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Arrowood Indemnity Company, As Successor In Interest To Landmark v. Assurecare Corporation Formerly Known As Assurecare Risk Retention

September 19, 2012


The opinion of the court was delivered by: Judge Robert W. Gettleman


Plaintiffs Arrowood Indemnity Company and Arrowood Surplus Lines Insurance Company (together, "plaintiffs") filed a two-count amended complaint against defendant Assurecare Corporation alleging breach of contract (Count I) and seeking a declaratory judgment for renewed collateralization (Count II). Defendant counterclaimed, alleging breach of contract on plaintiffs' part, as well as claims of conversion and negligence, and seeking a declaratory judgment of their own. Plaintiffs have filed the instant motion for summary judgment on all claims and counterclaims. For the following reasons, the court grants plaintiffs' motions for summary judgment as to Counts I and II, as well as all counterclaims.


In 2002, plaintiffs and defendant entered into a reinsurance treaty ("the treaty") for the period of December 1, 2001, to April 1, 2003. In exchange for a premium, defendant provided 100% quota share reinsurance for plaintiffs' insurance contracts that became effective as of December 1, 2001. Specifically, defendant was responsible for the first $250,000 of plaintiffs' "net liability," as well as a percentage share of "loss adjustment expenses." Under Article II of the treaty, "net liability" is defined as plaintiffs' "gross liability for loss settlement . . . ." Under Article XV of the treaty, "loss adjustment expenses" are defined as "expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes . . . ."

During the treaty's effective period, plaintiffs issued a liability insurance policy to FHC Enterprises, Inc., which insured Greenwood Terrace Nursing and Rehab. Center, L.L.C. ("Greenwood Terrace"). In 2002, Greenwood Terrace was sued following the death of one of its patients and residents, Joseph Mark. Plaintiffs defended Greenwood Terrace in the Mark lawsuit, which eventually settled. Because its policy called for a $1,000,000 liability limit per each "medical incident," plaintiffs paid $1,000,000 of the $1,750,000 settlement. Plaintiffs then billed defendant its portion of the settlement claim, which included the obligation for the first $250,000 of net liability as well as a proportion of loss adjustment expenses. Defendant tendered payment for the billed amount.

Following the settlement of the Mark lawsuit, Greenwood Terrace filed its own suit against plaintiffs for breach of contract, alleging that plaintiffs should have paid a greater portion of the settlement amount because there had been more than one "medical incident" involved in the Mark lawsuit. Greenwood Terrace also alleged bad faith on the part of plaintiffs for their failure to insure Greenwood Terrace fully in the Mark matter. Plaintiffs disputed the claim that multiple "medical incidents" were implicated in the Mark case, but settled the lawsuit with Greenwood Terrace for a further $325,000 on January 4, 2011. Plaintiffs then billed defendant for its share of the Greenwood Terrace settlement, including the obligation for the first $250,000 of net liability and a proportion of loss adjustment expenses. Defendant contested its obligation to plaintiffs in the Greenwood Terrace lawsuit and refused to pay the billed amount. The parties' agreement allowed plaintiffs to utilize Letters of Credit provided by defendant to "reimburse [plaintiffs] for [defendant's] obligations." Prior to filing this action, plaintiffs drew on a Letter of Credit in the amount of $361,518 in partial satisfaction of the Greenwood Terrace claim.

Plaintiffs then filed the instant suit, alleging breach of contract by defendant for failing to pay the remaining sum of $230,527.76 due in the Greenwood Terrace claim. Additionally, having drawn down the Letter of Credit provided, plaintiffs allege a collateral shortfall under the terms of the treaty and seek an order requiring renewed collateralization. Defendant counters, claiming that the settlement in the Greenwood Terrace lawsuit falls outside the scope of its obligations to plaintiffs. Defendant further filed a six-count counterclaim*fn1 , alleging: (1) that plaintiffs breached the treaty in failing to report the Greenwood Terrace lawsuit in a timely manner; (2) that plaintiffs' actions regarding the Letter of Credit constitute conversion; (3) that plaintiffs were negligent in failing to report the losses incurred in connection with the Greenwood Terrace lawsuit; and (4) seeking a declaratory judgment that the reinsurance treaty does not apply to any losses or liability incurred by plaintiffs resulting from the Greenwood Terrace lawsuit.


I. Legal Standard

A movant is entitled to summary judgment under Fed. R. Civ. P. 56(a) when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. The moving party bears the initial burden of pointing out the absence of a genuine issue of material fact. Once the moving party has met that burden, the nonmoving party must go beyond the pleadings and present specific facts showing there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992).

II. Plaintiffs' Summary Judgment Motion and Defendant's Related Counterclaims

Plaintiffs' breach of contract claim centers around the dispute over whether the reinsurance treaty covers the settlement in the Greenwood Terrace matter. The interpretation of this contract is governed by the law of the state of Connecticut.*fn2 Connecticut law regarding the interpretation of insurance contracts is well-established:

An insurance policy is to be interpreted by the same general rules that govern the construction of any written contract and enforced in accordance with the real intent of the parties as expressed in the language employed in the policy. The policy words must be accorded their natural and ordinary meaning. Under well established rules of construction, any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy. This rule of construction may not be applied, however, unless the policy terms are indeed ambiguous. Moreover, the mere fact that the parties advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous. Construction of a contract of insurance presents a question of law for the court.

Ohio Cas. Ins. Co. v. Dentek, Inc., 283 F.Supp.2d 655, 659 (D. Conn. 2003) (quoting Hansen v. Ohio Cas. Ins. Co., 239 Conn. 537, 687 A.2d 1262, 1264-65 (1996)).

Under Connecticut law, "[t]he elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." Rosato v. Moscardo, 82 Conn.App. 396, 411 (2004) (quoting Bouchard v. Sandberg,

80 Conn.App. 180, 189 (2003)). The first two elements are not in question. Plaintiffs allege that defendant breached the contract by failing to pay amounts ...

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