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Allendale Mutual Insurance Company v. Excess Insurance Co. Limited

 United States District Court for the Southern District of New York
992 F. Supp. 278 (1998)


Facts

Allendale Mutual Insurance Company (Allendale) (plaintiff) is an insurance company. Excess Insurance Co. Limited and other reinsurers (defendants) are reinsurers. An Allendale subsidiary issued an insurance policy for a warehouse owned by Zenith Data Systems France (ZDSF) and Zenith Data Service Europe (ZDSE) to ZDSF and ZDSE for $48 million. Allendale sought reinsurance for all but $2.5 million of this policy. The defendants entered into a reinsurance agreement covering January 1, 1991–January 1, 1992 by initialing a slip. The slip indicated that the warehouse did not have sprinklers. The expiration of this first agreement was changed to June 1, 1991. The defendants added a handwritten note stating that the agreement was subject to recommendations. The warehouse was surveyed by an engineer. The engineer produced a report containing six recommendations, including that the warehouse should be provided with automatic-sprinkler protection according to Allendale’s subsidiary’s requirements. The defendants did not request a copy of this report, and Allendale did not provide the defendants with a copy of this report. ZDSF and ZDSE noted that they would not make most of the recommended changes, including installing sprinklers. Allendale and the defendants executed a new agreement on June 1, 1991. In this agreement, the non-sprinkler disclosure was included, but the clause stating that the agreement was subject to recommendations was not. Allendale did not include a copy of the survey report. The warehouse was subsequently destroyed in a fire. The defendants attempted to rescind the reinsurance agreement because, they claimed, their performance was excused by Allendale’s failure to disclose the unresolved engineer’s report recommendations. Allendale sued the defendants.

Rule of Law

Issue

Holding and Reasoning (Scheindlin, J.)

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