The Tall Tree Insurance Company v. Munich Reinsurance America, Inc.

The Tall Tree Insurance Company v. Munich Reinsurance America, Inc., No. C-08-1060 MMC, 2008 U.S. Dist LEXIS 60499 (N.D. Cal. Jul. 29, 2008)

Court: United States District Court for the Northern District of California

Date Decided: July 29, 2008

Issue Decided: Use of declaratory relief to determine reinsurance obligations

Submitted by Dan Millea and Jennifer M. Geelan*

In Tall Tree Ins. Co. v. Munich Re America Inc.,, the cedent sought a declaration that 1) it was obligated to reimburse its insured and 2) the reinsurer was obligated to reimburse the cedent. The Northern District of California held that the cedent failed to allege sufficient facts to demonstrate that an actual controversy existed between the cedent and its reinsurer. The court dismissed the cedent’s complaint and granted the reinsurer’s motion for judgment on the pleadings.

The cedent, The Tall Tree Insurance Company issued two excess liability insurance policies to Hewlett-Packard. HP “requested” that Tall Tree reimburse HP under HP’s policies for defense costs incurred in a group of lawsuits entitled the “Starter Cartridge Suits.” Munich Re American Inc. had issued two reinsurance policies to Tall Tree, promising to pay Tall Tree for amounts it was “legally obligated to pay” under HP’s liability policies. Tall Tree believed there was coverage under HP’s liability insurance policies and requested that Munich Re confirm that it would reimburse Tall Tree for payments made under the policies. Munich Re denied that it had an obligation to reimburse Tall Tree, claiming there was no coverage for the Starter Cartridge Suits under HP’s policies. After Munich Re denied its obligations under the reinsurance agreement, Tall Tree sought a declaration from the court that 1) Tall Tree was obligated to reimburse HP for defense costs incurred in the Starter Cartridge Suit litigation; and 2) Munich Re was obligated to reimburse Tall Tree for any payments Tall Tree made in good faith to HP, including any interest Tall Tree paid HP for the outstanding amounts. Munich Re argued that Tall Tree failed to state a case or controversy over which the court had jurisdiction.

The court agreed with Munich Re and found that Tall Tree failed to allege sufficient facts to demonstrate that an actual controversy between Tall Tree and Munich Re existed. In determining whether such a controversy existed, the court, citing Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941), noted that the question was “whether the facts alleged, under all the circumstances, show that there is a substantive controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”

Under that standard, the court held that Tall Tree failed to allege sufficient facts to demonstrate that an actual controversy existed which warranted a declaration as to whether Tall Tree had an obligation to HP. The court explained that because Tall Tree sought a declaration that it had a duty to pay HP, there was no controversy between Tall Tree and HP. Additionally, Tall Tree was not claiming that Munich Re asserted any basis for precluding Tall Tree from paying HP. The court noted: “In short, [Tall Tree] can simply pay HP.”

Additionally, the court held that Tall Tree failed to allege any facts to demonstrate that an actual controversy existed which warranted a declaration as to whether Munich Re would be obligated to reimburse Tall Tree for any payments Tall Tree paid in good faith to HP. While the court recognized that Munich Re had a duty to reimburse Tall Tree for payments it made to HP in good faith or to follow Tall Tree’s fortunes, it held that Tall Tree’s request for declaratory relief was premature. The court reasoned that until Tall Tree paid any claim that HP had submitted or would submit in the future or until a determination was made that Tall Tree was obligated to pay such a claim, there was no act for Munch Re to assess and “follow.” The court dismissed Tall Tree’s complaint, granting Munich Re’s motion for judgment on the pleadings. The court also held that Tall Tree failed to identify any new factual allegations warranting amendment of the complaint.

* Dan Millea is a partner at Zelle Hofmann Voelbel & Mason LLP. He has represented insurers and reinsurers in matters related to major property damage and business interruption claims, including litigation and arbitrations arising from the 9/11 terrorist attack and Hurricanes Katrina and Rita. Jennifer Geelan is an associate at the firm. They are co-authors of Questions and Answers About Builder’s Risk Policies and Causes and Clauses: The Interplay of Contract and Insurance Policy Provisions on Property Damage Claims Arising from Construction Projects.