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American Ins. Co. v. North American Co. for Property & Casualty Ins.

United States Court of Appeals for the Second Circuit

December 16, 1982, Argued ; December 30, 1982, Decided

No. 82-7569, No. 628 -- August Term, 1982

Opinion

 [*80]  NEWMAN, Circuit Judge:

Plaintiff American Insurance Company (AIC) appeals from a March 4, 1982, judgment of the United States District Court for the Southern District of New York (Henry F. Werker, Judge) entered in favor of defendant North American Company for Property and Casualty Insurance (NACPAC). After a bench trial, the District Court found that NACPAC [**2]  was not required under its agreement with AIC to reimburse AIC for any part of a settlement AIC made on behalf of Dow Chemical Company.

During the 1970's, AIC insured Dow Chemical Company for all damages that Dow became legally obliged to pay. In 1974, NACPAC agreed to reinsure part of AIC's risk and assumed responsibility for a layer of liability between $250,000 and $500,000 per damage award. On July 15, 1977, a Minnesota state court jury awarded $146,970 of compensatory damages and $750,000 of punitive damages against Dow for damages caused by a fire in a building insulated with Styrofoam, a Dow product. While the Minnesota award was on appeal, AIC agreed to settle a number of Styrofoam cases, including the Minnesota case, for $1.2 million. Of that settlement, $500,000 was allocated to the Minnesota case. AIC then requested that NACPAC honor its reinsurance policy and reimburse AIC for $250,000 of the Minnesota award. When NACPAC refused, AIC brought this suit.

In the District Court, NACPAC defended on the ground that AIC's insurance policy with Dow (and therefore NACPAC's reinsurance agreement with AIC) did not cover punitive damages assessed to punish corporate officials [**3]  for intentional misconduct. According to NACPAC, the Minnesota jury had awarded punitive damages against Dow for deliberate corporate misbehavior, and consequently most of AIC's Minnesota settlement had compensated Dow for damages excluded from the insurance and reinsurance policies. NACPAC claimed that the part of the settlement attributable to compensatory damages, which was the only part covered by NACPAC's policy, was less than $250,000; NACPAC therefore had no duty to reimburse AIC for any portion of the settlement. The District Court accepted NACPAC's interpretation of AIC's insurance policy with Dow, and also agreed that NACPAC owed nothing to AIC under the reinsurance agreement.

On this appeal, AIC challenges the District Court's interpretation of the AIC-Dow insurance policy. The District Court had concluded that, although the policy itself was ambiguous, evidence introduced as to the intent of the parties supported NACPAC's view that punitive damages awarded for corporate misconduct were not covered. AIC now claims that the District Court did not give enough weight to evidence suggesting that Dow may have thought the agreement covered these punitive damages.

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697 F.2d 79 *; 1982 U.S. App. LEXIS 22931 **; 12 Fed. R. Evid. Serv. (Callaghan) 397; 1983 Fire 9; Casualty Cas.(CCH) P757

AMERICAN INSURANCE COMPANY, Plaintiff-Appellant, v. NORTH AMERICAN COMPANY FOR PROPERTY AND CASUALTY INSURANCE, formerly known as Service Fire Insurance Company of New York, Defendant-Appellee

Prior History:  [**1]   Appeal from a judgment of the District Court for the Southern District of New York (Henry F. Werker, Judge), in favor of defendant after a non-jury trial on plaintiff's claim for payment pursuant to a reinsurance contract.

Disposition: Affirmed.

CORE TERMS

reinsurance, settlement, punitive damages, damages, fortune, insured, award of punitive damages, ambiguity, reimburse