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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1849%3A1

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1977
- **Citation:** 434 U.S. 824

## Text

=e

Su, ru
FitkD

| MAY

MIC

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

Ue
if.
‘
°F

:
i
z
:

At
it
¢

8

4
f
i
t

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

jar

Hite

See

£SEs

Hy il

ir oF
fil

HEE

Hail: @iG [Ed i 48
i ne itt iE
pdetien bj2 deep iil
bedded td wats | i HI
iD jan he ati aH
an f Hee if Wn ety
HD iF arege 8
a8 ANT bt 4 Ait a aa
HTH aa | 4 tt
Hd abil i i
LEAH tii i mH
eet Hie Hie
ued agggedg sty ue |

“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

A29

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

A30

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-

A3l

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1849%3A1. Public record. Not legal advice.