Opinion ID: 808087
Heading Depth: 2
Heading Rank: 3

Heading: The Consequences for Breach

Text: Having decided what event triggers PEIC‘s obligation to provide a DSOL under Paragraph D, we turn to what consequences the Certificate provides for a failure to comply with that obligation. The District Court found that ―the only reasonable interpretation‖ of ―[a]s a condition precedent‖ in the first sentence of Paragraph D is that it creates a prerequisite to Global‘s duty to provide reinsurance coverage. Pac. Emp’rs Ins. Co., 2011 WL 2003359 at .6 Therefore, if PEIC does not comply with the DSOL provision, then (under 6 By way of background, a condition precedent — often referred to simply as a condition — is generally ―an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.‖ Restatement (Second) of Contracts § 224; see also Shovel Transfer & Storage, Inc. v. Pa. Liquor Control Bd., 739 A.2d 133, 139 (Pa. 1999) (―Where a condition has not been fulfilled, the duty to perform the contract lays dormant and no damages are due for non-performance.‖) (quotation marks omitted). 25 the terms of the Certificate) Global is not only excused from its obligation to remit payment promptly, but it is excused from its obligation to remit payment at all. Admittedly, the condition precedent phrase could have been drafted more clearly. It might have provided, for example, that ―As a condition precedent to any liability on the part of Global under this Certificate, . . . .‖ But a contract does not have to be perfect to be unambiguous. Global‘s interpretation is, we believe (as did the District court), the only reasonable one. To begin, the preamble makes reinsurance coverage, not just Global‘s duty to remit payment promptly, subject to the Certificate‘s conditions. Specifically, it provides that Global ―does hereby reinsure‖ PEIC ―subject to the terms, conditions, and limits of liability set forth herein.‖ Paragraph D‘s ―condition precedent‖ — PEIC‘s obligation to remit a DSOL — is undeniably a ―condition[] set forth‖ in the Certificate. Thus, PEIC‘s failure to comply with that condition excuses Global from its promise to ―hereby reinsure‖ it under the Certificate. When reading the first sentence of Paragraph D in context, it becomes even clearer that the consequences for failing to comply with it must be different in kind than the consequences for failing to comply with other provisions in the Certificate. No other provision in the Certificate uses ―condition precedent‖ language. For example, Paragraph D‘s second provision makes no mention of a ―condition precedent,‖ and simply provides that ―[PEIC] shall also notify [Global] promptly of any claim or occurrence where [PEIC] has created a loss reserve equal to (50) percent of [PEIC‘s] retention.‖ Thus, while Paragraph D‘s first sentence creates a condition precedent to coverage, the second (like all other 26 provisions in the Certificate) is an ordinary contractual covenant the breach of which may entitle Global to damages but does not automatically forfeit coverage. Finally, if the ―as a condition precedent‖ language did anything other than create a condition precedent to coverage, PEIC could simply wait until presenting a bill for payment under the Certificate before submitting its first DSOL without repercussion, and thereby eviscerate Global‘s other contractual rights. In that case, Global would lose its ―right to associate‖ and its right to forecast adequate loss reserves and determine the propensity of losses when serious claims or occurrences are reported.