NECA Ins., Ltd. v. National Union Fire Ins. Co.

NECA Ins., Ltd. v. National Union Fire Ins. Co.

Opinion

 [*956]  SWEET, D.J.

In this diversity action, plaintiff NIL Insurance Ltd. ("NIL"), a reinsurance company, seeks a recovery against defendant National Union Fire Insurance Co. ("National Union"), an insurance company, and Buchanan Management Company ("Buchanan"), a program administrator, for moneys paid in connection with the settlement of a personal injury action by National Union and for punitive damages. National Union and Buchanan have moved to compel arbitration of claims brought by NIL and to stay this action pending arbitration. National Union's motion to compel arbitration is granted, and the action is dismissed without prejudice subject to restoration to the calendar upon the completion of the arbitration.

Prior Proceedings

National Union entered [**2]  into a reinsurance agreement with NIL in which NIL agreed to reinsure 100% of National Union's ultimate net loss under all policies covered by the agreement entered into by National Union or on behalf of National Union by co-defendant Buchanan. National Union thereafter paid $500,000 in settlement of a personal injury action brought by Martha Abbott (the "Abbott action") against defendant insured under a policy issued by National Union and reinsured by NIL. National Union unsuccessfully sought repayment from NIL, under the reinsurance agreement. Subsequently, certain funds were paid by a third party to National Union which also drew upon a NIL letter of credit to cover the cost of settling the Abbott action. National Union also served a demand for arbitration on NIL on July 11, 1984. NIL, on July 26, 1984, initiated this action and alleges eight causes of action in its complaint.

The first cause asserts negligence, bad faith, and breach of contract in National Union's alleged failure to notify NIL of settlement discussions and in the payment of the settlement and related costs. The second cause of action alleges bad faith and negligence on National Union's part in entering into the [**3]  $500,000 settlement. The third and fourth causes of action allege negligence and breach of contract on National Union's part in not accepting various settlement offers and assert that NIL's liability to National Union, if not totally eliminated by the initial causes of action, should be limited to the amount of these  [*957]  settlement offers. The fifth cause of action seeks a determination of NIL's liability to National Union as a consequence of the events surrounding the settlement. The sixth cause of action alleges that a fine resulting from delayed payment of the settlement was negligently incurred by National Union and therefore cannot be attributed to NIL.

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