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CONTINENTAL CASUALTY CO. v. NORTHWESTERN NATIONAL INS.

July 30, 2003

CONTINENTAL CASUALTY COMPANY, AN ILLINOIS INSURANCE COMPANY, AND CONTINENTAL INSURANCE COMPANY, A NEW HAMPSHIRE INSURANCE COMPANY, PLAINTIFFS,
v.
NORTHWESTERN NATIONAL INSURANCE COMPANY, A WISCONSIN INSURANCE COMPANY, DEFENDANT



The opinion of the court was delivered by: Robert Gettleman, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff's Continental Casualty Company ("CCC") and Continental Insurance Company ("CIC") have brought a one count complaint for declaratory judgment against defendant Northwestern National Insurance Company seeking interpretation of a contract between CCC and defendant. Specifically, Plaintiff's are seeking a declaration that a 1996 Commutation & Release Agreement ("Commutation Agreement") cancelled treaty reinsurance agreements between defendant and CCC only, and did not cancel any agreements between CIC and defendant. Defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted. For the reasons set forth below, defendant's motion is denied.

FACTS

Plaintiff's are insurance companies with their principle places of business in Illinois. Defendant is an insurance company organized under the laws of Wisconsin with its principle place [ Page 2]

of business in Ohio. Defendant is sued in its own right, and as successor of Universal Reinsurance Company, Bellefonte Re Insurance Company, and Bellefonte Insurance Company.

CNA Financial Corporation ("CNA") is an insurance holding company. At all times pertinent to this litigation, CNA has directly owned CCC, which itself owned fifteen to twenty other insurance companies. In 1995, CNA purchased the Continental Corporation, an insurance holding company, which directly owned CIC. As a result, by year end of 1995 CNA owned both CCC and CIC.

According to the complaint, under a reinsurance contract, an insurance company, known as the "ceding company" or "cedent," obtains insurance from another professional insurer, known as the "reinsurer," in order to transfer some or all of the insured risk the cedent has assumed. In the instant case, plaintiff's were cedents and defendant was the reinsurer. Both Plaintiff's and defendant agree that reinsurance contracts take two forms. The first type is a "treaty reinsurance agreement," which covers an entire line or segment of the cedent company's business over a period of time. An example is reinsurance covering all directors' and officers' insurance policies issued by the cedent in 2002. The second type of reinsurance agreement is a "facultative reinsurance agreement," which applies to a single policy issued by the cedent and is negotiated on an individual basis. An example is reinsurance covering the specific directors' and officers' insurance policy issued by the cedent to XYZ Corporation on February 1, 2002. Defendant entered into various treaty reinsurance agreements with CCC from the 1960s through the 1980s. Defendant also entered into various facultative reinsurance agreements with CCC and CIC from the 1960s through the 1980s.

In May 1996 CCC and defendant entered into the Commutation & Release Agreement ("Commutation Agreement"), which states in part: [ Page 3]

"This Commutation & Release Agreement is by and between Continental Casualty Company and its affiliates, including but not limited to: American Casualty Company of Reading, PA., CNA Casualty of California, CNA Casualty of Puerto Rico, Columbia Casualty Company, Manufacturers Trust Insurance Company, and Transportation Insurance Company, (hereinafter collectively the "Reinsured") and Northwestern National Insurance Company, individually and as successor to Universal Reinsurance Corporation and Bellefonte Re Insurance Company, formerly Bellefonte Insurance Company, (hereinafter collectively the "Reinsurer")."
CIC is not listed as an affiliate, and plaintiff denies that CIC was an affiliate of CCC at the time the Commutation Agreement was executed.

The Commutation Agreement states in the first recital that, "the Reinsured and Reinsurer are parties to the Treaty Reinsurance Agreements listed in Schedule A," and then defines the term "Reinsurance Agreements" to be read "Treaty Reinsurance Agreements listed in Schedule A." (A copy of the front two pages from Schedule A is appended to this opinion.) The second recital states that, "the Reinsured and the Reinsurer now desire to fully and finally settle and commute all their respective past, present, and future obligations and liabilities, known and unknown, under the Reinsurance Agreements." Defendant claims that the Commutation Agreement included both the insurance agreements listed in Schedule A under the subtitle "Through Direct Placement With Intermediary" and the insurance agreements listed under the subtitle "Through Facultatively Placed." Plaintiff claims that the Commutation Agreement cancelled only the list under "Through Direct Placement With Intermediary" and did not cancel facultative reinsurance agreements under which defendant owes CIC $2.6 million billed by CIC under facultative reinsurance agreements defendant issued to CIC and other insurance companies owned by the Continental Corporation. [ Page 4]

DISCUSSION

Defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) for "failure to state a claim upon which relief can be granted." A complaint should not be dismissed for failure to state a claim unless there is no doubt that the plaintiff cannot prove a set of facts that would entitle him to relief based on his claim. Pressalite Corp. v. Matsushita Electric Corp. of Am., 2003 WL 1811530 at *2 (N.D.Ill Apr. 4, 2003). When a motion to dismiss is considered, the court accepts the allegations of the complaint as true and views the facts in the light most favorable to the plaintiff. Travel All Over the World Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7th Cir. 1996).

When a court interprets a contract, it must first decide if the contract is ambiguous. ABT v. Mazda American Credit, 25 F. Supp.2d 860, 862 (N.D.Ill. 1998). In Illinois, "a contract is ambiguous only if the language used is reasonably or fairly susceptible to having more than one meaning, but is not ambiguous if a court can discover its meaning simply through knowledge of those facts which give it meaning as gleaned from the general language of the contract." Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1036 (7th Cir. 1998). Additionally, a contract is not construed as ambiguous simply because the parties do not agree on the meaning of the terms. Id. If there are questions, however, that cannot be answered by reading the contract, extrinsic evidence is necessary to determine the intent of the parties, and a motion to dismiss cannot be granted. Great Oak, LLC. V. Begley Co., 2003 WL 880994 *3 (N.D.Ill. Mar. 5, 2003).

The Commutation Agreement states that CCC and its affiliates and defendant are no longer bound to the treaty reinsurance agreements listed under Schedule A of the agreement. The first issue that is disputed is whether Plaintiff's are affiliates and are both ...


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