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Granite Reinsurance Co. v. Acceptance Ins. Co.: BANKRUPTCY | INSURANCE - reinstatement contract had consideration, enforceable for whole premium; no frustration of purposeUnited States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
In re: *
Acceptance Insurance Companies Inc., *
Granite Reinsurance Company Ltd., *
Acceptance Insurance Companies, Inc., *
* Appeals from the United States
Granite Reinsurance Company Ltd., * Bankruptcy Court for the
* District of Nebraska
Acceptance Insurance Company, a *
Nebraska Corporation, *
Acceptance Insurance Companies, Inc., *
Granite Reinsurance Company Ltd., *
Submitted: February 13, 2008
Filed: March 12, 2008
Before KRESSEL, Chief Judge, SCHERMER and VENTERS, Bankruptcy Judges.
KRESSEL, Chief Judge.
The appeals and cross-appeals in these cases involve a reinsurance contract
between several companies in the crop insurance business and an off-shore
reinsurance company. We affirm the bankruptcy court’s judgment that the debtor’s
subsidiaries were parties to the reinsurance contract and that the debtor was not
entitled to the return of million in premiums that it had paid. We reverse the
bankruptcy court’s judgment that the reinsurance company was not entitled to receive
the balance of its million premium.
The debtor, Acceptance Insurance Companies, Inc., is a Delaware corporation
with its principal place of business in Iowa. It is the parent company of Acceptance
Insurance Company, a Nebraska corporation whose principal place of business is in
Iowa, and of American Growers Insurance Company, a Nebraska corporation. The
debtor is an insurance holding company that is not a licensed insurer and does not
issue insurance policies. Acceptance is primarily a property and casualty insurance
company that sometimes issues crop insurance. American Growers is exclusively a
crop insurance company. Granite Reinsurance Company, Ltd. is a Barbados
corporation with its principal place of business in Bermuda. IGF Insurance Company
is a crop insurance company whose parent company is Goran Capital. Alan Symons
was or is an executive of Granite Re, IGF Insurance Company, and Goran Capital.
In 1999 and 2000, IGF sustained major losses due to a poor growing season in
California. Because of these losses, the Federal Crop Insurance Corporation advised
IGF that unless it put to million into its crop insurance business, the FCIC
would not allow IGF to continue to write crop insurance in 2001. Therefore, IGF
made plans to sell its crop insurance business to the debtor.
On May 23, 2001, the debtor, Acceptance, American Growers, and American
Agrisurance, Inc., entered into an asset purchase agreement with Goran Capital Inc.,
Symons International Group, Inc., IGF Holdings, Inc., and IGF Insurance Company.
The agreement was signed by John Martin on behalf of the debtor and Symons on
behalf of Goran Capital, Symons International Group, Inc., IGF Holdings, Inc., and
IGF Insurance Company. The agreement stated that it was “entered into by and
among ACCEPTANCE INSURANCE COMPANIES, INC. . . . for itself and on
behalf of ACCEPTANCE INSURANCE COMPANY, . . . AMERICAN GROWERS
INSURANCE COMPANY, . . . and AMERICAN AGRISURANCE INC.” It also
stated that it was a valid and binding agreement which was enforceable against the
debtor, Acceptance, American Growers, and American Agrisurance.
1MPCI stands for multi-peril crop insurance, which insures against weather-related crop
losses and other unavoidable perils.
2The actual text of the contract reads, “[t]his Contract shall become effective as of July 1,
2000 and shall remain in full force and effect with respect to all Covered Business risks in force
or attaching from that date through June 30, 2005.”
The asset purchase agreement anticipated the execution of several ancillary
agreements. One of the ancillary agreements was the MPCI1 Stop Loss Reinsurance
Contract. The purpose of the reinsurance contract was to reinsure the debtor’s
subsidiaries’ multi-peril crop insurance policies in order to gain the FCIC’s approval
for the transaction. Of the debtor’s subsidiaries, America Growers was primarily
responsible for MPCI policies, although Acceptance wrote MPCI policies in states in
which America Growers was not licensed to do business. The preamble of the
reinsurance contract provided that:
In consideration of the mutual covenants hereinafter contained and
subject to all the terms and conditions herinafter set forth, GRANITE
REINSURANCE COMPANY, LTD, do [sic] hereby indemnify, as
herein provided, ACCEPTANCE INSURANCE COMPANIES INC.
Wherever the word “Company” is used in this Contract, such term shall
be held to include any and/or all of the subsidiary companies which are
or may hereafter come under the management of the Company, provided
that notice be given to the Reinsurer of any such subsidiary companies
which may hereafter come under the management of the Company as
soon as practicable.
The contract term ran from July 1, 2000 to June 30, 2005.2 Under the
reinsurance contract, the debtor would pay million over the five-year term of the
contract with at least million due at signing, nothing due the next year, and at least
million due each year for the remaining three years. The text of the contract which
refers to the premium states: “The Company [the debtor and its subsidiaries] will pay
the Reinsurer [Granite Re] a minimum and deposit premium of ,000,000 at the
3Crop years run from July to July. For instance crop year 2001 runs from July 1, 2000 to
July 1, 2001.
signing of this treaty for the crop year3 2001 and 2002 and shall pay a minimum
deposit premium of ,000,000 on January 1, 2003, a minimum deposit of ,000,000
on January 1, 2004, and a minimum deposit of ,000,000 on January 1, 2005.”
In return for its payment, Granite Re reinsured the debtor’s subsidiaries losses
on their MPCI policies at the 140%-150% loss level, up to Million, and provided
an additional Million in legacy coverage for any past claims. The contract defined
Granite Re’s obligation: “[Granite Re] shall be liable for 100% of the subject ultimate
net loss in excess of. . .140% but not greater than 150% of the Company’s subject net
retained premium income for each crop year.” The term “subject ultimate net loss”
was defined as the “subject net retained premium on business the subject of this
Contract, classified by the Company as MPCI.” The contract separately defined the
term “subject net retained premium income” as “the net retained premium on Covered
Business the subject of this Contract, classified by the Company as MPCI.”
On May 29, 2001, Alan Symons, the President and Chief Executive Officer of
Goran and the person who negotiated the reinsurance contract between the debtor and
Granite Re, sent a letter to the Indiana Department of Insurance which stated “[Granite
Re] will reinsure million of risk for MPIC layer 140% to 150% for five years. .
. .[Granite Re] will be paid ,000,000 per year for the duration of the risk. [Five year
maximum].” On June 4, 2001, Acceptance ratified the asset purchase agreement and
the ancillary agreements.
In June of 2001 the debtor paid Granite Re million of the million
reinsurance premium. Due to significant financial losses, on December 20, 2002,
American Growers was placed in statutory rehabilitation. On February 28, 2005, it
was placed in statutory liquidation. American Growers ceased issuing insurance
policies upon the entry of the order for supervision. The Nebraska Department of
4Case number 05-80059.
5Adversary proceeding number 06-08015.
6Adversary proceeding number 06-8115.
Insurance also placed Acceptance under supervision on December 20, 2002, but it is
not currently in receivership. Acceptance stopped writing insurance in the fourth
quarter of 2001, except for a few small policies which were issued in 2002. Because
Acceptance and American Growers did not write significant insurance business after
2001, and therefore had minimal risk of insurance losses, the debtor did not pay
Granite Re the remaining million premium on the reinsurance contract.
On January 7, 2005, the debtor filed its chapter 11 petition in the District of
Nebraska.4 Granite Re filed a proof of claim on May 6, 2005 for approximately .9
million, which was the balance of the premium due under the reinsurance contract plus
interest. The debtor objected on the basis that the reinsurance premium was due on
an annual basis for coverage received in that year. Because it could no longer issue
crop insurance policies, the debtor contended that it no longer needed reinsurance
coverage and was not obligated to continue making payments under the contract.
On September 22, 2005, Granite Re filed a complaint against Acceptance in
the U.S. District Court for the District of Nebraska which sought million in unpaid
reinsurance premiums plus interest. Acceptance contended that it was not a party to
the reinsurance contract, and was thus not liable for the premium. The parties
stipulated to removal and on January 23, 2006 the district court referred this
proceeding to the bankruptcy court.5 Granite Re, Acceptance and the debtor jointly
made a motion to consolidate the claim objection and the lawsuit. The bankruptcy
court granted the motion.
On October 26, 2006, the debtor brought a complaint against Granite Re that
sought return of the million it had paid to Granite Re for reinsurance coverage.6
The complaint alleged that the reinsurance contract lacked consideration because the
definition of “subject ultimate net loss” as the “subject net retained premium” made
it impossible that the subject ultimate net loss could equal more than 100% of the
subject net retained premium because the two terms were equivalent. The parties
moved to consolidate this proceeding with the other two. The bankruptcy court
granted the motion and consolidated all three proceedings on December 5, 2006.
On December 31, 2006, the debtor and Acceptance filed a motion for summary
judgment. Granite Re resisted the motion. On February 15, 2007, the bankruptcy
court denied the motion.
The bankruptcy court held a trial on February 27-28, 2007. On May 9, 2007,
the bankruptcy court held that the debtor, Acceptance, American Growers and
Granite Re were all parties to the reinsurance contract. The court further held that
Acceptance and the debtor were not responsible for the million balance owed on
the reinsurance contract because the premium was due on an annual basis and only
in the years in which the debtor faced potential losses in its MPCI insurance business.
Because the debtor and its subsidiaries did not require coverage beyond the first two
years of the contract, they asserted that they were under no obligation to continue
making payments on the contract. Therefore, the bankruptcy court entered judgment
in favor of Acceptance in adversary proceeding number 06-08015. Granite Re
appealed and Acceptance cross-appealed this judgment. On the basis of these same
findings, the bankruptcy court sustained the debtor’s objection to Granite Re’s claim
in bankruptcy case number 05-80059. Granite Re appealed and the debtor crossappealed
this judgment. Finally, the court found that Granite Re was entitled to
retain the initial million premium payment because the reinsurance contract did
not lack consideration. The court entered judgment for Granite Re in adversary
proceeding number 06-08115 and dismissed the debtor’s complaint. The debtor
appealed from this judgment.
Standard of Review
We review the bankruptcy court’s factual findings for clear error and its
conclusions of law de novo. Debold v. Case, 452 F.3d 756, 761 (8th Cir. 2006); In
Re Vondall, 364 B.R. 668, 670 (B.A.P. 8th Cir. 2007). “To the extent a court's
construction of a contract relies on the contract terms and not on extrinsic evidence,
its interpretation is a conclusion of law over which we have plenary review.” Frank
B. Hall & Co. v. Alexander & Alexander, Inc., 974 F.2d 1020, 1023 (8th Cir. 1992).
To the extent that the meaning of the contract depends on disputed extrinsic evidence,
it constitutes a finding of fact, which is subject to review on appeal under the clearly
erroneous standard. Towers Hotel Corp. v. Rimmel, 871 F.2d 766, 771-72 (8th Cir.
1989). The determination of whether a contract is ambiguous is a question of law
that we review de novo. Papio Keno Club, Inc. v. City of Papillion (In re Papio Keno
Club, Inc.), 262 F.3d 725, 731 (8th Cir. 2001). The asset purchase agreement
stipulates that Iowa law applies to any dispute arising out of it or the ancillary
agreements, and the parties do not dispute that Iowa law applies.
The Reinsurance Contract Is Enforceable Against the Debtor.
The duty of a court when interpreting a contract is to give effect to the
intention of the parties. Iowa National Mutual Ins. Co. v. Fidelity and Casualty Co.
of New York, 128 N.W. 2d 891, 893 (Iowa 1964). To do this, the court should
construe the contract as a whole and give the unambiguous language its plain
meaning. Id. No part should be assumed to be superfluous. The interpretation that
gives a reasonable, lawful, and effective meaning to all terms is preferred to an
interpretation that leaves a portion of the agreement of no effect. Smith Barney, Inc.
v. Keeney, 570 N.W.2d 75, 78 (Iowa 1997).
Ambiguity may be said to appear when, after application of certain rules of
interpretation to the face of the instrument, a genuine uncertainty results as to which
one of two or more meanings is the proper one. Iowa Fuel & Minerals, Inc. v. Iowa
State Board of Regents, 471 N.W.2d 859, 862-63 (Iowa 1991). If the language is
found to be ambiguous, extrinsic evidence is admissible as an aid of interpretation of
the contract. Dickson v. Hubble Realty Co., 567 N.W.2d 427, 430 (Iowa 1997).
When we look to the contract in its entirety, we agree with the bankruptcy
court that it is clear that the parties intended the contract to provide legacy
reinsurance coverage and coverage at the 140% to 150% loss level. Neither party
intended the contract provide no coverage. Although the definition of “subject
ultimate net loss” as the “subject net retained premium on business the subject of this
Contract” is confusing, we conclude that this is the result of careless drafting rather
than an intent by the parties to create a meaningless contract. The parties most likely
meant to define “subject ultimate net loss” as “the ultimate net loss on business the
subject of this Contract, classified by the Company as MPCI” because “subject net
retained premium income” was defined as “the net retained premium on Covered
Business the subject of this Contract, classified by the Company as MPCI.” We
doubt that the parties intended “subject ultimate net loss” and “subject net retained
premium” to have virtually identical definitions, especially because the plain meaning
of the words “net loss” and “net retained” are antonymic. The best interpretation of
the contract is one that reflects the obvious intentions of the parties and gives a
reasonable, lawful meaning to the entire contract. Because the contract read in its
entirety indicates that the parties intended the reinsurance contract to have
consideration, and an interpretation to that effect gives the contract a more reasonable
meaning, we conclude that the contract did not lack consideration.
Although we conclude that the contract on its face is unambiguous, and
therefore there is no need to consider extrinsic evidence, we think that the extrinsic
evidence reveals that the parties intended to provide consideration for the contract.
Representatives from both the debtor and Granite Re testified that they intended the
contract to provide reinsurance coverage, and the conduct of both parties is consistent
with the belief that the contract provided coverage. In addition, the debtor could not
have intended the contract to lack enforceability or it would have been in violation
of federal crop insurance regulations which require reinsurance coverage. Thus, we
can find no evidence that the parties intended the contract to be void for lack of
consideration and we affirm the bankruptcy court’s decision on this issue.
The Reinsurance Contract Is Enforceable Against Acceptance.
We also agree with the bankruptcy court that Acceptance is a party to the
MPCI reinsurance contract and is liable for its premium. Under the contract, the term
“Company” refers to the debtor and to all of the debtor’s subsidiaries–present and
future. At the time the reinsurance contract was entered into, Acceptance was one of
the debtor’s subsidiaries. The contract does not limit the term subsidiaries to only
those companies which provide multi-peril crop insurance, and even if it did,
Acceptance wrote some multi-peril crop insurance business and retained some risk
from its crop business. This would make Acceptance a subsidiary under the contract
regardless of whether the contract was limited to only those subsidiaries which wrote
multi-peril crop insurance. Thus, Acceptance is included in the definition of
The contract provides that “[t]he Company will pay the Reinsurer the payment
due under the reinsurance contract.” Because “Company” encompassed Acceptance,
the reinsurance contract obligated it to pay the insurance premium to Granite Re.
Although Acceptance did not separately sign the reinsurance contract, its parent did
sign on its behalf and Acceptance ratified the signature of the debtor’s representative
on the asset purchase agreement and the ancillary agreements, which included the
reinsurance contract. Thus, we conclude that Acceptance is a party to the MPCI
Granite Re is Entitled to the Entire Million Reinsurance Premium.
Although insurance policies must be construed as a whole and their words
given their ordinary, not technical, meaning to achieve a practical and fair
interpretation, where the meaning of terms in an insurance policy is susceptible to
two interpretations, the one favoring the insured is adopted. North Star Mut. Ins. Co.
v. Holty, 402 N.W.2d 452, 454 (Iowa 1987). However, the mere fact that parties
disagree on the meaning of terms does not establish ambiguity. Id. There must be
real ambiguity in the terms of the policy. “A strained or unreasonable construction
of the language used, where there is no real ambiguity, should not be indulged in.
And it is well settled that if there is no ambiguity in the contract there is no right or
duty on the part of the court to write a new contract of insurance between the parties.”
Stover v. State Farm Mut. Ins. Co., 189 N.W.2d 588, 591 (Iowa 1971).
The MPCI reinsurance contract is not ambiguous with respect to the contract’s
term and premium. The contract defines its term: “[T]his Contract shall become
effective as of July 1, 2000 and shall remain in full force and effect with respect to
all Covered Business risks in force or attaching from that date through June 30,
2005.” There is nothing ambiguous about this provision. There is no contract
provision which provides for an early termination, and no indication that either party
can terminate the contract prior to June 30, 2005. Therefore, we are left with a firm
conviction that the contract term begins on July 1, 2000 and ends on June 30, 2005
with no possibility for early termination by either party.
In addition, the contract unambiguously states that its premium is million
payable over five years. The debtor and Acceptance have the option of paying the
contract premium in installments, but are not required to do so. The contract does not
indicate that the installment payments are yearly renewal premiums or that the debtor
may opt out of the contract to avoid paying any of the installments.
Finally, the contract provided a maximum of million in coverage plus
million in indemnity coverage for five years regardless of the year in which the losses
occurred. The fact that the contract provided a cumulative million in coverage
rather than provide million coverage per year indicates that the parties intended
the contract to have a fixed five-year term rather than a renewable one-year term. All
of these provisions unambiguously indicate that Granite Re and the debtor intended
the contract to provide million of coverage for 5 years, plus legacy coverage, for
a million premium.
Again, there is no need to consider extrinsic evidence in order to determine the
meaning of the contract because the contract is unambiguous on its face. However,
the extrinsic evidence likewise indicates that the parties intended to provide coverage
for the term of 5 years at a cost of million with no exceptions for early
termination or a loss of business. The debtor and Acceptance base their argument
that the parties intended the contract to provide coverage renewable on a yearly basis
on Alan Symons’s letter to the Indiana Board of Insurance. The letter states that
“[Granite Re] will be paid ,000,000 per year for the duration of the risk. [Five year
maximum].” However, Symons also states in the same letter that “[Granite Re] will
reinsure million of risk for MPIC layer 140% to 150% for five years.” When the
letter is read in its entirety, it confirms that the parties intended to create a five-year
contract with a million premium, with a million minimum payment due per
year. Thus, we conclude that the bankruptcy court’s consideration of extrinsic
evidence as to whether the contract premium was due on an annual basis was in error
because the contract contains no ambiguity for which extrinsic evidence is needed to
resolve, and in any case, its interpretation of that extrinsic evidence was clearly
The Bankruptcy Court’s Denial of Summary Judgment Is Not Appealable
After Trial on the Merits.
“[T]he denial of summary judgment is interlocutory in nature and not
appealable after a full trial on the merits; judgment after a full trial on the merits
supersedes earlier summary judgment proceedings.” Bakker v. McKinnon, 152 F.3d
1007, 1010 (8th Cir. 1998).
The debtor and Acceptance ask us to review the bankruptcy court’s denial of
their summary judgment motion. We cannot review the bankruptcy court’s decision
on summary judgment with respect to those issues which it decided after trial on the
merits because the judgment after trial supercedes the denial of summary judgment.
However, as part of their appeal from the final judgment we can review the issue of
frustration of purpose as additional grounds for reversal argued by the debtor and
The Purpose of the Contract Was Not Frustrated.
The Restatement (Second) of the Law of Contracts § 265 describes frustration
of purpose as:
Where, after a contract is made, a party’s principal purpose is
substantially frustrated without his fault by the occurrence of an event,
the non-occurrence of which was a basic assumption on which the
contract was made, his remaining duties to render performance are
discharged, unless the language or the circumstances indicate the
Iowa law is in accord with the Restatement and requires three circumstances to be
met prior to discharge due to supervening frustration: 1) the purpose that is frustrated
must have been a principal purpose of that party in making the contract; 2) the
frustration must be substantial; and 3) the non-occurrence of the frustrating event
must have been a basic assumption on which the contract was made. Mel Frank Tool
& Supply, Inc. v. Di-Chem Co., 580 N.W.2d 802, 806-07 (Iowa 1998).
The debtor and Acceptance claim that one of two events frustrated the purpose
of the contract: 1) the losses sustained by American Growers in its multi-peril crop
insurance business; or 2) the Nebraska Department of Insurance’s supervision of
American Growers. Neither event frustrated the purpose of the contract. First,
American Growers’ losses did not frustrate the purpose of the contract because the
debtor anticipated that it might sustain crop insurance losses. The anticipation of
these losses compelled the debtor to reinsure its potential losses with Granite Re in
the MPCI reinsurance contract. The debtor cannot now claim that the occurrence of
substantial crop losses frustrated the purpose of the contract because this is precisely
the reason the debtor entered into the contract with Granite Re. Because the
reinsurance contract anticipated potential crop losses, its purpose cannot be frustrated
by the occurrence of these losses.
Second, the purpose of the contract is not frustrated because of the Nebraska
Department of Insurance’s supervision of American Growers. The losses American
Growers experienced in its multi-peril crop insurance business caused the
Department of Insurance to place American Growers under supervision due to
inadequate capital levels. American Growers could have avoided being placed in
supervision if it had maintained adequate levels of capital, but it failed to do so. The
parties to the reinsurance contract should have been aware that failure to abide by the
insurance regulations of Nebraska would induce the Department of Insurance to take
those actions which Nebraska law allows, including entry into supervision and
liquidation. This is a reasonably foreseeable event which the contract should have
anticipated and is the fault of the insured party, American Growers, for maintaining
inadequate capital. Thus, it is not grounds to void the reinsurance contract due to
frustration of purpose.
1. We reverse the disallowance of Granite Re’s claim in case number 05-
2. We affirm the bankruptcy court’s judgment that dismissed the debtor’s
complaint against Granite Re in adversary proceeding number 06-8115.
3. We affirm the bankruptcy court’s judgment in favor of Acceptance and
against Granite Re in adversary proceeding number 06-08015 to the extent it found
Acceptance liable for the insurance premium but reverse the judgment to the extent
it found that liability to be zero.
4. We dismiss the debtor’s and Acceptance’s appeal from the bankruptcy
court’s denial of summary judgment for lack of jurisdiction.
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