Opinion ID: 2386307
Heading Depth: 2
Heading Rank: 1

Heading: Recovery of Excess Losses

Text: Travelers does not dispute that paragraph 4(a) of the settlement agreement made its right to reimbursement [s]ubject to the excess loss provisions set forth in the Bond, which in turn allowed MEBA to recover any loss covered by this bond which exceeds the amount of indemnity provided. The trial judge concluded, however, that the settlement agreement unambiguously reflected the parties' understanding that, in the context of the settlement, the loss[es] covered by this bond meant only severance pay loss, not salary loss. For the following reasons, we think the judge was correct. First, in return for the payment of $1,028,838.37, MEBA released Aetna/Travelers broadly from all, and all manner of, actions, causes of action, . . . losses, . . . defenses, set-offs, . . . claims [and] demands that MEBA might otherwise have against the insurer. Paragraph 2. Further, subject only to the limitations contained in paragraph 4, MEBA assign[ed] to Travelers all its right, title, and interest. . . in all claims for the amount of the aforesaid payment which it may have against its officers [and] . . . employees. . . by reason of conduct upon which its claims against AETNA have been made and pursuant to which AETNA makes the aforesaid payment. Because the payment was the quid pro quo for this release and assignment, exactly what that sum was meant to cover is clearly probative of the rights the parties understood MEBA to be transferring and those it was reserving. MEBA does not dispute that the $1,028,838.37 was in payment of its submitted severance pay losses only, reflecting the precise amount of those losses (up to the indemnity maximum) caused by the named wrongdoers. MEBA frankly acknowledged in the trial court that the payment reflects the full amount of severance pay that was embezzled by DeFries, Dodson and Daulley, that was covered under the fidelity bond. The broad release and assignment of rights, together with the intended object of the settlement payment, are substantial evidence that the only setoff right MEBA reserved was for excess losses of the kind Travelers agreed to pay (and for which it gained subrogation rights), i.e., severance pay embezzlement. Second, as Judge Burgess recognized, paragraph 4 itself illustrates the parties' understanding that the excess loss provision of the bond was incorporated into the settlement agreement only to the extent that it covered severance pay loss. Although generally the parties were to share in the recovery of monies up to the settlement amount on a 75%/25% basis, paragraph 4(b) provided that the first $409,662.37 of money recovered from De-Fries will be the sole property of the Insured. That amount was the precise severance pay loss MEBA claimed for De-Fries over and above the $500,000 indemnity limit in the policy (MEBA had also claimed sizeable salary losses to DeFries.) Hence, when the parties wanted to explain the excess loss right MEBA was reserving, they knew how to do so. The fact that no similar provision was inserted as to Dodson and Daulley confirms the scope of that right, since neither of them had embezzled severance pay in excess of $500,000. Third, construing MEBA's right to recoup excess losses as including salary losses would defeat the evident purpose of the sharing arrangement in paragraph 4(a). Travelers was to receive 75% and MEBA 25% of monies recovered up to the amount of Travelers' payment. (As previously noted, paragraph 4(b) excludes the excess loss recovered from DeFries from that arrangement.) The natural, if not the obvious, role of this provision was as a hedge favoring MEBA against the possibility that it would not recover its total losses. But if, as MEBA argues, Travelers was entitled to no reimbursement until MEBA recovered all its losses, the sharing formula would amount to a 25% bonus for MEBA in the event it succeeded in being made fully whole. MEBA offers no reason why Travelers would have consented to such a windfall. [6] For these reasons, we reject MEBA's reading of the limitation which paragraph 4 places on Travelers' right of reimbursement. As explained by the trial judge, the agreement reflected the parties' intent to achieve a form of rough justice by allowing MEBA to be made whole to the extent of salary losses (for which it was not paid under the agreement), but . . . provid[ing] explicitly for sharing of some of the recovery of severance losses. On this issue, we agree with the trial judge that there is no ambiguity in the agreement. We also reject MEBA's argument that the common law make whole doctrine requires a different result. It generally provides that if an insurer pays less than the insured's total loss, the insurer cannot exercise a right of reimbursement or subrogation until the insured's entire loss has been compensated. See 16 COUCH ON INSURANCE § 61:64 (2d ed.1983). The doctrine, however, operates as a default rule, and so the parties can contract out of [it] provided they do so with sufficient clarity. Cagle v. Bruner, 112 F.3d 1510, 1521 (11th Cir.1997); see also, e.g., Culver v. Ins. Co. of N. Am., 115 N.J. 451, 559 A.2d 400, 402-04 (1989). In the present case, the partiesboth sophisticated negotiators represented by counselsettled their differences by specifically balancing MEBA's right to be made whole against Travelers' right to reimbursement: giving MEBA any salary losses recovered and Travelers a portion of severance pay losses recouped. Neither law nor equity authorizes this court to override that agreement.