Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 1 of 19

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-2018-RPM-MJW APARTMENT INVESTMENT AND MANAGEMENT COMPANY, a/k/a AIMCO, a Maryland corporation, v. Plaintiff,

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation; SECURITY INSURANCE COMPANY OF HARTFORD, a Connecticut corporation; FIRST CAPITAL AGENCY, INC., d/b/a FIRST CAPITAL GROUP, a New York corporation; NATIONAL PROGRAM SERVICES, INC., a New Jersey corporation; VITO B. GRUPPUSO, a New Jersey resident; and ROGER METZGER ASSOCIATES, a New York corporation, Defendants. NATIONAL UNION'S REPLY IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST AIMCO Defendant National Union Fire Insurance Co. of Pittsburgh, PA hereby replies in support of its motion for summary judgment as to AIMCO's claims as follows:

I. PRELIMINARY STATEMENT
Seeking to create the impression that there are genuine issues of material fact sufficient to defeat summary judgment on its Third, Fourth and Sixth Claims for Relief, AIMCO has filed a Response Brief that begins with a twenty-two page statement of so-called undisputed facts. But those "facts" are either hotly disputed or simply immaterial to the issues raised by National Union. Moreover, the most remarkable feature of AIMCO's Response Brief is its utter failure to address most of National Union's arguments.
{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 2 of 19

II. THE CCPA CLAIM SHOULD BE DISMISSED BECAUSE, AS A MATTER OF LAW, AIMCO CANNOT DEMONSTRATE A PUBLIC IMPACT. In its Summary Judgment Brief, National Union argued that AIMCO's Colorado Consumer Protection Act ("CCPA") claim cannot survive summary judgment because AIMCO has not presented facts sufficient to satisfy the 'public impact' element. In response, AIMCO appears to argue that the CCPA applies to insurance transactions generally, so therefore all insurance disputes ­ like AIMCO's claims in this case ­ are necessarily and inherently actionable under the CCPA. AIMCO is wrong.1 The CCPA requires that every claimant demonstrate a public impact. AIMCO has not done so here, and that failure is fatal to its CCPA claim. 1. AIMCO's Reliance on Showpiece Homes and Other Cases is Misplaced. It is well-settled that all persons bringing a CCPA claim must prove that the challenged practice significantly impacts the public as actual or potential consumers of the defendant's goods, services, or property. Hall v. Walter, 696 P.2d 224, 235 (Colo. 1988); see Martinez v. Lewis; 969 P.2d 213, 221 (Colo. 1998); Rhino Linings USA, Inc. v. Rocky Mountain Rhino Linings, Inc., 62 P.3d 142, 146-47 (Colo. 2003). "Particularly relevant" to the 'public impact' inquiry, see Anson v. Trujillo, 56 P.3d 114, 118 (Colo. App. 2003), are: 1) whether the number of consumers directly affected by the challenged practice is sufficient to have a public impact ("Numerosity"); 2) the parties' relative sophistication and bargaining power ("Sophistication"); and 3) whether the challenged practice previously affected other consumers or has the significant potential to do so in the future ("Past or Future Affect on Consumers"). Martinez; 969 P.2d at 222; Rhino Linings, 62 P.3d at 149; Coors v. Security Life Ins. Co., 91 P.3d 393, 399 (Colo. App.
National Union has never argued that the CCPA does not apply to insurance transactions. As demonstrated by its reliance upon Coors v. Security Life Ins. Co., infra, National Union has assumed throughout this case that the CCPA will apply to insurance disputes, but only so long as the plaintiff can prove the elements of such a claim.
1

2

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 3 of 19

2003), aff'd in part and reversed in part, ___ P.3d ___, Case no. 03SC0682 (2005 WL 1204647) (May 23, 2005).2 According to AIMCO, however, the Colorado Supreme Court's decision in Showpiece Homes v. Assurance Co. of America, 38 P.3d 47 (Colo. 2001), provides some sort of special dispensation that excuses plaintiffs from having to prove a public impact when they sue insurance companies. That is simply false. Showpiece Homes does not so hold, and AIMCO's argument has no merit. In Showpiece Homes, the defendant insurer failed to pay third-party claims on behalf of the plaintiff insureds. The insureds paid the claimant themselves and sued the insurer in federal court under the CCPA. The insurer moved to dismiss the CCPA claim on grounds that it was pre-empted by the Colorado Unfair Claims ­ Deceptive Practices Act (the "UCDPA"), a regulatory act providing no private right of action. Showpiece Homes, 38 P.3d at 50. This Court certified four issues to the Colorado Supreme Court, but the central issue was simply whether the UCDPA pre-empts the CCPA and bars claimants from bringing CCPA claims against insurance companies. The Colorado Supreme Court held that the UCDPA does not preempt CCPA claims against insurers and that the CCPA does indeed apply to the insurance industry. In short, the Showpiece Homes court simply held that an insured can bring a CCPA claim against his insurer under appropriate circumstances. In no way, however, did that court carve out an exception disposing of the public impact element in cases against insurers.

AIMCO argues that the Colorado Supreme Court's affirmance of the Court of Appeals's decision in Coors has no precedential value because it occurred by operation of law. National Union agrees that the supreme court's opinion has no precedential value, but the Court of Appeals decision remains the law of the State of Colorado. "Where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." West v. AT&T., 311 U.S. 223, 237 (1940). Obviously, the Colorado Supreme Court did not "decide otherwise" in its recent Coors decision.

2

3

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 4 of 19

Citing Decker v. Browning-Ferris Industries of Colorado, Inc., 931 P.2d 436 (Colo. 1997); Cary v. United of Omaha Life Ins. Co., 68 P.3d 462 (Colo. 2003); Huizar v. Allstate Ins. Co., 952 P.2d 342 (Colo. 1998); and Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo. 1984), AIMCO goes on to argue that there is something in the nature of the relationship between insurer and insured that obviates the need to prove a public impact. Those cases do not support AIMCO's position. But this Court need not analyze those cases in depth to find that AIMCO's premise is faulty; rather, the Court need only consider that: 1) none of them interprets ­ or even mentions ­ the CCPA;3 and 2) the Coors case (which was decided after Showpiece Homes and the other cases AIMCO cites) involved a CCPA claim relating to insurance coverage, and the Colorado Court of Appeals expressly required the plaintiff to prove a public impact." National Union concedes that CCPA claims can be brought against insurance companies generally, and it has never argued to the contrary. What National Union does not concede ­ and what Showpiece Homes does not hold ­ is that an insured seeking relief under the CCPA claim gets a free pass on proving each of the elements. As demonstrated below, AIMCO did not prove a "public impact," so summary judgment is proper. 2. AIMCO has Not Met its Burden with Respect to the "Numerosity," "Sophistication," and "Singular Transaction" Elements of a CCPA Claim. Having put all its eggs in the Showpiece Homes basket, AIMCO has ignored, and thus failed to meet its burden of producing evidence with respect to, the three components of the 'public impact' element.

AIMCO asks this court to disregard Rhino Linings in favor of these cases because, although it is the seminal CCPA case, Rhino Linings did not involve insurance. AIMCO'S SUMMARY JUDGMENT RESPONSE at 28-29. Thus, AIMCO would have this Court resolve the CCPA issue by ignoring the leading CCPA case and relying instead upon a series of cases that have no connection whatsoever with the CCPA.

3

4

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 5 of 19

A.

Numerosity.

National Union demonstrated in its Summary Judgment Brief that its allegedly improper conduct directly affected only between one and fifty-two consumers, and that that number is, as a matter of law, insufficient to satisfy the CCPA's numerosity requirement. AIMCO responds in passing by arguing that its nineteen hundred properties, three hundred sixty thousand units, and nearly one million residents satisfy the numerosity requirement. The number of properties or units that are affected is irrelevant because, by its very terms, the CCPA protects persons and not properties or units. See Colo. Rev. Stat. § 6-1-113.4 More important, the numerosity analysis depends upon the number of persons "directly affected" by the challenged behavior, see Rhino Linings, 62 P.3d at 149; so the number of people who are indirectly affected ­ such as AIMCO's tenants ­ is equally irrelevant. The '37 Policy was a property policy that covered only the owners / operators of the fifty-two real estate entities; it was not a rental policy that covered or otherwise directly benefited each (or any) of the tenants. The effect on the tenants is indirect at best, and the number of consumers directly affected remains no more than fifty-two. B. Sophistication.

In its Summary Judgment Brief, National Union demonstrated that AIMCO cannot satisfy the 'sophistication' prong of the CCPA's "public impact" requirement (i.e., that there was a disparity in sophistication and bargaining power between the parties). Nowhere in its thirtyfive page Response Brief did AIMCO address or even acknowledge the sophistication issue.

A "person" is defined for CCPA purposes as "an individual, corporation, business trust, estate, trust, partnership, unincorporated association, or two or more thereof having a joint or common interest, or any other legal or commercial entity." Colo. Rev. Stat. § 6-1-102(6).

4

5

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 6 of 19

On a motion for summary judgment, the moving party bears the initial burden of showing an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). "Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter." Concrete Works, Inc. v. City & County of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Celotex Corp., 477 U.S. at 325). The nonmoving party must designate "specific facts showing that there is a genuine issue for trial," Celotex Corp., 477 U.S. at 324; see Fed. R. Civ. P. 56(e), or he loses. AIMCO has not designated any facts showing that there is a genuine issue for trial with regard to the relative sophistication and bargaining power of the parties. AIMCO has failed to meet its burden on this issue, so summary judgment is proper. C. Singular Transaction.

Just as AIMCO ignores National Union's argument respecting the relative sophistication of the parties, so, too, has it ignored National Union's argument that the practice challenged by AIMCO did not previously impact other consumers and has no significant potential to do so in the future. AIMCO has conceded that point as well. III. SUMMARY JUDGMENT IS APPROPRIATE AS TO AIMCO'S NEGLIGENT MISREPRESENTATION CLAIM (FOURTH CLAIM FOR RELIEF). In its Summary Judgment Brief, National Union demonstrated that AIMCO's negligent misrepresentation claim fails for four reasons: First, it is predicated upon the mere non-

performance of a contractual obligation. Second, it runs afoul of the economic loss rule. Third, the alleged misrepresentations were not made for use in a business transaction with a third party as required by Colorado law. Fourth, it is based upon inadmissible parol evidence. If National

6

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 7 of 19

Union prevails on any of them, summary judgment is proper. AIMCO has responded to two of those reasons ­ the first and second ­ and apparently confessed the other two. Even as to the two grounds to which it did respond, AIMCO failed to meet its burden. 1. The Negligent Misrepresentation Claim is Predicated Upon the Mere NonPerformance of a Contractual Obligation. AIMCO argues that National Union made negligent misrepresentations by "deliberately misrepresent[ing] the nature, extent, and duration of AIMCO's insurance coverage." See

AIMCO SUMMARY JUDGMENT RESPONSE at 29. Such a misrepresentation, it argues, is actionable under Colorado tort law. AIMCO is wrong. A claim for negligent misrepresentation cannot be predicated upon the mere nonperformance of a promise or contractual obligation. State Bank of Wiley v. States, 723 P.2d 159, 160 (Colo. App. 1986). "To permit both claims to stand would allow the distinctions between tort law and contract law to become so blurred as to render ineffective the parties' attempts, through contract, to determine for themselves their respective duties and obligations in a relationship." Grynberg v. AgriTech, 985 P.2d 59, 62 (Colo. App. 1999) (citing Terrones v. Tapia, 967 P.2d 216 (Colo. App. 1998) (where parties entering into a contract are able to shape its terms and restrict the available remedies as they please, the resulting duty is contractual)). AIMCO responds that an insurer's alleged deliberate misrepresentations about the nature, extent, and duration of coverage does not constitute the mere nonperformance of a promise or contractual obligation. See AIMCO SUMMARY JUDGMENT RESPONSE at 29. But AIMCO is wrong; such a misrepresentation is the precise sort of "mere nonperformance of a promise or contractual obligation," State Bank of Wiley, 723 P.2d at 160, that is not actionable under the rubric of negligent misrepresentation. 7

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 8 of 19

AIMCO argues that the following facts support its negligent misrepresentation claim: * that "[w]ithin months of the policy inception, National Union began efforts to

change the deal," so it threatened to increase AIMCO's deductible and then charged additional premiums. * * that when National Union charged the additional premiums, it promised to that National Union did not provide the second-year quote and instead cancelled provide a second-year renewal quote, all the while intending not to provide that quote. the '37 Policy. AIMCO SUMMARY JUDGMENT RESPONSE at 29-30. Those, too, are nothing more than the "mere nonperformance of a promise or contractual obligation" that is not actionable by means of a negligent misrepresentation claim. 2. AIMCO's Negligent Misrepresentation Claim is Barred by the Economic Loss Rule. In its Summary Judgment Brief, National Union noted that the '37 Policy expressly and unambiguously covered every item AIMCO claims to be the subject of an allegedly negligent misrepresentation, so that claim is barred by the economic loss rule. That doctrine bars actions in tort that seek to assert a remedy flowing from contractual obligations. See Parr v. Triple L & J Corp., 107 P.3d 1104 (Colo. App. 2004). In essence, a party suffering only economic loss from the breach of a contractual duty may not assert a tort claim for that breach absent an independent duty of care. Town of Alma v. Azco Constr., Inc., 10 P.3d 1256, 1261-63 (Colo. 2000); Grynberg v. AgriTech, Inc., 10 P.3d 1267, 1269-70 (Colo. 2000). Since AIMCO's negligent misrepresentation claim is based on duties imposed by contract as demonstrated above, contract law provides the remedies for AIMCO's economic losses, BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 71-73 (Colo. 2004), and claims for negligent misrepresentation are barred. 8

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 9 of 19

Even where the law recognizes an independent duty such as AIMCO claims to exist here, "the existence of [that] duty is not determinative, because [courts] are directed FIRST to determine whether the contract requires conformance to a particular standard BEFORE turning to an independent duty analysis. If a duty is found in the contract . . . it is improper further to analyze the existence of an independent tort duty in determining whether an economic loss may be recovered." Parr v. Triple L&J Corp., 107 P.3d 1104, 1107 (Colo. App. 2004) (dismissing tort claim for interference with contract brought against president of company that breached contract; although president was not party to contract, and he had an independent duty not to interfere with the contract, claim against him was barred by economic loss rule). Despite what it may argue in its brief, AIMCO's negligent misrepresentation claim clearly flows from alleged misstatements "about the scope, terms, and duration of coverage being provided to AIMCO, and about the re-rating formula that was to be applied to determine the premium for the promised second year of coverage." FOURTH AMENDED COMPLAINT at ¶99. The duties National Union is alleged to have violated were imposed by the insurance contract, so AIMCO's negligent misrepresentation claim is barred by the economic loss rule. 3. The Alleged Misrepresentations Were Not Made for Use in a Business Transaction With a Third Party as Required by Colorado Law. Citing five cases from this federal district, National Union pointed out in its Summary Judgment Brief that a claim for negligent misrepresentation may arise only in a situation where the defendant has given information to the plaintiff for plaintiff's use in a business transaction with a third party. NATIONAL UNION SUMMARY JUDGMENT BRIEF at 14. AIMCO did not refute or even respond to that argument. It therefore failed to satisfy its burden to demonstrate a genuine

9

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 10 of 19

issue for trial on a material matter. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). For that reason, too, summary judgment is proper as to the negligent misrepresentation claim.

4.

The Negligent Misrepresentation Claim is Based on Inadmissible Parol Evidence. AIMCO has failed to present evidence in opposition to National Union's argument that

the negligent misrepresentation claim is based upon inadmissible parol evidence. That claim, too, is confessed, and summary judgment is proper.

VI. AIMCO CANNOT SUSTAIN ITS CLAIM FOR BREACH OF CONTRACT AND FIDUCIARY DUTY.
In its Third Claim for Relief, AIMCO asserts that Nat'l Union breached contractual and fiduciary duties owed to AIMCO by failing to refund unearned premiums from two separate insurance policies: 1) the short-lived policy AIMCO obtained from Hartford (before Nat'l Union became involved), and funded through AFCO; and 2) the Nat'l Union `37 Policy. National Union sought summary judgment on grounds that: 1) it had no contractual or other obligation to return money that AIMCO paid to Security of Hartford and/or the brokers prior to National Union's involvement; and 2) the $10 million additional premium that AIMCO paid to National Union was "fully earned" by National Union at the time AIMCO paid it. In this argument, AIMCO tries to ignore the fact that, as AIMCO itself concedes, National Union was a complete stranger to the "AIMCO Program" when AIMCO borrowed the AFCO funds to finance the Security of Hartford policy in March 2000. (The submission was first presented to National Union in April.) See AIMCO SUMMARY JUDGMENT RESPONSE at 10-11. Undeterred by those factual problems with its argument, AIMCO has responded by arguing that National Union is to blame for the alleged non-return of the AFCO money because the brokers 10
{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 11 of 19

who allegedly received that money later became National Union's agents. AIMCO also argues that its understanding of the purpose for the $10 million "fully earned" additional premium was different than National Union's, so it is entitled to the return of all of all of that money. As discussed below, the broker defendants were, as a matter of law, not National Union's agents, and the $10 million additional premium was fully earned by National Union. 1. The Broker Defendants Were Not National Union's Agents, so Their Receipt of the AFCO Money Before National Union Became Involved With AIMCO Cannot be Imputed to National Union. A. A broker may be deemed an insurer's agent only under limited circumstances. Under both Colorado and New York law, an insurance broker generally acts as the agent of the insured. See, e.g., Mitton v. Granite State Fire Ins. Co., 196 F.2d 988, 992 (10th Cir. 1952) (insurance broker is ordinarily an agent of the insured in obtaining insurance); Evvtex Co., Inc. v. Hartley Cooper Associates Ltd., 911 F.Supp. 732, 738 (S.D.N.Y. 1996) ("The courts in New York have long held that insurance brokers act as agents on behalf of an insured and not the insurer"); see generally 68 N.Y.Jur.2d Insurance § 380 (updated February 2005). However, the common law of both states, as codified, recognizes the existence of: a limited exception to the general rule that an agency relationship does not exist between a broker and insurer. A broker does owe an insurer a limited fiduciary obligation with respect to the handling of funds received from the insured. * * * This exception, however, relates only to the receipt and collection of funds imposed by § 2120. The narrowness of this exception is evident from the fact that both insurance brokers and agents owe a duty of care to their respective principles only to matters specifically entrusted to the broker or agent. 5

The common law is codified in Colorado at Colo. Rev. Stat. § 10-2-704(4), and under New York law at McKinney's Insurance Law § 2121(a).

5

11

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 12 of 19

Highlands Insurance Co. v. PRG Brokerage, Inc., Case no. 01 Civ. 2273 (GBD), slip op. at 5-6 (2004 WL 35439) (S.D.N.Y. Jan. 6, 2004); see also Central Surety & Insurance Corp. v. Marro, 71 N.Y.S.2d 815, 828 (N.Y.Sup. 1947) (ordinarily an insurance broker is "not in fact an agent of [the insurer] in a general sense," but merely "an agent of [the insurer], in law, to the extent provided for in Section 121 of the Insurance Law").6 The pertinent statutory provision in New York codifying the limited agency relationship between an insurer and a broker is McKinney's Insurance Law § 2121(a), which states, in pertinent part: Any insurer which delivers in this state to any insurance broker or any insured represented by such broker a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such contract at the time of its issuance or delivery or payment of any installment of such premiums or any additional premiums which becomes due or payable thereafter on such contract... The comparable provision codifying Colorado's common law, Colo. Rev. Stat. § 10-2-704(4), provides as follows: 7 Any insurer that delivers, in this state, a policy of insurance to an insurance producer representing the interest of the insured upon the application or request of such producer shall be deemed to have authorized such producer to receive on the insurer's behalf any premium due upon issuance or deliver of the policy; and the insurer shall be deemed to have so authorized the producer. On their face, these provisions make clear an insurer will not be deemed to have authorized a broker/insurance producer to receive premiums on its behalf (i.e., to have acted as its agent) unless and until: (1) the insurer delivers a policy of insurance to the broker/insurance producer; (2) the policy is in effect; and (3) a premium is actually due under that policy. See,
6 7

This is the predecessor statute to McKinney's Insurance Law § 2121(a).

AIMCO incorrectly cites to this provision as Colo. Rev. Stat. § 10-2-704(d)(4). See AIMCO's SUMMARY JUDGMENT RESPONSE at 33.

12

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 13 of 19

e.g., Anglo American Ins. Group, P.L.C. v. CalFed, Inc., 899 F.Supp. 1070 (S.D.N.Y. 1995) (under New York law, brokers who collect insurance premiums are deemed to be acting under the authority of the insurance company so long as the contract that they solicited is in effect). See, e.g., 18th Avenue Realty Corp. v. Aetna Casualty and Surety Company, 659 N.Y.S.2d 17 (N.Y.App. Div. 1997) (unearned premiums in broker's possession from prior cancelled policy do not constitute payment of premium to insurer who issues subsequent policy); Marro, supra (same conclusion reached under predecessor statute); Royal Indemnity Co. v. County of Niagara, 415 N.Y.S.2d 166 (N.Y.App. Div. 1979) (overpayments of premiums or payments of premiums prior to their due date do not constitute payment to the insurer under predecessor statute); Aetna Life Ins. Co. v. Harris & Reichard Fur Dyers, Inc., 270 N.Y.S. 543 (N.Y. City Ct. 1934) (court found, under pre-statute common law, that sums collected by broker in excess of amount owed did not constitute payment of any amount thereafter to become due to the insurer). The facts in 18th Avenue Realty are strikingly similar to those at bar. The underlying issue in 18th Avenue Realty was whether a policy for property insurance had been properly cancelled for failure to pay premiums so as to excuse the insurer from having to defend the insured in a property damage action. The insured argued, in part, that the policy should not be deemed cancelled because the insurance broker had in his possession sufficient funds, in the form of returned unearned premiums from a prior insurer, to pay the premiums owing to the subsequent insurer. The court concluded this argument had "no merit," stating: The broker had the returned premiums in question well before issuance of the subject policy and nothing in the documentary evidence submitted by the insured demonstrates that these premiums were payments in return for, or referable to, such policy. While this may have been the understanding between the broker, the insured and the insured's funding company, their private agreement cannot bind the insurer, who even after issuing the policy was a stranger to such prior 13

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 14 of 19

transactions between the insured and its fiduciaries with respect to funds they held on its behalf. 659 N.Y.S.2d at 18. In Marro, the court reached a similar conclusion. There, an insured argued that it should be given credit on a policy for unearned premiums owed to it under a prior cancelled policy and held by the broker. The appellate court disagreed, holding that, "refunds due [an insured] from other insurers upon the cancellation by them of policies previously issued . . . are not such payments by an assured as to constitute payment to the [subsequent] insurer, within the meaning and intent of Section 121 of the Insurance Law." 71 N.Y.S.2d at 827-28. It held that the funds in the broker's possession "were not received . . . from the [insured] for the use and benefit of [the subsequent insurer], as payment on account of the premiums due [the subsequent insurer]," but were instead "moneys received by [the broker] in an entirely different capacity, to wit, as the agent of [the insured]." Id. C. The Undisputed Facts, as Admitted by AIMCO, Support the Conclusion that the Broker Defendants were Not National Union's Agents AIMCO acknowledges that, "[i]n March 2000, AIMCO prepaid the full three-year premium to [defendant Security of Hartford ("SOH")]." AIMCO SUMMARY JUDGMENT RESPONSE at 9. It also notes that, "[w]ithin weeks of AIMCO's premium payment, SOH quit the Program, effective April 2000," and "[a]fter canceling coverage, SOH did not return AIMCO's unearned, prepaid premium." Id. at 10. After making the premium payment to SOH and after SOH notified AIMCO of its intent to "quit" the program, a submission was presented to National Union to provide coverage to AIMCO, and "National Union agreed to become the Program insurer for a three-year policy term effective April 28, 2000." Id. at 13.

14

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 15 of 19

In support of its argument that National Union should be charged with having "received" the unearned premiums from the Security of Hartford policy­ even though these premiums were paid prior to any involvement by National Union ­ AIMCO claims it "understood that the substantial unearned portion of its Program premium, which it prepaid in March 2000 to [Security of Hartford]'s agent Gruppuso, was applied for its benefit as to the National Union coverage." Id. The court in 18th Avenue Realty rejected this same argument, since the

subsequent insurer in that case ­ like National Union here ­ "was a stranger to such prior transactions." Because National Union was a stranger to the prior transactions, i.e., the issuance of, and payments of premiums under, the Security of Hartford policy, National Union cannot be charged with having received these unearned premiums 2. The $10 Million Additional Premium was Fully Earned by National Union When AIMCO Paid It. The final component of AIMCO's breach of contract/fiduciary duty claim relates to National Union's alleged refusal to return a $10 million additional premium that AIMCO paid it in October 2000. Summary judgment is proper as to that claim because, as detailed in National Union's Summary Judgment Brief, the premium was "fully earned" at the time Nat'l Union received it. Endorsement 3 to the '37 Policy (Exh. H to National Union's Brief) specifically designates that premium as "fully earned." AIMCO's risk manager, Baldwin, has acknowledged that fact. See Exh. V to National Union's Brief. With respect to this issue, AIMCO argues, in essence, that its uncommunicated understanding of the meaning of the phrase "fully earned" differs from National Union's, so summary judgment is improper. See AIMCO SUMMARY JUDGMENT RESPONSE at 19-20, 34.

AIMCO's uncommunicated understanding of the meaning of the agreement, however, is 15

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 16 of 19

irrelevant to this inquiry. See, e.g., City and County of Denver v. Adolph Coors Co., 813 F.Supp. 1476, 1480 (D. Colo. 1993). Based on the plain language of the `37 policy, including

Endorsement 3, Nat'l Union had no contractual or fiduciary obligation to return what the parties agreed was clearly on its face a "fully earned" (i.e., nonrefundable) premium. See, e.g., Expert Report of J. Launie (Exh. W to National Union's Brief) at pp. 6-7. Summary judgment should be entered in Nat'l Union's favor with respect to these funds.

VII. CONCLUSION
For the foregoing reasons, Nat'l Union respectfully requests that this Honorable Court enter summary judgment in its favor as to AIMCO's Third, Fourth, and Sixth claims for relief. Nat'l Union seeks such other relief as the Court deems proper.

16

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 17 of 19

DATED: June 21, 2005. Respectfully submitted, s/ Barry A. Schwartz Barry A. Schwartz, #17981 Jeffrey A. Chase, #05203 JACOBS CHASE FRICK KLEINKOPF & KELLEY LLC 1050 17th Street, Suite 1500 Denver, CO 80265 Telephone: 303-6854800 Fax: 303-685-4869 E-mail: [email protected] [email protected] John Martin, #28736 OSTER & MARTIN 717 Seventeenth Street, Ste 1475 Denver, CO 80202 Telephone: 303-382-1200 Fax: 303-382-1202 E-mail: [email protected] ATTORNEYS FOR DEFENDANT NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA

17

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 18 of 19

CERTIFICATE OF SERVICE I hereby certify that on June 21, 2005, I electronically filed the foregoing NATIONAL UNION'S REPLY IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST AIMCO with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail address:
Thomas L. Roberts Laura Schwartz ROBERTS LEVIN & PATTERSON, P.C. 1660 Wynkoop, 8th Floor Denver, CO 80202 303-575-9390 303-575-9385 (fax) [email protected] Karma Giulianelli Lester Houtz John P. Mitzner Allman & Mitzner LLC 535 16th Street, Suite 717 Denver, CO 80202 303-295-7900 303-393-3130 (fax) [email protected] John Trigg Julie Walker Melissa Collins WHEELER TRIGG & KENNEDY, P.C. 1801 California Street, Suite 3600 Denver, CO 80202 303-292-2525 303-294-1879 (fax) [email protected] [email protected] James Miletich MCCONNELL SIDERIUS FLEISCHNER HOUGHTALING & CRAGMILE 2401 15th Street, Suite 300 Denver, CO 80202 303-480-0400 303-458-9520 (fax) [email protected]

1899 Wynkoop, 8th Floor Denver, CO 80202 303-592-3100 303-592-3140 (fax) [email protected] [email protected]

BARTLIT BECK HERMAN PALENCHAR & SCOTT

Paul Collins Rob Zavaglia TREECE ALFREY MUSAT & BOSWORTH, 999 18th Street, Suite 1600 Denver, CO 80202 303-292-2700 303-295-0414 (fax) [email protected] [email protected]

18

{00174669.DOC}

Case 1:01-cv-02018-RPM-MJW

Document 597

Filed 06/21/2005

Page 19 of 19

And I hereby certify that I have mailed or served the document or paper to the following participants as indicated by the non-participant's name:
Charles Tuffley Rozana Widlicka GROTEFELD & DENENBERG, LLC 30800 Telegraph Road, Suite 3858 Bingham Farms, MI 48025 248-727-7100 248-593-5808 (fax) [email protected] John Wolak GIBBONS DEL DEO DOLAN GRIFFINGER & VECCHIONE, PC One Riverfront Plaza Newark, NJ 07102-5497 973-596-4500 973-639-6276 (fax) [email protected] William Jeffress, Jr. Joe Caldwell Nick Brady BAKER BOTTS, LLP The Warner 1299 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2400 202-639-7700 202-639-7832 (fax) [email protected] Jeffrey Hall Elizabeth Thompson BARTLIT BECK HERMAN PALENCHAR & SCOTT 54 West Hubbard St., Suite 300 Chicago, IL 60610 [email protected] [email protected] 312-494-4400 312-494-4440 (fax) Leonard Rose Jed Reeg LATHROP & GAGE 2345 Grand Blvd., Suite 2800 Kansas City, MO 64108 816-292-2000 816-292-2001 (fax) [email protected] Jeffrey W. Lorell Marc S. Singer Saiber Schlesinger Satz & Goldstein, LLC One Gateway Center, 13th Floor Newark, NJ 07102-5311 973-622-3333 973-622-3349 (fax) [email protected] [email protected]

s/ Barry A. Schwartz Barry A. Schwartz, #17981 Jeffrey A. Chase, #05203 JACOBS CHASE FRICK KLEINKOPF & KELLEY LLC 1050 17th Street, Suite 1500 Denver, CO 80265 Telephone: 303-6854800 Fax: 303-685-4869 E-mail: [email protected] [email protected]

19

{00174669.DOC}