In OneBeacon Am. Ins. Co. v. Commercial Union Assur. Co. of Canada, No. 11-2072 (1st Cir. July 11, 2012), the U.S. Court of Appeals for the First Circuit affirmed the district court’s grant of summary judgment in favor of Commercial Union Assurance Company of Canada n/k/a Aviva Insurance Company of Canada (“Aviva”) and against OneBeacon American Insurance Company (“OneBeacon”), finding that OneBeacon failed to carry its burden of demonstrating that Aviva had agreed to reinsure certain policies issued by OneBeacon in 1981 and 1982. Id. at 11-16. In making its determination, the three-judge panel noted that OneBeacon retained all of the premiums for the policies at issue and, thus, found that it would “defy economic sense” to conclude that OneBeacon truly “bore none of the risk.” Id. at 14-15.
In 1980, OneBeacon and Aviva both
issued direct policies to two American
subsidiaries of Harrisons & Crosfield (Canada) Ltd. (collectively, “Harrisons US”). Id. at 2-3. The 1980 OneBeacon policy contained an
endorsement providing that the “policy or any renewal thereof” was one hundred
percent (100%) reinsured by Aviva. Id. at 3. Aviva issued a reinsurance certificate
evidencing its agreement to reinsure the OneBeacon policy for the 1980 term
(the “Facultative Certificate”) and also received a premium payment of $45,530
Canadian for that period. Id. at 3-4.
For 1981 and 1982, however, the language of the policies differed. Although the OneBeacon policies purported to be “renewal[s]” of the company’s 1980 policy, endorsements to the Aviva policies “explicitly excluded Harrisons US from coverage.” Id. at 5-6. Thus, the Court concluded that “it defies logic to say that the two policies in combination create an ongoing obligation that Aviva reinsure OneBeacon with respect to Harrisons US.” Id. at 13.
Moreover, the Court found that even if there was some ambiguity regarding the language of the policies, the extrinsic evidence on the record demonstrated that the reinsurance arrangement did not continue beyond 1980. Id. at 13-14. More specifically, the Court wrote:
Firstly, the fact that there is no Facultative Certificate between Aviva and OneBeacon for the second and third policy years suggests that the relationship between the two companies changed after the first year. Secondly, and most importantly, the evidence regarding the flow of premium payments supports the view that Aviva terminated its reinsurance obligation after the first year. In the first year, Aviva received a premium payment of $45,530 Canadian and remitted a 10% fee to OneBeacon. . . . In the second year, however, the OneBeacon ledger reflects that OneBeacon directly received the full $24,000 U.S. premium payment. . . . OneBeacon would have this Court reach a result that OneBeacon kept all of the premiums for the 1981 and 1982 policy years, but that it bore none of the risk. Such a conclusion would defy economic sense.
Id. at 14-15 (emphasis added). By following “the flow of premium payments,” the Court was able to resolve any claim of ambiguity in the language of the policies and affirm the lower court’s determination that Aviva was entitled to judgment as a matter of law.
For your reference, a copy of the decision is available here.