Court Opinion

ID: 3322100
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:39:39.71462+00
Date Added: 2024-06-11T14:24:17.530153
License: Public Domain

I agree with the majority of the court that the order appealed from cannot be set aside, unless it appears upon the record to be so unreasonable as to have been a clear abuse of the judicial discretion. I am of the opinion that the finding should be so corrected that the claims of law made by the appellants may appear of record.
The receivers of the AEtna Company made application to the court for advice as to their duty respecting a proposition made by the Munich Reinsurance Company to settle and compromise certain demands by the receivers. Thereupon the court passed the order appealed from, which authorized the compromise of claims aggregating more than $80,000 for fifty per cent thereof. These claims arose out of losses for which the AEtna is liable. The AEtna and Munich had entered into a reinsurance contract, as the contract terms it and as its subject-matter makes it, by which the Munich reinsured certain stipulated risks of the AEtna, the losses under which constitute the claims whose compromise the order authorized.
The question for the trial court was whether or not a *Page 586 
compromise of fifty cents on the dollar was one which ought to be authorized. The question for us is whether the authorization of such compromise was so unreasonable upon the facts of record as to have been an abuse of judicial discretion.
The opinion of the majority suggests that the field of inquiry before the trial court covered the question as to the collectibility of the judgment which might be obtained by the receivers if their claims were pressed to judgment. That question was not before the trial court. No interest attacked the financial responsibility of the Munich. No such attack could have been successfully made, and the court could not have so relied in making its order. For the statutes of the State required the Munich, before it began business here, to deposit with the treasurer of this State, or with the proper officer of some other State, $200,000 in securities authorized by law for investments by savings-banks. So that there was no issue before the trial court as to the collectibility of any judgment the receivers might secure against the Munich on their claim.
The ordinary delays and expense attendant upon a litigated case of this nature are not, and could not be, claimed to be a sufficient justification for the compromise of a claim of this magnitude.
Thus the only issue of record before the trial court which might have justified the order of compromise was the issue concerning the probable validity of the claim. The court's order did not involve the legal decision of this issue. It did involve its consideration of this issue with a view to determining whether the claim was clearly valid, or subject to legitimate doubt. If the claim were clearly valid, it would not be contended that a compromise of an undoubted legal claim of as large magnitude as this against a responsible debtor for fifty cents on the dollar would be wise, or that an *Page 587 
order of a court to that effect would be a legal exercise of the judicial discretion. If, on the other hand, the legal validity of the claim was seriously the subject of doubt, it could not be said that an order for its compromise was an abuse of the judicial discretion. Therefore the real question, and the sole question before us, is: Does this record show that this claim was clearly valid, or does it show that it was an invalid claim, or at least one of doubtful validity?
The application, whose facts are admitted, recites that the AEtna Indemnity Company ceded to the Munich Reinsurance Company certain risks arising under bonds for fidelity and guaranty insurance issued by it, pursuant to a contract entered into by the parties and annexed to the application. Our statutes required that the AEtna should reinsure a proportion of its risks. The Munich denied liability under its contract with the AEtna, except upon its receipt of certified copies of the discharge of such claims given to the AEtna. The contract itself, over and over again, treats and designates its undertaking as reinsurance. The interpretation given to reinsurance contracts has been a uniform one for over two hundred years. It is the settled law of the land "that a reinsurer of a specific risk is liable in case of loss to pay its obligation to the original insurer, irrespective of whether the original insurer is solvent or able to pay the loss in full or not." The opinion of Mr. Justice Peckham in AllemanniaFire Ins. Co. v. Firemen's Ins. Co., 209 U.S. 326,28 Sup. Ct. Rep. 544, is an authoritative utterance upon this subject by our highest court, and while it stands the law upon this point should be regarded as settled. The decisions in this country before this opinion held to this doctrine, and those which have followed continue to hold to it. The contract of reinsurance between these companies must bear this interpretation, unless *Page 588 
some of its provisions take it out of what may be termed the standard form of reinsurance contract.
In the trial court two articles of the contract, XIV and XVIII, were presented as those features which differentiated this from the usual reinsurance contract. The claim made under Article XIV was the same claim made in the Allemannia case. There, as here, the original insurer was insolvent, and the reinsurer had there pleaded: first, that it was not liable because the insurer had not paid its loss and secured its discharge; second, that the reinsurer could only be held liable for the ratable proportion of the sums actually paid by the insurer. These defenses were held invalid. Article XVIII does not bear a doubtful construction. Its effect is to oust the court of jurisdiction; such an agreement is illegal. Chamberlain v. Connecticut Central R.Co., 54 Conn. 472, 487, 9 A. 244. This provision is collateral to the main agreement, and is not a condition precedent to the payment of the loss. Hamilton v.Home Ins. Co., 137 U.S. 370, 385, 11 Sup. Ct. Rep. 133.
The application shows that all claims against the AEtna have either been determined or referred to a committee to report its findings thereon to the court for its decision. The liability of the Munich will be concluded by the determination of these claims. The arbitration article cannot now be permitted to open the decree of the court.
The main ground of the majority opinion is that some of the risks of the contract were suretyship contracts, and these have been, and quite likely may be, differentiated by the courts from the reinsurance contract, and hence afford basis for the conclusion that the recovery is doubtful.
Assuming that this legal claim might create a doubt concerning the recovery, the claim itself has no relevancy to this case. 1. It rests upon the assumption of *Page 589 
the fact that some of these losses in controversy arose out of suretyship risks. There is nothing in the record which points to this as a fact. It hardly seems permissible to resolve a fact of such high significance against the appellants, nor to found upon it an argument tending to show the uncertainty of the law upon this assumed position. 2. The application recites, and its facts are admitted, that the AEtna ceded to the Munich "certain stipulated proportions of risks arising under bonds for fidelity and guarantee insurance." The losses under these risks, so ceded, constitute the claims whose compromise the order authorized. We thus know from the admitted facts that the risks so ceded were not suretyship risks. 3. In the law of insurance, fidelity and guaranty contracts are construed by the courts as contracts of insurance rather than as those of suretyship.American Surety Co. v. Pauly, 170 U.S. 133, 144,18 Sup. Ct. Rep. 552; Richards on Insurance (3d Ed.) § 469. Whenever contracts reinsuring fidelity and guaranty contracts have been before the courts of this country, the general doctrine applicable to reinsurance contracts, viz., the doctrine of the Allemannia case, has been upheld. French Mut. General Soc. v. United StatesF.  G. Co., 203 F. 558, 566. The reinsurance contract between these parties is a contract of indemnity, a method of insurance applied in a special way to cover particular risks already assumed by the original insurer. The claims of the receivers are obligations of the Munich arising under its contract with the AEtna against which it has no defense, hence the order compromising the claim of more than $80,000 for fifty per cent thereof was, in my judgment, an abuse of the judicial discretion, and should not be upheld by this court. *Page 590