Court Opinion

ID: 804140
Source: CourtListenerOpinion
Date Created: 2012-07-11 20:27:00+00
Date Added: 2024-06-11T18:00:10.964390
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 11-2072

                 ONEBEACON AMERICA INSURANCE COMPANY,

                        Plaintiff, Appellant,

                                  v.

          COMMERCIAL UNION ASSURANCE COMPANY OF CANADA
            n/k/a AVIVA INSURANCE COMPANY OF CANADA,

                         Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Joseph L. Tauro, U.S. District Judge]

                                Before

                   Torruella, Boudin, and Thompson,
                            Circuit Judges.

     Kevin J. O'Connor, with whom Jennifer L. Noe and Hermes,
Netburn, O'Connor & Spearing, P.C., was on brief for appellant.
     Benjamin L. Hincks, with whom Wynter N. Lavier and Mintz Levin
Cohn Ferris Glovsky and Popeo, P.C., were on brief for appellee.

                            July 11, 2012
           TORRUELLA,    Circuit       Judge.   This      case    concerns   a

reinsurance dispute between an American insurance company and a

Canadian insurance company.            The American company, Plaintiff-

Appellant OneBeacon America Insurance Company ("OneBeacon"), claims

that the Canadian company, Defendant-Appellee Aviva Insurance

Company of Canada ("Aviva"), is obligated to reinsure OneBeacon for

policies OneBeacon issued to certain entities in the early 1980s.

Both parties filed cross-motions for summary judgment, and the

district court denied summary judgment to OneBeacon and granted

summary judgment to Aviva. OneBeacon now appeals, challenging both

summary judgment rulings.        After careful review, we affirm the

district court's denial of summary judgment to OneBeacon and award

of summary judgment to Aviva.

                              I. Background

A.   The 1980 OneBeacon Policy and the 1980 Aviva Policy

           In   the   early   1980s,    OneBeacon   and   Aviva    were   both

affiliated members of the Commercial Union group of insurance

companies (the two companies are no longer affiliated); OneBeacon

was based in the U.S., while Aviva was based in Canada.1                     On

March 28, 1980, OneBeacon issued an insurance policy (the "1980

OneBeacon Policy") to two U.S.-based subsidiaries of Harrisons &

Crosfield (Canada) Ltd: Harrisons & Crosfield (America), Inc. and

1
   During this time period, OneBeacon was known as the Commercial
Union Insurance Company, and Aviva was known as the Commercial
Union Assurance Company of Canada.

                                   -2-
Harrisons & Crosfield (Pacific) Inc. (collectively, "Harrisons

US").   The 1980 OneBeacon Policy was effective from March 28, 1980

through April 1, 1981 and was identified as policy no. C8-9101-002.

The Policy contained "Endorsement Number 4,"2 (the "1980 OneBeacon

Endorsement Number 4") which provides:

            It is understood and agreed that this policy
            or any renewal thereof is 100% reinsured by
            [Aviva] policy number 6687287 effective
            3/28/80 to 4/1/81.

            It is further agreed that cancellations of
            this policy C8-9101-002 or any renewal thereof
            or policy 6687287 or any renewal thereof shall
            be reason for automatic cancellations of the
            other policy.

The premium listed on the 1980 OneBeacon Policy is "Canadian

$45,530."     The "Producer" code for the 1980 OneBeacon Policy is

"02-20211."

            Also on March 28, 1980, Aviva issued an insurance policy

(the "1980 Aviva Policy") to Harrisons & Crosfield (Canada) Ltd.

("Harrisons Canada") with the policy no. 6687287.    The 1980 Aviva

Policy contains a "Differences in Conditions Endorsement" (the

"1980 Aviva Endorsement"), which states:

            In consideration of the premium charged, the
            Insurer agrees that this policy is placed in
            conjunction with and reinsures Policy No. CL
            C8-9191-002 issued by [OneBeacon], or any
            renewal thereof, in respect of:

2
   An "endorsement" is "an amendment to an insurance policy."
Black's Law Dictionary 607 (9th ed. 2009).

                                 -3-
            Insured: Harrisons & Crosfield(America)Inc.,
            Harrisons & Crosfield(Pacific)Inc.

            . . .

            Exceptions: This insurance differs from the
            policy which it follows in the following
            particulars:

            (a) Premium: $45,530 (Canadian Funds-Deposit)
            The Limit of Liability under either or both
            policies shall not exceed $1,000,000.00 as set
            forth in Policies 6687 and CL C8-9101-002 or
            any renewal policies issued by this Insurer.

            On      November   26,    1980,     Aviva   issued   to   OneBeacon

"reinsurance     certificate         No.     9009419"    (the    "Facultative

Certificate")3 for the "reinsurance term" of March 28, 1980 to

April 1, 1981.        The Facultative Certificate states that Aviva

reinsures policy no. C8-9101-002 (the 1980 OneBeacon Policy), and

the   reinsurance    premium   listed      is   $45,530.00   Canadian.     The

Facultative Certificate's policy period was never extended, nor

does a separate facultative certificate exist for any subsequent

policy period.       The Facultative Certificate is the only direct

written agreement between Aviva and OneBeacon on the record.

            Aviva sent the Facultative Certificate to OneBeacon via

a letter dated November 26, 1980, along with a check for $4,553

Canadian.   The letter states: "Further to yours of July 1st, 1980.

Attached is our Reinsurance Certificate along with our cheque in

3
    A "facultative certificate" is a "contract of reinsurance
separately negotiated to cover risk under a single insurance
policy." Black's Law Dictionary 631 (8th ed. 2004).

                                       -4-
the amount of $4,553.00 Canadian being your override commission of

10% of the premium which was $45,530.00 Canadian."

B. The 1981 Aviva Endorsement and the 1981 and 1982 OneBeacon
Policies

           In 1981, OneBeacon issued a policy to Harrisons US,

effective April 1, 1981 to April 1, 1982, with the policy no. C8-

9138-002 (the "1981 OneBeacon Policy").           Above the phrase "renewal

of or previous no." is the policy number C8-9101-002, which

corresponds to the 1980 OneBeacon Policy.             The named insureds on

the 1981 OneBeacon Policy are Harrisons US and Harcros Inc.,4 and

the listed "Additional Insureds" are Harrisons & Crosfield Ltd. and

Wilkinson Linatex.5      The Producer code for the 1981 OneBeacon

Policy is "02-20020."          The premium amount listed on the 1981

OneBeacon Policy is $24,000 U.S.             The 1981 OneBeacon Policy does

not contain the 1980 OneBeacon Endorsement Number 4 or any similar

provision indicating that the 1981 OneBeacon Policy was reinsured

by any Aviva policy.

           Around the same time, Aviva issued an endorsement (the

"1981 Aviva Endorsement") to the 1980 Aviva Policy that extended

the   policy   period   from   March    28,    1981   to   March   28,   1982.

4
  In 1979, Harrisons Canada formed Harcros Inc., a brokerage house
that placed insurance for Harrisons US and Harrisons Canada between
1979 and 1986.
5
   The Additional Insureds are only insured "in respect of their
direct sales into the United States of America, its territories and
possessions."

                                       -5-
Significantly, the 1981 Aviva Endorsement explicitly excluded

Harrisons US from coverage under the 1980 Aviva Policy.              The 1981

Aviva Endorsement provided:

           It is further understood and agreed that the
           following   Corporations   are   specifically
           excluded from this policy which shall not
           inure to their benefit in any way:

           ...

           Harrisons & Crosfield (America) Inc.

           ...

           Harcros Inc.

           ...

           Harrisons & Crosfield (Pacific) Inc.

           In 1982, OneBeacon issued a policy to Harrisons US with

the   policy   no.   C8-9138-007     (the    "1982     OneBeacon   Policy").

OneBeacon has not located a copy of the 1982 OneBeacon Policy, but

the parties agree that the 1982 OneBeacon Policy was a renewal of

the 1981 Policy.     In addition, in 1982, Aviva again extended the

term of its policy issued to Harrisons Canada by one year, to

March 28, 1983.

C. Premium Evidence

           The   record   contains    a     "ledger"    from   OneBeacon   that

includes entries pertaining to payments received in connection with

the Harrisons US policies.     The ledger entry for policy no. 9101-

002, the 1980 OneBeacon Policy, shows that OneBeacon received a

premium of $4,252 U.S., even though the premium amount listed on

                                     -6-
the 1980 OneBeacon Policy was $45,530 Canadian.         In addition, the

"reinsurer" column in the entry for the 1980 OneBeacon Policy lists

a reinsurer identified as "C44."      However, the "reinsurer" column

of the entry for policy no. 9138-002, the 1981 OneBeacon Policy, is

left blank, showing no reinsurer at all for the 1981 OneBeacon

Policy.     This entry also indicates that OneBeacon received a

$24,000 premium, which corresponds exactly with the premium amount

listed on the 1981 OneBeacon Policy.       The "reinsurer" column for

the entry corresponding to the 1982 OneBeacon policy is also blank.

The ledger does not indicate that OneBeacon ever shared any of the

premiums it received for the 1981 or 1982 OneBeacon Policies with

Aviva.

D. Procedural History

            In 1998, OneBeacon received notice of lawsuits against

Harrisons   US   for   asbestos-related   injuries.      Based   upon    the

coverage it issued to Harrisons US under the 1980, 1981, and 1982

OneBeacon Policies, OneBeacon entered into a defense cost-sharing

arrangement with Harrisons US's other insurers for claims arising

from the covered period.      In November 2007, OneBeacon requested

that   Aviva   fully   indemnify   OneBeacon   for    costs   incurred    in

connection with the Harrisons US claims.       Aviva responded that it

would reimburse OneBeacon for only one-third of defense expenses

and indemnity payments.

                                   -7-
            On February 2, 2010, OneBeacon filed suit against Aviva

in the U.S. District Court for the District of Massachusetts.

OneBeacon   sought   a   declaration   that    Aviva   had   a   contractual

obligation to reinsure the 1980, 1981, and 1982 OneBeacon Policies

issued to Harrisons US, and also sought damages for Aviva's alleged

breach of contract.      On June 24, 2011, OneBeacon and Aviva filed

cross-motions for summary judgment.            On August 18, 2011, the

district court denied OneBeacon's motion and granted Aviva's.           See

OneBeacon Am. Ins. Co. v. Commercial Union Assur. Co., 804 F. Supp.

2d 77 (D. Mass. 2011).     The court pointed out that the Facultative

Certificate was the only contract on the record between the two

parties.    See id. at 87.     The court then held that because the

Facultative Certificate unambiguously stated that the term of

reinsurance ended after April 1, 1981, Aviva did not reinsure the

1981 or 1982 OneBeacon Policies.       Id.    The court further concluded

that the other evidence on the record also suggested that Aviva

reinsured only the 1980 OneBeacon Policy.         Id. at 86-88.

            OneBeacon now appeals both the denial of its motion for

summary judgment and the grant of summary judgment to Aviva.

                            II.   Discussion

A.   Standard of Review and Applicable Law

            We review a grant or denial of summary judgment by the

district court de novo.     Sarsfield v. Great Am. Ins. Co. of N.Y.,

335 F. App'x 63, 65 (1st Cir. 2009).         "[W]e are not married to the

                                   -8-
trial   court's    reasoning   but,    rather,   may   affirm    on   any

independently sufficient ground made manifest by the record."

Cahoon v. Shelton, 647 F.3d 18, 22 (1st Cir. 2011).             Where, as

here, we are presented with cross-motions for summary judgment, we

"must view each motion, separately," in the light most favorable to

the non-moving party, and draw all reasonable inferences in that

party's favor.    Estate of Hevia v. Portrio Corp., 602 F.3d 34, 40

(1st Cir. 2010).     "The presence of cross-motions neither dilutes

nor distorts [the de novo] standard of review," Mass. Museum of

Contemporary Art Found., Inc. v. Buchel, 593 F.3d 38, 52 (1st Cir.

2010)(internal quotation marks omitted), and thus we are obligated

to make a determination "based on undisputed facts whether either

the plaintiffs or the defendants deserve judgment as a matter of

law."   Hartford Fire Ins. Co. v. CNA Ins. Co. (Europe) Ltd, 633

F.3d 50, 53 (1st Cir. 2011).

          In order to prevail on a motion for summary judgment, the

moving party must show "that there is no genuine dispute as to any

material fact" and that it "is entitled to judgment as a matter of

law."   Fed. R. Civ. P. 56(a); see Baltodano v. Merk, Sharp, and

Dohme (I.A.) Corp., 637 F.3d 38, 41 (1st Cir. 2011).        "A fact is

material if it carries with it the potential to affect the outcome

of the suit under applicable law."       Santiago-Ramos v. Centennial

P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir. 2000) (internal

quotation marks omitted). On issues where the movant does not have

                                 -9-
the burden of proof at trial, the movant can succeed on summary

judgment by showing "that there is an absence of evidence to

support the nonmoving party's case." Celotex Corp. v. Catrett, 477

U.S. 317, 325 (1986).

             Both parties applied Massachusetts law in their arguments

before the district court, and both apply Massachusetts law in

their arguments before this Court. "[A] diversity court is free to

honor the parties' reasonable agreement" regarding which state's

law applies.     Artuso v. Vertex Pharms., Inc., 637 F.3d 1, 5 (1st

Cir. 2011) (citing Borden v. Paul Revere Life Ins. Co., 935 F.2d

370, 375 (1st Cir. 1991)).      Thus, we apply Massachusetts law in

this case.

             Under Massachusetts law, the insured bears the burden of

demonstrating that a claim falls within a policy's affirmative

grant of coverage.    Markline Co. v. Travelers Inc. Co., 424 N.E.2d

464, 465 (Mass. 1981).     Therefore, as the party seeking insurance

coverage, it is OneBeacon's burden to prove that Aviva agreed to

reinsure the 1981 and 1982 OneBeacon Policies.

             "The interpretation of an insurance contract and the

application of policy language to known facts present questions of

law for the judge to decide."        Sarsfield, 335 F. App'x at 65

(internal quotation marks omitted); see also Merchs. Ins. Co. v.

U.S. Fid. and Guar. Co., 143 F.3d 5, 8 (1st Cir. 1998).           The

interpretation of an insurance contract should be "according to the

                                  -10-
fair and reasonable meaning of the words in which the agreement of

the parties is expressed."       Allmerica Fin. Corp.    v. Certain

Underwriters at Lloyd's, London, 871 N.E.2d 418, 425 (Mass. 2007)

(internal quotation marks omitted). Additionally, every word in an

insurance contract "must be presumed to have been employed with a

purpose and must be given meaning and effect whenever practicable."

Id.

B.    OneBeacon's Motion for Summary Judgment

            To prevail on summary judgment, OneBeacon must show that

there are no material facts in dispute and that as a matter of law

Aviva provided reinsurance coverage for both the 1981 OneBeacon

Policy and the 1982 OneBeacon Policy. As the district court noted,

the only direct agreement between OneBeacon and Aviva in the record

is the Facultative Certificate, which clearly indicates that the

term of Aviva's reinsurance obligation was from March 28, 1980 to

April 1, 1981.   OneBeacon argues that the agreement between it and

Aviva was created by the 1980 OneBeacon and Aviva Policies rather

than by the Facultative Certificate.    OneBeacon contends that the

1980 Aviva Policy reinsures the 1980 OneBeacon Policy and any

renewals, and that the Facultative Certificate, which was issued

several months after the 1980 Policies, was a mere confirmation of

the reinsurance relationship that already existed between the two

insurance companies.

                                -11-
             However, even if we assume arguendo that the 1980 Aviva

and OneBeacon Policies formed the parties' agreement in 1980, this

does   not   help    OneBeacon.       For    if   the    various    1980   policies

established the original agreement between the parties, the record

makes clear that the parties changed the terms of their agreement

in 1981.

             The 1981 Aviva Endorsement explicitly changed the scope

of Aviva's obligations.        The Differences in Condition Endorsement

in the original 1980 Aviva Policy stated that Aviva would reinsure

OneBeacon's coverage to Harrisons US.                   However, the 1981 Aviva

Endorsement stated that Harrisons US was "specifically excluded

from this policy which shall not inure to [its] benefit in any way"

(emphasis    added).        OneBeacon       suggests     that   the    1981   Aviva

Endorsement only eliminated Aviva's direct insurance obligations to

Harrisons    US     while   leaving   undisturbed         Aviva's     agreement   to

reinsure the 1980 OneBeacon policy and its renewals.                   But the 1981

Aviva Endorsement explicitly states that it "form[s] part of Policy

No. 6687287" (i.e., the 1980 Aviva Policy) and that it excludes

Harrison US from that policy entirely.             Moreover, OneBeacon claims

in its reply brief that "the very heart of [OneBeacon's] case" is

that Policy No. 6687287 and the 1980 OneBeacon policy combine to

"provide the terms of the Reinsurance Agreement between OneBeacon

and Aviva."       Yet given that Harrisons US is excluded from Policy

No. 6687287, and given that Aviva is not a party to the 1980

                                       -12-
OneBeacon policy, it defies logic to say that the two policies in

combination      create   an   ongoing    obligation   that   Aviva      reinsure

OneBeacon with respect to Harrisons US.             As amended, Policy No.

6687287 has nothing to do with Harrisons US (Harrisons US is

"specifically excluded from this policy"), and the 1980 OneBeacon

policy on its own cannot bind Aviva (a non-party to that policy).

             Moreover, the 1981 OneBeacon Policy, which OneBeacon

claims is a renewal of its 1980 Policy, does not contain the 1980

OneBeacon Endorsement Number 4 or any similar provision indicating

that the 1981 OneBeacon Policy was reinsured by Aviva.                         This

omission is consistent with Aviva terminating its reinsurance

relationship with OneBeacon and OneBeacon taking on the ultimate

insurance risk for Harrisons US in the 1981 policy period.

Similarly, there is no indication that the 1982 OneBeacon Policy

had   the   1980    OneBeacon    Endorsement    Number    4   or   any    similar

provision.       Thus, in contrast to the 1980 OneBeacon policy, the

1981 and 1982 OneBeacon Policies did not tell Harrisons US that

Aviva was standing behind OneBeacon as the reinsurer.

             Furthermore, if there is some ambiguity regarding the

meaning of the 1981 Aviva Endorsement and the 1981 OneBeacon

Policy, Massachusetts law allows us to examine the extrinsic

evidence    to     determine    whether   the   parties   intended       for    the

reinsurance arrangement to continue after the end of the first

year.   See Den norske Bank AS v. First Nat'l Bank, 75 F.3d 49, 52

                                     -13-
(1st Cir. 1996) ("Although not admissible either to contradict or

alter express terms, extrinsic evidence is admissible to assist the

factfinder in ascertaining the intent of the parties as imperfectly

expressed in ambiguous contract language." (citing Robert Indus.,

Inc. v. Spence, 291 N.E.2d 407, 410 (Mass. 1973))).                       Here, the

extrinsic evidence on the record convinces us that the reinsurance

arrangement did not continue.

           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, in which both parties

agree that Aviva reinsured OneBeacon, Aviva received a premium

payment of $45,530 Canadian and remitted a 10% fee to OneBeacon.

Moreover, the OneBeacon ledger shows that there was a reinsurer for

the 1980 OneBeacon policy -- identified with the code "C44."                        In

the second year, however, the OneBeacon ledger reflects that

OneBeacon directly received the full $24,000 U.S. premium payment.

Furthermore,     the   ledger   does     not    indicate    that      there   was   a

reinsurer for the 1981 or 1982 OneBeacon Policies.                         Further,

OneBeacon has not pointed to any evidence that it shared the

second- or third-year premium with Aviva.                OneBeacon would have

                                       -14-
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.

           Because there is no evidence that Aviva agreed to provide

reinsurance beyond the term of the first policy year, OneBeacon is

not entitled to judgment as a matter of law.          Accordingly, we

affirm the district court's denial of OneBeacon's summary judgment

motion.

C.   Aviva's Motion for Summary Judgment

           As discussed above, the Facultative Certificate, which is

the only direct agreement between the parties on the record,

unambiguously    provides   that    Aviva's   reinsurance   obligation

terminated after April 1, 1981.           Further, also as previously

discussed, even if we assume arguendo that the 1980 Aviva and

OneBeacon Policies, rather than the Facultative Certificate, formed

the original agreement between the parties, OneBeacon cannot show

that the original agreement lasted beyond the end of the first

policy year.    As explained above, both the language of subsequent

documents (the 1981 Aviva Endorsement and the 1981 OneBeacon

Policy) and the extrinsic evidence (the premium payments and the

lack of additional facultative certificates) show that whatever

reinsurance arrangement between OneBeacon and Aviva that existed in

the first policy year terminated at the end of that year.

                                   -15-
          Since   it   is   OneBeacon's   burden   to   prove   Aviva's

reinsurance obligation, which OneBeacon cannot do, summary judgment

for Aviva was appropriate.     Accordingly, we affirm the grant of

summary judgment to Aviva.

                            III. Conclusion

          The judgment of the district court is affirmed.

          AFFIRMED.

                                 -16-