howarp K. PHiLiirs

Howard K. Phillips

Clerk

A true copy

Howarp K. PHILLIPs

Clerk, U. 8. Court of Appeals,

Tenth Circuit

By /s/ Linda A. Hatt

Deputy Clerk

A4

Lewis, Chief Judge, dissenting.

I do not consider the issuance of a writ of mandamus as the

proper remedy in this case and consequently dissent from the

issuance of the writ. The writ should not be used to prevent

possible error at the trial level nor to clarify, correct, or change

a final decision of the court or its mandate. ‘

AS

JANUARY TERM—February 14, 1977

Before THe Honoras_e Davip T. Lewis, Chief Judge, Tue

Honworaste Detmas C. Hit, Circuit Judge and THe

Honworas_e James E. Barrett, Circuit Judge.

Century CASUALTY COMPANY, ’

Petitioner,

vs.

THe Unrrep States District Court

For THe District or COLORADO , No. 76-1707

and THe Honoras_e SHERMAN G.

Finesitver, One of the Judges

thereof,

Respondents.

This matter comes on for consideration of the petition for

rehearing filed by respondents January 28, 1977.

Upon consideration whereof, the petition for rehearing is

denied. Chief Judge David T. Lewis voted to grant the petition.

‘8; Howarp K. PHILuips

Howard K. Phillips

Clerk

A6

APPENDIX C.

In THE UNITED States Disraict Court

For the District of Colorado

Civil Action No. C-43i1

SecuRiITY MUTUAL CASUALTY

COMPANY,

Plaintiff,

vs. ‘

CENTURY CASUALTY COMPANY,

COMPLAINT

Comes now the plaintiff, by its attorneys, White and Steele,

Professional Corporation, and for complaint against the defend-

ant states and alleges as follows:

|. The plaintiff, Security Mutual Casualty Company, is an

Illinois corporation, with its principal place of business in

Illinois. The defendant, Century Casualty Company, is a

Colorado corporation, with its principal place of business in

Colorado. The amount involved exclusive of interest and costs

is in excess of $10,000.00. This Court has jurisdiction under

28 U. S.C. § 1332.

2. Insofar as this is an action for declaratory judgment, this

Court also has jurisdiction under 28 U. S. C. § 2201.

3. Plaintiff is an insurance company engaged, among other

things in that type of insurance business known an “reinsurance,”

or the acceptance or sharing of risks of other insurance com-

panies on primary policies written by those other companies.

The defendant is an insurance company which has engaged in the

business of writing primary insurance policies. Plaintiff entered

AT

into a reinsurance agreement with the defendant effective

as of March 18, 1966, a copy of which is attached hereto as

Exhibit “A”, and which is herein referred to as the treaty.

By virtue of this treaty, the plaintiff agreed to indemnify the

defendant, in excess of defendant's retention and on the condi-

tions specified therein, for aircraft passenger liability, aircraft

property damage liability, and other types of risks. In 1969,

the defendant entered into a primary insurance policy with

Anderson Aviation Sales Company, Inc., a business enterprise

in Phoenix, Arizona, engaged in the business of leasing air-

planes to the public. The policy issued by the defendant to

Anderson was at least colorably within the scope of the rein-

surance treaty which is Exhibit “A” hereto.

4. On or about September 3, 1969, Anderson Aviation ieased

a plane to a person who, with five passengers aboard, crashed

in the course of landing in the vicinity of Blythe, California,

killing the pilot and five passengers, and totally destroying the

plane.

5. Article VII, Exhibit “A” hereto, contains this paragraph:

“The Company shall immediately give notice to the

Reinsurer on all claims reserved in excess of the Company's

on or about September 18, 1969. By this date, within a few

A8

days after the accident, the defendant was fully informed as to

all of the fatalities. The only written report ever dispatched by

the defendant to the plaintiff was a notice of a claim of a property

damage loss to the plane itself, dated December 15, 1969. This

notice did not report any bodily injuries or loss of life, or the

existence of passengers. This report was only of a hull claim,

and this hull claim was paid in the amount of $27,500.00 by

the defendant company. Promptly upon receipt of defendant's

report, plaintiff indemnified defendant in the amount of

$12,500.00 pursuant to the treaty. The hull claim was wholly

separate and apart from any death claims.

7. A civil action was brought in behalf of the deceased

persons in the Superior Court of Arizona for Maricopa County,

Arizona, against Anderson Aviation on or about September

12, 1969. The defense of that action was managed by the de-

fendant Century Casualty, and the matter was tried in the month

of January, 1971. Verdicts in favor of the plaintiffs were awarded

in the total amount of $385,000.00.

8. Up to the time of the verdict in the Arizona litigation, the

defendant company did not dispatch written notice to the plaintiff

of the deaths or claims therefor as required by the treaty, nor

did defendant inform the plaintiff in any way whatsoever of the

existence of death claims or even of the fact of deaths related

to the operation of any plane with which Anderson Aviation

was connected. The plaintiff did not have actual knowledge of

such events.

9. In preparing and trying the Anderson Aviation matter in

the state court of Arizona, the defendant company, through its

officers and counsel, was guilty of negligence and incompetence.

The failure of the defendant to notify the plaintiff of the death

claims precluded the plaintiff from having experienced counsel

participate in the defense of the cause. The chief trial counsel

chosen by the defendant was in fact disbarred on the eve of trial,

and each of these events needlessly and wrongfully exposed

plaintiff to unnecessary loss and risk of further loss.

A9

10. The verdict against Anderson Aviation in the Arizona

litigation included amounts which are in excess of the policy

amounts defined in the policy between defendant Century Casu-

alty and its insured, Anderson Aviation. Anderson Aviation

has made demands upon Century Casualty for those amounts on

the grounds of misconduct in handling the defense of the litiga-

tion, including, but not limited to the failure by the defendant

to offer settlement within the policy limits.

11. Article VII of the reinsurance treaty, Exhibit “A” at-

tached hereto, in addition to the paragraph quoted above also

contains a paragraph as follows.

“It is understood that, when so requested, the Company

will afford the Reinsurer an opportunity to be associated

with the Company, at the expense of the Reinsurer, in

the defense or control of any claims or suit or proceeding

involving this reinsurance, and the Company and the Re-

insurer shall cooperate in every respect in the defense or

control of such claim or suit or proceeding.”

The defendant did not, in any way, give the plaintiff an op-

portunity to participate in the litigation or to request the op-

portunity to participate in the litigation.

12. Upon the completion of the Arizona trial, described

above, the defendant for the first time made demands upon the

plaintiff to undertake responsibility for the damages. Defendant

Century Casualty was requested and refused to participate in

the posting of any portion of the supersedeas bond; by virtue

of the refusal of defendant to supersede the judgment of the

trial court in Maricopa County, Arizona, the plaintiff has been

required to post supersedeas bond in the amount of $308,000.00,

and has had primary responsibility in the processing of an appeal

which is now pending in the Court of Appeals in the State of

Arizona. Additional supersedeas in the amount of $82,000.00

was posted by Century Casualty’s insured, Anderson Aviation.

13. Article IX of the reinsurance contract, Exhibit “A”

hereto, contains the following language:

AlO

“The Reinsured will maintain legal reserves with respect

to claims hereunder and the Company will furnish to the

Reinsurer quarterly a list of outstanding claims in which

the Reinsurer is interested, showing the amount of loss

reserves set up by the Company in respect of both the

gross amount and the Reinsurer’s share of each and every

claim.”

Despite this clause, the defendant did not in fact maintain re-

quired legal reserves and did not in fact furnish to the plaintiff

quarterly a list of outstanding claims covering the Anderson

Aviation episode.

14. In the matters pleaded in the preceding paragraphs,

the defendant has been engaged in a course of conduct which

has been a breach of its covenants and responsibilities and a

relinquishment of any rights which it might otherwise claim under

the reinsurance agreement which is Exhibit “A” attached hereto.

The defaults in the terms of the reinsurance agreement by the de-

fendant constitute an authorization to the plaintiff to terminate

the reinsurance treaty and such reinsurance agreement has been

terminated and the plaintiff no longer has any obligation whatso-

ever to the defendant in connection with the Anderson Aviation

episode. As to this matter there is no longer any binding obliga-

tion on the part of the plaintiff, because no part of the agreement

is of any force and effect. The defendant has no rights whatso-

ever against the plaintiff with respect to the Anderson Aviation

transaction.

15. The amounts expended by the plaintiff herein in pursuance

of the appeal in the state courts of Arizona, and for bond, are

in excess of $10,000.00.

WHEREFORE, the plaintiff prays for judgment as follows:

(1) That this Court enter its declaratory judgment determin-

ing that the plaintiff is not liable to indemnify the defendant

under the treaty and has no obligation whatsoever to the defend-

ant in connection with the Anderson Aviation death claims

episode set forth in this complaint;

-—

All

(2) That this Court enter its declaratory judgment that, not-

withstanding any provision of the treaty, plaintiff is not liable

to defendant for any amount in excess of the policy limits as de-

fined in the policy between Anderson Aviation and Century

Casualty;

(3) That this Court give plaintiff a money judgment for all

damages, including but not limited to costs, transcripts, printing,

bond premiums and attorneys fees and all other amounts ex-

pended or incurred in connection with the appeal in the Anderson

Aviation matter in the state courts of Arizona;

(4) That this Court retain jurisdiction and give plaintiff

money judgment for any amount for which the plaintiff may

become liable by virtue of the supersedeas bond posted in the

Arizona appellate court proceedings described in this complaint;

(5) For the costs of this litigation and such other relief as

is just and proper, including expert witness’ fees.

WHITE AND STEELE

515 American National Bank Bldg.

Denver, Colorado 80202—222-2591

Attorneys jor Plaintiff

Address of Plaintiff:

222 South Riverside Plaza

Chicago, Illinois 60606

ES

Al2

APPENDIX D.

[Argued August 20, 1975; Decided March 12, 1976;

Rehearing Denied April 5, 1976}

UnitTep STATES Court oF APPEALS

TENTH CIRCUIT

No. 74-1809

Securify Muruat Casuatty Company, Plaintiff-Appellee,

v.

Century CasuaLty Company, Defendant-Appellant.

APPEAL FROM THE UNITED 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 pliantiff-appellee.

Before Lewis, Chief Judge, and Hitt and Barrett, Circuit

Judges.

Hitt, 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 Century Casualty

Company, the appellant. Security Mutual also sought to re-

cover damages incurred as a result of a judgment against Cen-

tury's insured, Anderson Aviation Sales Company, Inc.

Security Mutual claimed it had no liability as reinsurer be-

cause Century Casualty failed to give timely notice of the fatali-

ties and resulting claims wnvolved in the Anderson Aviation

litigation. The trial court held that, under the reinsurance treaty,

Al3

notice was a condition precedent to Security Mutual's liability

to indemnify Century Casualty. 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 Anderson Aviation, an Arizona cor-

poration in the business of leasing airplanes to the public. The

policy was within the scope of the reinsurance treaty. On Sep-

tember 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 interests, 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 Sep-

tember 8, 1969. Century paid the claim for damage to the air-

plane and submitted a reinsurance claim on December 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 until April 27, 1971, after the verdict had

been returned against Century's insured and the post-trial mo-

tions 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 Ander-

son Aviation posted $82,000 on the supercedeas bond. Security

Mutual and Century Casualty cooperated in the unsuccessful

appeal.

Al4

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 prosecuting 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 appeal is whether notice of the

deaths and subsequent claims is a condition precedent to Security

Mutual's liability under the reinsurance treaty. If it is, the judg-

ment 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 condition 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 Colorado law compels the same re-

sult. Moreover, every contract must be interpreted according

to its own terms.

The Colorado cases cited by appellant involve primary in-

surance rather than reinsurance. In Colorado, notice of loss

may be expressly made a condition precedent to an insurer's

liability. Barclay v. London Guaranty & Accident Co., 46

Colo. 558, 105 P. 865 (1909); see Dairyland Insurance 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 unequivocally

stated in the contract. Connecticut Fire Insurance Co. v. Colo-

rado Leasing Mining & Milling Co., 50 Colo. 424, 116 P.

154 (1911); Preferred Accident Insurance Co. v. Fielding, 35

Colo. 19, 83 P. 1013 (1905). The same rule is stated in 13

Couch on Insurance 2d § 49:20 as follows: “[S}tipulations for

notice will not be construed as conditions precedent if reasonably

open to another construction.”

AlS5

Before we may apply these rules of construction, however, we

must attempt to determine the intent of the parties by interpret-

ing 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 provision of the Security Mutual-

Century Casualty reinsurance treaty states:

The Company [Century] shall immediately give notice

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 Com-

pany shall report to the Reinsurer all claims involving fa-

talities, . . . regardless of liability, where the policy limits

(or Workmen's Compensation Benefits) applicable to such

losses exceed the retention of the Company... .

We do not believe this language plainly states a condition

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 prcsent. See Southern Surety Co. Vv.

MacMillan Co., supra. Perhaps more significant is the inclusion

of language expressly designating compliance with another con-

tract clause a condition precedent. The arbitration clause states,

“[AJs a condition precedent to any right of action hereunder,

the parties to this agreement shall submit the matter in dispute

to arbitration.” Certainly the omission of similar language from

the notice clause is some indication it was not considered a

condition precedent.

Security Mutual argues that the notice provision is expressly

made a condition precedent by the following clauses in page one

of the reinsurance treaty:

Al6

Witnesseth:

That in consideration of the mutual covenants herein-

after contained and upon the terms and conditions herein-

below set forth, the parties hereto agree as follows:

ARTICLE I

PoLicies COVERED:

The Reinsurer hereby agrees to indemnify the Company

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 Barclay v. London

Guarantee & Accident Co., supra. We agree that a catch-all

conditioning clause at the beginning of a contract may be suffi-

cient when all the clauses following are true conditions. In an

ordinary insurance contract, like that in Barclay, this may often

be the case. A primary insurance contract is essentially unilateral

in nature. The entire relationship is based upon a promise and

a condition. The insurer promises to pay a sum of money upon

the happening of an uncertain and fortuitous event, conditioned

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 Contracts § 731 (1960).

We believe this explains the court’s holding in Barclay.

In contrast, a reinsurance treaty is a contract for insurance,

not a contract or policy of insurance. 19 Couch on Insurance

2d § 80:2 (1965). Ir a reinsurance treaty, the reinsured con-

tracts to cede all or part of its risks to the reinsurer. The re-

insurer contracts to accept the risks in return for a portion of

the premiums. 13 Appleman, Insurance Law and Practice

§ 7681 (1945). A treaty is a bilateral contract containing mu-

tual covenants. The Security Mutual-Century Casualty treaty

Al?

contains provisions, such as those pertaining to loss reserves

and taxes and to commencement and termination of the con.

tract, which appear 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 cortained ”

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 resorted to the rules of construction

to enforce the contract. We are likewise unable to determine

the intent of the parties by interpreting the language of the

contract and must apply the rules of construction.

We noted above that Colorado law does not favor construing

ambiguous terms as conditions precedent. A construction as

covenants rather than conditions is desirable because it avoids

forfeitures. Southern Surety Co. v. MacMillan Co., supra; \3

Couch on Insurance 2d § 49:20 (1965). In addition, it has

been held that any ambiguity in a reinsurance contract is to be

resolved against the reinsurer unless the language is the: of

the original insurer. Justice v. Stuyvesant Insurance Co., 265 F

Supp. 63 (D. W. Va. 1967). Applying t/sse rules to the con-

tract 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 con-

sistent with the main purpose of the contract. The purpose of

notice and proof of loss clauses in primary insurance contracts

is to afford the insurer an opportunity to form an intelligent

estimate of its liabilities, to afford it an opportunity to invesi.-

Als

gate the claim while witnesses and facts are available, and to

prevent fraud and imposition upon it. 44 Am. Jur. 2d Insurance

§ 1455 (1969). In reinsurance contracts, like the one before us,

the investigation 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 participa-

tion 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 insurers, there was little danger of

fraud or imposition. Had Security shown any pecuniary injury

from Century's failure to give them notice, we belicve damages

would have been an adequate remedy. Our construction of the

contract does not deny the reinsurer the protection it needs,

and it does give the reinsured the security and returns for which

it paid. See | Couch on Insurance 2d § 15:26 (1965).

Finally, we should emphasize the public policy consider-

of Insurance is charged with the duty of protecting 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 pri-

Colo. Rev. Stat. Ann. § 10-3-118 (1973) provides that an

insurer “may take credit for reserves on risks ceded to a re-

insurer.” In an amicus curiae brief filed in the trial court and

incorporated in Century Casualty’s brief before this Court, the

Commissioner 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 Com-

missioner 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 reinsurance where the reinsurance

contract does not result in the absolute transfer to the reinsurer

of the risk of liability”.

Alg

For the Commissioner to accurately determine whether the

transfer of liability is absolute or conditional, we think the lan-

guage of the contract must be plain and unequivocal. To allow

an insurer to obtain credit for reserves on a reinsurance contract

that contains obscure conditions precedent, and then allow the

reinsurer to subsequently deny liability, would substantially im-

pair the function of the Commissioner of Insurance. Moreover.

it would substantially 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 Commissioner's ability to ascer-

tain the solvency of Colorado insurance companies.

We reverse the judgment insofar as it holds Security Mutual

is not liable under the reinsurance treaty for the Anderson Avia-

tion judgment. The amount of its liability should be determined

under the terms of the reinsurance treaty. Therefore, the jude-

ment for damages is also reversed. Century Casualty has not

appealed from the part of the judgment declaring that Security

Mutual is entitled to terminate the reinsurance treaty, and it will

be allowed to stand. We remand with directions to enter judg-

ment consistent with this opinion.

A20

In THE Unirep States District Court

For the District of Colorado

Civil Action No. C-4311

Security MUTUAL CASUALTY

COMPANY,

Plaintiff,

- '

CENTURY CASUALTY COMPANY,

Defendant. |

REPORTER'S TRANSCRIPT

COURT'S RULING

Proceedings before the Honorable Sherman G. Fincsilver,

Judge, United Staies District Court for the District of Colorado,

beginning at the hour of 10:30 a.m. on the 26th day of May,

1976, in Courtroom D, United States Courthouse, Denver, Col-

orado.

Appearances.

John E. Clough, White & Steele, Attorneys at Law, 1660 Lin-

coln Center Building, 1660 Lincoln Street, Denver, Colorado,

A. Denison Weaver, Attorney at Law, One IBM Plaza, Suite

4015, Chicago, Ilinois, and Robert Hanham, General Counsel

for Security Mutual, appearing on behalf of the plaintiff.

James H. Mosley, Mosley, Wells & Dean, Attorneys at Law,

1230 Colorado State Bank Building, Denver, Colorado, and

Michael F. Scott, Attorney at Law, 12075 E. 45th Avenue,

Suite 135, Denver, Colorado, appearing on behalf of the defend-

ant.

Proceedings:

A2l

The Court: I think I am prepared to rule at this time and I

would like to give you some direction as to where I think the

case is right now. I have reread the briefs that were submitted

to the Tenth Circuit. The Court has read the Opinion in clear

detail and also the Motion for Rehearing and we cannot draw

any conclusion as to what the Tenth Circuit meant by their

silence in not granting the Motion for Rehearing. It is only

one occasion in perhaps a thousand where rehearing is granted.

I do not draw any conclusion from the fact they did not grant a

rehearing or did not amend their adjudication.

There are several areas of the slip opinion which was rendered

by the Circuit on the 12th of March that I think supports and

underscores this Court's view that the amount of damages is

still viable in this lawsuit that the plaintiffs are entitled to. On

page 8 of the Opinion, the third line from the top, it states:

... A treaty is a bi-lateral contract containing mutual

covenants. The Security Mutual-Century treaty contains

provisions, such as those pertaining to the loss reserves and

ee ee ae eens Unie ee a eee

which appear to be covenants rather than conditions .

They construe that aspect there, please, that these are merely

terms of conditions rather than conditions precedent.

On page 9:

“.. . Applying these rules to the contract before us, we

hold the notice provision is a covenant by Century and not

a condition precedent to Security's duty to make payment.”

On page 10, the first full sentence, they state:

“.. . Century had as much reason as Security to see that

the death claims in Anderson Aviation litigation were prop-

erly investigated and defended. Between the two insurors,

Soe prea apy tom Coes tant pe

shown s give

them Siew bee damages would ane Ben an 8

quate remedy .

The fact that they used a past tense does not lead us to the

conclusion that matter has been adjudicated by the appellate

A22

court other than if there was a failure to give notice as required

and there is found to be a breach of the treaty which we found

and any damages that can be established to naturally flow from

the breach of the covenant are recoverable. That is how we

interpret the Opinion.

The last paragraph in the Opinion states:

“We reverse the judgment as it holds Security Mutual

is not liable under the reinsurance treaty for the Anderson

Aviation judgment... .”

The Court states that the amount of its liability is to be de-

termined under the terms of the reinsurance treaty. Therefore,

the judgment for damages is also reversed and we cannot hold

that the question of damages has been adjudicated by the ap-

pellate court.

We are going to rule on what we consider to be the viable

issues in this case and try to give you some direction where |

think the lawsuit should go at this time. As we view it, the matter

is before us on three basic issues. First of all a counterclaim upon

which default judgment has been requested. Secondly, coverage

under the reinsurance contract, and third, damages for breach

of covenant. This is what we posture to be the three viable issues

in the lawsuit.

The motion by defendant filed on April 23rd, 1976, for de-

fault judgment on the antitrust counterclaim is denied. We find

that the defendant has delayed prosecution for such a long time

that default judgment is not warranted. Additionally, we find

bifurcation of the counterclaim from the basic insurance claims

created some ambiguities in procedure which may have con-

tributed to the failure of plaintiff to file an answer to the counter-

claim prior to the present time. So we expressly are denying any

Motion for Default Judgment on the antitrust counterclaim.

Discovery on the antitrust counterclaim is to proceed expedi-

tiously and is to be completed within 45 days.

Pre-trial conference on this and any other outstanding issues

is set for July 27th at 1:30 and counsel are to meet in advance

A23

thereto and formulate a proposed pre-trial order with the atti-

tude that reflects the interpretation that this Court gives to the

viable issues.

With respect to the remaining two issues, the amount of the

reinsurance coverage and damages for breach of covenant, we

find pursuant to the mandate entered on the 22nd of April after

the Petition for Rehearing was denied, that the defendant is

fully covered by the reinsurance contract, that the defendant is

covered by the contract during the applicable period. The re-

mand should determine the exact amount of coverage and we

are of the view and of the desire to avoid needless duplication

of the original trial testimony and exhibits insofar as possible

and we are of the view that there would only have to be a mini-

mum of discovery on this matter. To this end, counsel for the

defendant is to file within 20 days, a concise, abbreviated state-

ment of position with respect to the amount of coverage, and

such statement is to refer to trial testimony since we do have

a record that was lodged with the Circuit Court and it’s been,

I imagine, refiled with our Clerk. Also there shall be reference

to the exhibits. Defendants are to state with particularity the

items of coverage and support therefor.

Counsel for the plaintiff is to respond with a similar state-

ment of position 20 days thereafter. Defendant is to file within

10 days thereafter any reply together with a proposed order in

regard to the extent of coverage under the treaty. In like manner

plaintiff is to file a proposed order when it completes its brief-

ing within 20 days after the initial filing by the defense. We are

of the view that in this phase of the case that discovery should

be completed again within a period of 45 days if necessary and

only essential discovery shall move forward. I do not anticipate

broad based discovery on this aspect.

In regard to the remaining area, the amount of damages, plain-

tiff is directed to file a statement of position with respect to the

damages with specificity and particularity for the breach of the

covenants within 20 days and | realize counsel have difficult trial

A24

schedules and so. 5 the Court. However, this case is going

to move forward, gentlemen. It is never going to be fresher

in your mind as it is right now and this case commands expedi-

tion on the part of counsel and on the part of the Court. The

plaintiff is to file a statement of its position with respect to the

damages with specificity and particularity for the breach of the

covenant within 20 days. It is to be concise and abbreviated and

shall state with particularity the items of damage, reference

to original trial testimony and exhibits insofar as they appear in

the record. Counsel for defendants on these items of damages are

io reply with a similar statement of position within 25 days

thereafter and refutation of any items of damages together with

a proposed order should you prevail on your view as to what

damages, if any, should be awarded and the plaintiff as the

movant in this area is to respond within 10 days with its pro-

posed order. Likewise discovery on this issue of damages, if nec-

essary, shall be moved forward within 45 days.

Mr. Clough: That would bring us over the 16th of July. You

have stated that we should file our statement in 20 days. If we

have 45 days for discovery, that extends over that time.

The Court: I recognize that fact. There might have to be a

modification. The Court will take a look at that. I don't know

how much discovery is necessary. However, I would like to know

counsel's present posture in regard to the question of damages

that is going to narrow the scope of discovery. The Court will,

| believe, in this way narrow the issues down as to what we think

are-——-what type of evidentiary trial will be necessary; how the

antitrust complexion fits into the remaining issue.

The Court has already set the 27th of July as the date for

the pre-trial on the antitrust phase of the case. The Court will

also give counsel some direction prior to that time as to what

we consider to be the ambit of the remaining issues in this case,

the amount of the reinsurance coverage and the amount of

damages. So in effect we will give you again today areas to con-

centrate on probably toward the middle of July so that this can

A25

be embodied into the pre-trial order. The Court intends to try

to move forward on this case. Apparently there is not unanimity

of though as to what the Circuit did hold by counsel. There are

varied interpretations and the Court has tried to give the clearest

and fairest meaning that we can at this juncture without start.

ing the lawsuit all] over again. I think that one facet—I believe

this Circuit did establish that we have affirmed this Court's

finding that notice was not given. That notice as required was

not given. They, however, have considered this merely as a

breach of one of the contractual provisions, not as a breach

of covenant.

Mr. Clough, do you have any questions?

Mr. Clough: On the discovery, | can report to Your Honor

as to that stage at this time and perhaps ask a question of

counsel. We have received various motions, requests for pro-

duction of documents. We have received requests for admis-

sions. We have received notices of deposition of some 1%

people who are described as being officers or directors of the

company. I had a discussion with counsel on that and there

were three different days scheduled for deposition, the 2nd,

3rd and the 8th of June. | had discussion with counsel and

told him that there were some who were no longer with the

company. I would have no control and gave him those names.

I told him that I felt that the information sought in the notices

—they asked for 22 or about 24 pieces of information, if we

had financial transactions or communications with any of these

named companies, these respondents. We agreed and there was

a letter hand-delivered to me by Mr. Scott that if we can by

telephone find this information out as to whether or not they

had information on these aspects and handle it by way of

interrogatories on that aspect, they would look at the answers

and decide then whether or not they wanted to go forward

at anytime in the future on depositions. | went to Chicago last

week and conferred all day with Mr. Hanham who is the general

counsel. He gave me all the documents that we have to produce

A26

and we will produce those or make them available for copying.

There are quite a bit. I will file the responses to the requests

for admissions. | think we have about three or four objections,

but everything else we are giving answer to. We are answering

and responding to all the other documents, all the other

requests and will have that filed today or tomorrow. Most of

the answers, I can state to counsel, on the notices of deposition

are that most all of them have no affirmative response. They

had no financial transactions or any communications dealing

with any aviation insurance or anything related to the Counter-

claim, and therefore we would feel that this deposition should

not be taken. Now, they may wish to look at the antitrust

claim. If they want to take a deposition, we can decide then

whether or not we file a motion for protective order if they

would not agree that, one, that the deposition not be taken or,

two, if they are to be taken that they be taken in Chicago.

We would be willing to go out there. I would be willing to go

out on the 8th. I am sorry. I cannot go out then. | have

already a pre-trial conference and motion on the 2nd and 3rd

and | will be in the middle cf trial unless it settles on the 8th,

but | would be willing to set another date very close thereto

and have all those depositions taken that they wish to have

taken.

1 would like an expression if I could now. Obviously they

can't say we can’t make our mind up until we see those answers.

That is the situation. | will file that stuff this afternoon and

make them available to them at any reasonable time. | would

ask that we do take the depositions in Chicago, if they wish

to continue with that, and that we set it at a different time

convenient to counsel.

Mr. Scott: Your Honor, in response to that particular inquiry,

I think that the issues have been broadened now concerning what

the defendants were anticipating would be issues which they

would be interested in discovering. | think at this time it would

probably be necessary for us to reconsider and maybe even

A27

we may want to delete some of the witnesses we have asked and

we will certainly let them know immediately so they won't

be inconvenienced. We might want to include some additional

parties because of the issue of damages to complete our dis-

covery on that particular issue. As far as making additional

plans to go to Chicago, I have scheduled 40 depositions for

the month of June of which about 18 are in this case and I

don’t know whether I would have time to get out there. I

would prefer they be taken here, if possible, if we can work

something out. We will be more than happy to. | would hate

to see un order directing that we must go to Chicago to take

the depositions because of the tremendous scheduling problems

for | am sure Mr. Clough has got a heavy schedule also and

so do 1. | am sure Mr. Mosley does too.

The Court: I want to.try to prevent any enth hour motions

for protective orders and have counsel getting together and

hearing your expression and have to get pretty much—-we have

to do it on the run while we have the leisure of everyone here

now and knowing it is going to be hectic for the next 45 days

to bring this case within the timetable the Court has set. |

am hopeful you can make some arrangements as to who will

give a little bit so you will not add to the cost of litigation and

ask for more court time in which to resolve these matters.

Mr. Scott: The problem with going to Chicago in the event

is a refusal to answer or to allow discovery, then we must travel

back to Denver in order to obtain an ruling on it and that

is one of the reasons that we've elected to or we prefer to cite

Denver, Colorado, as a location for the depositions.

The Court: Are there any that you are going to depose in

Chicago anyway?

Mr. Scott: In this particular case?

The Court: Aren't there some people in Chicago who reside

in Chicago?

Mr. Scott: We had no intention of taking any depositions in

Chicago.

A28

The Court: Anything else, please?

Mr. Scott: Yes, Your Honor. In regards to—it was my under-

standing and I am sure that the Court having already ruled—

but I felt | would have an opportunity to argue our Motions

for Summary Judgment and for Default pursuant to the Minute

Order that had entered. If the Court feels it would be beneficial,

I would be more than happy to present my argument.

The Court: The Court has been through this file I dare say

more times than counsel has. | don’t want to short change

anyone in regard to oral argument. However, this Court is

satisfied that there is a firm—there is a firm foundation in

regard to the Court’s ruling on the antitrust claim and I don’t

believe in the interest of fair play, enter default judgment several

years later on the counterclaim dealing with antitrust while this

Court—nothing has been said about it for several years. I

don’t intend to go any further in regard to that, counsel.

Mr. Scott: Well, with regard to the Motion for Summary

Judgment, we've seen no triable issue presented by the plaintiffs.

We have no affidavit in opposition anf if there is something that

we have missed or some specific finding of fact that the Court

has as to what triable issue remains, it may be helpful.

Now, in the Motion for Summary Judgment of Costs—

The Court: Counsel, | am not going to broaden any ruling

at this time. No doubt as we follow the timetable that we have

here, there is going to have to be a supplemental pre-trial order

entered by the Court at which time the Court will go into more

detail as to what we feel would be the format to accomplish

what I think are the issues. I will not broaden anything further.

Mr. Scott: One thing that I would like to bring to the Court's

ttention is to see if the Court feels it should enter a stay on

the Motion for Damages filed by the plaintiff until such time as

we can get an order from the Tenth Circuit Court clarifying its

The Court: Counsel, I will not grant any stay. | would

deny any interlocutory appeal. You have other remedies to

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take if you want to take them. I think this litigation has to move

‘forward and I am not going to stay on this Order nor am I

going to grant an interlocutory appeal. If counsel are of the

view that you want to take any other appropriate action, counsel

may proceed under the Rules of Civil Procedure.

Mr. Scott: Thank you, Your Honor.

The Court: I am anticipating that the discovery that remains

in this case is going to be undertaken in good faith and not with

a harassing and vexatious attitude. I would ask counsel that

if you cannot come to grips as to the ambit of discovery and

you feel you have got an arguable point or something very

well the Court within its discretion could order you to do, I

would suggest that you file your motion for protective orders,

but go ahead and proceed with the attitude of cooperation and

at trial renew your request for appropriate sanctions by way of

attorney's fees or reimbursement of costs or striking of any

pleadings so that we are not going to break stride by any motions

for protective orders. I am underscoring the fact that I am

hopeful that counsel will cooperate in the balance of discovery

in this case. This Court with great repetity has been assessing

costs against attorneys in regard to what I consider to be not

within the harmony of discovery under Rule 37 and am

hopeful it will not become necessary in this case. If it is some-

thing the Court can ask you to do, do it. If it is going to add

to the cost of litigation, it is not going to be done in good faith.

File your motion for protective orders, but let’s not ask to have

it set down until the time of trial and so the Court can address

itself to all these matters if there are questions that the witness

shoudn’t answer, I think you know the general idea that the

Court is going in right now. I suggest you do this with great

reservation so that any discovery is going—will go forward in

a very expeditious way. I am hopeful that you will be able to

work out the question whether the depositions should be here in

Denver or Chi.ago. If the Court has to address itself, the Court

will, you understand. However, I am asking counsel within

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your own schedules to try to work the details out. If you are

not happy, file your motion for protective orders and we will

determine that at the time of trial and the Court will determine

at trial whether it was necessary to even take the deposition.

If there is some question whether it should have been taken or

whether it was necessary under the trilogy of issues that are,

I think, still left in the lawsuit.

Do you understand the Court’s observation?

Mr. Clough: Yes, Your Honor.

Mr. Scott: Yes, Your Honor.

I have one further matter. As long as we are present and in

court, Mr. Clough has indicated he did have some objections

to requests for admissions or production. He had two objec-

tions to our requests for admissions also. Maybe we could

learn what those are at this time and see whether we would—

if we have any objection with them and maybe we could get

a ruling at this time.

Mr. Clough: I haven't filed them yet. If we are going to

get a—I have a Motion for Protective Orders, if you want

to do that now. I understand Your Honor’s statement and I

will try to do what I can.

The Court: Let’s not go into an elongated hearing on these

matters where counsel do not anticipate this. Since Mr. Weaver

is here, he has some familiarity with this file and also with the

client in Chicago. I suggest that perhaps counsel could spend

a few minutes now in the conference room and see if you

can’t narrow the issues down just a little bit so you will not

have to file any motions.

I will ask the attorneys to approach the bench if they will,

please.

( Discussion off the record at the bench. )

The Court: The Court is going to direct that counsel con-

tinue and also to see representatives of the State Office and

the Attorney General's Office to continue to explore the possi-

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bility of settlement if this can be done without doing violence

to the legal position of the parties or violence to what they feel

is the degree of propriety that should attach to this litigation.

However, as the Court has mentioned, we had from the same

Opinion—we have several different interpretations as to what

the mandate means and this lends itself to further appeal of

this case and further litigation and the Court would frankly

suggest to counsel that they continue with some efforts to see

if this case can't be settled. The Court will not become in-

volved with any settlement discussion nor do | want to know

aay icrms of negotiations. The Court would care to be advised

by the close of business next Tuesday, which is the Ist of

June, as to the prospects toward settlement.

Mr. Clough, i will ask you to merely send a letter to the

Court that settlement discussions have gone forward and what

the prospects appear to be. I would ask you please not to

refer to any figures or terms or conditions, please, and a copy

of your letter should go to the Insurance Commissioners, the

Attorney General's Office and defense counsel.

Mr. Clough: Yes, Your Honor.

The Court: Is there anything further at this time, please?

Mr. Clough: Just one other matter. Since you have denied

the Motion for Default Judgment, if Your Honor would in-

formally accept our Answer which we have filed—

The Court: The Answer will be duly filed as being an

Answer to the Counterclaim.

Mr. Mosley: One other thing, if the Reporter would submit

to us the comments of the Court which have to do with the

time schedules.

(This matter in recess at 11:24 a.m.)

REPORTER'S CERTIFICATE.

1, E. J. Carpenter, Certified Shorthand Reporter and Official

Reporter to this Court, do hereby certify that I was present

A32

at and reported in shorthand the proceedings in the foregoing

matter; that thereafter my shorthand notes were reduced to

typewritten form under my supervision, comprising the fore-

going official transcript; further, that the foregoing official

transcript is a full and accurate record of the proceedings in

this matter on the date set forth.

Dated at Denver, Colorado, this 18th day of June, 1976.

My Commission expires December 4, 1977.

/s/ E. J. CARPENTER

E. J. Carpenter

Official Reporter