In the
United States Court of Appeals
For the Seventh Circuit
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No. 04-3560
CONTINENTAL CASUALTY COMPANY and
CONTINENTAL INSURANCE COMPANY,
Plaintiffs-Appellees,
v.
NORTHWESTERN NATIONAL INSURANCE COMPANY,
Defendant-Appellant.
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Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03-C-1455—Robert W. Gettleman, Judge.
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ARGUED SEPTEMBER 15, 2005—DECIDED OCTOBER 25, 2005
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Before FLAUM, Chief Judge, and RIPPLE and KANNE,
Circuit Judges.
FLAUM, Chief Judge. Continental Casualty Company
(“CCC”) and Continental Insurance Company (“CIC”)
brought a declaratory judgment action against Northwest-
ern National Insurance Company (“NNIC”), seeking to
clarify a 1996 Commutation and Release Agreement
(“Agreement”). CCC and CIC are insurance companies.
NNIC is also an insurance company, which provides
reinsurance. NNIC’s predecessor, Bellefonte Insurance
2 No. 04-3560
Company (“Bellefonte”), entered into various reinsurance
contracts with CCC and CIC from the 1960s to the 1980s,
under which Bellefonte assumed the risks insured by CCC
and CIC. NNIC assumed responsibility for those contracts.
In 1996, CCC and NNIC negotiated to commute some of
these contracts. The parties disagree as to which reinsur-
ance contracts the 1996 Agreement commuted. CCC and
CIC maintain that the Agreement covered three specific
reinsurance contracts between CCC and NNIC, and those
three contracts only. NNIC argues, however, that the
Agreement also commuted all reinsurance contracts
between NNIC and CIC. Before the district court, CCC and
CIC moved for summary judgment and NNIC filed a cross
motion for summary judgment. The district court granted
CCC and CIC’s motion and denied NNIC’s cross motion.
NNIC appeals. For the following reasons, we now affirm.
I. Background
CCC and CIC are both owned by CNA Financial Corpora-
tion (“CNA”), an insurance holding company. During all
periods relevant to this litigation, CNA has directly owned
CCC. CNA purchased the Continental Corporation, which
directly owned CIC, on May 10, 1995. NNIC is an insurance
company that provides reinsurance contracts.
Under a reinsurance contract, an insurance company,
known as the “reinsurer,” sells insurance to another
insurance company, known as the “ceding company,”
“cedent,” or “reinsured,” covering some or all of the insured
risk for which the cedent is responsible. There are two types
of reinsurance contracts: “treaty reinsurance agreements,”
which cover an entire line or segment of the cedent com-
pany’s business over a specified period of time, and “facul-
tative reinsurance agreements,” which apply to a single
policy issued by the cedent and are negotiated on an
individual basis.
No. 04-3560 3
From the 1960s to the 1980s, Bellefonte and CCC entered
into various treaty reinsurance agreements and facultative
reinsurance agreements. During this period, Bellefonte and
CIC also entered into various facultative reinsurance
agreements. NNIC, as Bellefonte’s successor in interest,
assumed these reinsurance agreements.
In May 1996, CCC and NNIC agreed to commute certain
reinsurance agreements. Jack Diers, NNIC’s President and
CEO at the time of the transaction and NNIC’s signatory to
the Agreement, and Zina Cornelius, CNA’s Account Execu-
tive, negotiated the deal. Under the Agreement, NNIC paid
$6.1 million to CCC in exchange for releasing NNIC from
its obligations to CCC under certain reinsurance agree-
ments. The Agreement contains a choice of law clause,
providing that Illinois law will govern disputes arising out
of the Agreement.
The Agreement states in its first recital that “the Rein-
sured and Reinsurer are parties to the Treaty Reinsurance
Agreements listed in Schedule A.” The Agreement also
states, in the second recital, that “the Reinsured and the
Reinsurer now desire to fully and finally settle and com-
mute all their respective past, present, and future obliga-
tions and liabilities, known and unknown, under the
Reinsurance Agreements.” The Agreement defines the
term “Reinsured” as CCC and all of its affiliates. Because
CIC was affiliated with CCC at the time the Agreement was
made, the district court found, in an earlier proceeding that
is not at issue in this appeal, that CIC is bound by the
Agreement. Continental Cas. Co. v. Northwestern Nat’l Ins.
Co., No. 03 C 1455, 2003 WL 21801022 (N.D. Ill. Aug. 4,
2003).
The Agreement defines “Reinsurance Agreements” as
“Treaty Reinsurance Agreements listed in Schedule A.” The
first two pages of Schedule A are divided into two parts.
First, under the title “Through Direct Placement with
4 No. 04-3560
Intermediary,” a number of treaties are listed by number,
“program,” “layer,” and effective date. Second, under the
title “Through Facultatively Placed,” one entry is listed,
“0709 Bellefonte Reins.”
The central issue in this appeal is the meaning of the
term “0709 Bellefonte Reins.” The parties agree that this
term is ambiguous. CCC and CIC argued before the district
court that only three CCC facultative reinsurance agree-
ments were commuted by the Agreement, because only
these agreements were included within the category “0709
Bellefonte Reins.” NNIC argued, however, that the Agree-
ment commuted all facultative certificates issued by
Bellefonte to all CNA entities, including CCC and CIC.
The district court granted summary judgment in favor of
CCC and CIC. NNIC now appeals.
II. Discussion
We review the district court’s grant of summary judgment
de novo. See, e.g., Franklin v. City of Evanston, 384 F.3d
838, 843 (7th Cir. 2004). We “draw all reasonable inferences
from the evidence in the light most favorable to the
nonmoving party,” NNIC. Id. (quoting Williamson v. Ind.
Univ., 345 F.3d 459, 462 (7th Cir. 2003)) (internal quotation
marks omitted). “This standard applies when cross motions
for summary judgment are filed,” as they were in this case.
Id. (citing Metro. Life Ins. Co. v. Smith, 297 F.3d 558, 561
(7th Cir. 2002)). To succeed on their motion for summary
judgment, CCC and CIC “must show that there is no
genuine issue of material fact and that [they are] entitled
to judgment as a matter of law.” Id.; see also FED. R. CIV. P.
56(c). Once CCC and CIC have met this burden, NNIC must
show that there is “evidence on which the jury could
reasonably find for” NNIC. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 252 (1986). We are “‘not required to draw
every conceivable inference from the record,’ and ‘mere
No. 04-3560 5
speculation or conjecture’ will not defeat a summary
judgment motion.” McCoy v. Harrison, 341 F.3d 600, 604
(7th Cir. 2003) (quoting Gleason v. Mesirow Fin., Inc., 118
F.3d 1134, 1139 (7th Cir. 1997); and Estate of Phillips v.
City of Milwaukee, 123 F.3d 586, 591 (7th Cir. 1997)).
Under Illinois law, which controls here because of the
Agreement’s choice of law clause, it is the general rule that
“questions of contractual ambiguity [are given] to the trier
of fact, together with the evidence necessary to resolve
them.” Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139 F.
Supp. 2d 869, 891 (N.D. Ill. 2001). An exception to this
general rule is that “if a contract is ambiguous, its interpre-
tation is a question of law for the court as long as the
extrinsic evidence bearing on the interpretation is undis-
puted,” and summary judgment is therefore appropriate in
such cases. Baker v. America’s Mortgage Servicing, Inc., 58
F.3d 321, 326 (7th Cir. 1995). In sum, if a reasonable jury
could not find for NNIC even when all reasonable infer-
ences are drawn from the undisputed extrinsic evidence,
summary judgment is appropriate.
In the underlying proceeding, the district court considered
a variety of extrinsic evidence that the parties offered to
show the meaning of the ambiguous term “0709 Bellefonte
Reins.” First, the district court examined facsimiles ex-
changed by Cornelius and Diers during the negotiation of
the Agreement. These three facsimiles, dated October 2,
December 14, and December 29, 1995, detail the reinsur-
ance contracts to be commuted and were in “nearly the
identical format as the Commutation Agreement.” The
October 2 facsimile, which the district court determined to
be nearly identical to the December 14 and 29 facsimiles,
lists “outstanding receivables by claims for Bellefonte,
Universal Re., and Northwestern National Companies.” The
item “070 Bellefonte Reins.” (which the parties agree should
have read “0709 Bellefonte Reins.”) is listed under the
heading “Through Facultatively Placed.” The “Paid Losses”
6 No. 04-3560
column across from“070[9] Bellefonte Reins.” contains the
figure $22,783.35. The district court determined that “[t]his
value corresponds with the summation of three claims listed
on the next page for facultative claims issued under
Bellefonte: 1) Chanslor-Western in the amount of
$21,158.88; 2) the University of PGH in the amount of
$1,526.07; and 3) an unnamed insured in the amount of
$98.40.”
The only reasonable inference to draw from these three
facsimiles is that the parties intended for the notation
“0709 Bellefonte Reins.” to indicate the three contracts
listed above. Although these facsimiles do not prove un-
equivocally that NNIC knew that only these three faculta-
tive agreements were commuted, they negate NNIC’s
position that it was unaware completely of what agree-
ments were included in the category “0709 Bellefonte
Reins.”
Second, the district court considered the importance of an
Included But Not Reported (“IBNR”) figure of $7,850 that
was contained in one facsimile exchanged by Cornelius and
Diers during negotiations. An IBNR describes the liability
for further payments or losses that have already occurred
but have not yet been reported in the reinsurer’s records.
NNIC argued that the presence of an IBNR in the facsimile
indicated that the parties intended a global commutation of
all facultative insurance agreements issued by Bellefonte to
CNA companies, including CIC, because IBNRs are “ex-
tremely difficult to calculate for facultative contracts, and
would require a large pool of contracts.” However, only one
facsimile contained the IBNR figure and the final Agree-
ment does not include any IBNR for facultative certificates.
NNIC’s assertion that the $7,850 IBNR figure shows that
the parties intended the Agreement to commute the
approximately 2,200 facultative reinsurance contracts
between NNIC and CIC is speculation, which we need not
No. 04-3560 7
accept as true for purposes of summary judgment. See
McCoy, 341 F.3d at 604.
Third, the district court evaluated CCC and CIC’s argu-
ment that NNIC’s behavior following the execution of the
Agreement demonstrated that CIC agreements were not
intended as part of the commutation. Id. CCC and CIC
maintain that NNIC “did not follow its typical procedure for
commutation as if CIC reinsurance was included in the
Commutation Agreement.” When a reinsurance agreement
is commuted, NNIC enters a “C” indicator in its electronic
records next to claims on that agreement. CCC and CIC
point out that “as late as October 17, 2001,” there were
claims on CIC facultative certificates still in NNIC’s
computer system without the “C” indicator. NNIC argued
below that its failure to enter a “C” by commuted CIC
facultative agreements was an “inadvertent error.” We need
not accept this unsupported assertion. See McCoy, 341 F.3d
at 604.
Fourth, the district court examined NNIC’s later negotia-
tions with CNA for another commutation agreement. The
district court noted that in June 2000, CNA and NNIC
began negotiating a commutation of facultative agreements,
during which NNIC “expressed interest in commuting all
2,200 facultative certificates at issue with CNA, which
included certificates between Bellefonte and CIC.” The
district court concluded that NNIC “would not have consid-
ered entering into a commutation agreement for facultative
certificates that had already been commuted.” We agree
with the district court that the only reasonable interpreta-
tion of the June 2000 negotiations is that NNIC believed
that the 1996 Agreement had not commuted NNIC’s
facultative reinsurance agreements with CIC.
Fifth, NNIC argues that the deposition of Patricia Page,
a CNA employee, raises a reasonable inference on a mate-
rial issue and that the district court erred by failing to
8 No. 04-3560
consider that deposition. Page is responsible for collecting
ceded reinsurance. She stated in her deposition that a
“piece of cash” received by CNA under the Agreement was
applied to one CIC facultative reinsurance agreement.
NNIC argues that “[u]nder the terms of the Agreement,
CNA was required to apply the commutation payment only
to commuted contracts.” According to NNIC, CNA’s applica-
tion of a “piece of cash” to a CIC agreement demonstrates
that the parties intended the Agreement to commute all
CCC and CIC facultative reinsurance contracts.
NNIC fails to provide a reasonable basis for this infer-
ence. NNIC does not point to any language in the Agree-
ment showing that the commutation payment could be
applied only to commuted contracts. NNIC quotes a term of
the Agreement stating that NNIC’s $6.1 million payment
constitutes “full and final settlement of any and all amounts
claims heretofore or hereafter to be due by the Reinsurer to
the Reinsured, arising under or in respect to the Reinsur-
ance Agreements,” which are defined as “agreements listed
in Schedule A.” This language shows at most that the
Agreement discharged NNIC of liability for those reinsur-
ance contracts commuted by the Agreement. It does not
show that CCC was forbidden from applying the commuta-
tion payment to contracts that were not commuted or that
the parties understood the contract to forbid such an action.
Sixth, NNIC argues that the deposition testimony of
CNA’s Peter Beresford, which the district court does not
address in its opinion, supports its opposition to summary
judgment. Beresford, in response to the question “[w]ould
you understand that all facultative reinsurance placed
through the CCC pool with Bellefonte reinsurance was
commuted?”, answered, “Yes.” NNIC argues that this
answer shows that the parties intended the Agreement to
commute all CCC and CIC facultative reinsurance con-
tracts. We disagree. At most, this testimony establishes
that the Agreement commuted all CCC facultative reinsur-
No. 04-3560 9
ance agreements with Bellefonte—not that the Agreement
commuted all CIC facultative reinsurance agreements with
Bellefonte. NNIC’s inference to the contrary is not reason-
able based on Beresford’s deposition testimony.
Seventh, NNIC relies on a facsimile between the parties
on which Jack Diers, CCC’s signatory to the agreement, had
written “All assumed Bellefonte Re Fac per Zina C. 1/2/96”
under the language “Through Facultatively Placed” and
“0709 Bellefonte Reins.” The district court did not specifi-
cally discuss this piece of evidence. NNIC asserts that
Diers’ notation shows that Diers understood the Agreement
to commute both CCC and CIC facultative reinsurance
agreements. This assertion, however, is not supported by
Diers’ cryptic notation, especially because Diers was not
available for deposition.
After reviewing the extrinsic evidence offered by the
parties, we agree with the district court that the only
reasonable inference that can be drawn is that the parties
did not intend for the Agreement to cover any CIC faculta-
tive reinsurance contracts.
III. Conclusion
For the foregoing reasons, the district court’s opinion
granting CCC and CIC’s motion for summary judgment and
denying NNIC’s motion is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-25-05