Contract Interpretation

An appellate court in Illinois recently concluded that a decades-old commutation agreement between Old Republic Insurance Company and Central National Insurance Company (predecessor in interest to the defendant), was, in fact, not ambiguous, rendering superfluous the trial at which various extrinsic evidence was introduced in support of the parties’ competing interpretations, after the trial court denied summary judgment based on triable ambiguity.

The parties entered into the agreement in 1990, in an effort to mitigate the effects of Central National’s financial difficulties, which had caused it to be placed in rehabilitation by the State of Nebraska. The parties had come to reinsure one another under various reinsurance agreements. However, Central National argued that the commutation agreement was ambiguous, and was not intended to extinguish certain of Old Republic’s obligations to Central National. The appellate court disagreed, finding the language mutually releasing “all liabilities and obligations of the parties to each other under the reinsurance agreements” to mean just that – that all liabilities and obligations flowing both ways were equally extinguished. Old Republic Ins. Co. v. Ace Property & Casualty Ins. Co., 1-07-2668 (Ill. App. Ct. March 24, 2009).

This post written by John Pitblado.

A federal court granted summary judgment to Northfield Insurance Company (“Northfield”) on claims brought by the Pennsylvania Counties Risk Pool (“PCORP”), and the Counties of Monroe and Beaver, Pennsylvania (“the Counties”), after Northfield declined a claim under a reinsurance agreement with PCORP, which reinsured insurance issued by PCORP to the Counties. The plaintiffs sought coverage pertaining to an underlying class action suit brought by residents against the Counties, which suit alleged that various county officials failed to provide state-mandated per diem foster care payments to “kinship caregivers” of special needs foster children. The suit sought declaratory and injunctive relief, as well as costs and attorneys fees. The underlying suit eventually settled, with the result that PCORP paid an amount which “include[ed] the settlement and attorneys fees and litigation expenses,” of $213,799.71.

Northfield denied the reinsurance claim based in part on an endorsement to the underlying policy which excluded coverage for “any costs or expenses incurred by the Assured in any claim or suit seeking solely declaratory, injunctive, or equitable relief, including but not limited to any attorney’s fees or expenses incurred to defend the claim.” The Court agreed with Northfield that, strictly confined to the four corners of the operative pleading, the underlying suit did not seek compensatory damages or any other form of legal relief, but was limited in its demand to solely declaratory and injunctive relief, both of which are strictly equitable forms of relief. The Court disagreed with the plaintiffs that the catch-all claim for relief alleged in the underlying suit for “such additional or alternative relief which [the] Court deems just, proper, or equitable” did not negate the proper application of the exclusion. Pennsylvania County Risk Pool v. Northland Insurance, Case No. 07-00898 (USDC M.D. Pa. Feb. 27, 2009).

This post written by John Pitblado.