Citations
- 764 F. Supp. 2d 274
Full opinion text
MEMORANDUM AND ORDER
GERTNER, District Judge.
TABLE OF CONTENTS
I. INTRODUCTION.........................................................280
II. FINDINGS OF FACT.....................................................282
A. The Hanover Compcare 2000 Program...................................282
B. Background of the Reliance Compcare 2000 Program ......................283
C. Disavowal of the Trenwick-IRC Re Contract..............................284
1. Attempts to Collect IRC Re’s Alleged Outstanding Balances Relative to the Reliance Compcare 2000 Program............................284
2. IRC Re’s and Swasey’s Disavowal of the Contract......................285
D. The Evidence of a Contract Is Overwhelming.............................286
1. Admissions and Testimony of the Participants.........................286
2. Swasey’s Conduct..................................................287
3. Trial Exhibits .....................................................289
E. Defendants’ Position That There Was Merely an Agreement to Agree Is Not Remotely Credible...............................................289
III. CONCLUSIONS OF LAW..................................................292
A. Defendants Have Waived Their Right to Claim That Trenwiek or UNUM Are Not the Proper Plaintiffs in this Suit...............................292
B. The “Follow the Fortune” Doctrine Applies to the Case at Bar..............294
1. The “Follow the Fortunes” Doctrine..................................295
2. Application of “Follow the Fortunes” to the Case at Bar ................296
3. The Case Law.....................................................296
4. Expert Testimony that “Follow the Fortunes” is Custom in the Reinsurance.....................................................297
C. The Defendants Have Waived Their Right to Demand Arbitration...........297
D. The Statute of Frauds Does Not Bar Plaintiffs’ Breach of Contract Claim.....298
1. Standard of Review................................................298
2. Application of the Statute of Frauds to Reinsurance Contracts...........299
3. Trustmark Insurance Company Case.................................300
4. The Statute of Frauds Writing Requirement is Satisfied ................300
E. There Is Not Enough Evidence to Support a Finding of Fraud or Negligent Misrepresentation Against All Defendants.....................301
F. Piercing the Corporate Veil.............................................302
1. Massachusetts Law Applies to Plaintiffs’ Veil-Piercing Claims...........302
G. Chapter 93A Liability..................................................305
1. IRC Re...........................................................306
2. Malcolm Swasey...................................................306
3. IRC, Inc..........................................................306
IV. DAMAGES...............................................................309
I. INTRODUCTION
Trenwiek America Reinsurance Corporation (“Trenwiek”) and Unum Life Insurance Company of America (“UNUM”) are suing IRC, Inc. (“IRC, Inc.”), IRC Re, Limited (“IRC Re”) and Malcolm Swasey (“Swasey”) for fraud and breach of contract in connection with a managed workers’ compensation insurance and employers liability insurance program known as Compcare 2000. Compl. ¶ 1 (document# 1). The dispute centers on the plaintiffs’ claim that IRC Re and Swasey breached a reinsurance contract under which IRC Re was to provide retrocessional coverage for the Compcare 200 program.
While the underlying program, its insurance and reinsurance arrangements were complex, defendant Swasey’s fingerprints are all over it. Indeed, he founded all of the defendant companies and their predecessors; in each case, he was the company’s ultimate decisionmaker. Swasey created, administered and underwrote the Compcare 2000 program in 1994 through two separate corporations that he started and controlled. (Both companies have since merged into defendant IRC, Inc.). Cifuni Dep. 19:11-12, Jan. 21, 2009; Trial Tr. vol. 8, 140, July 1, 2010. The original arrangement as Swasey envisioned it was as follows: Hanover Insurance Company (“Hanover”) was the direct insurer for the Compare 2000 program. Joint Pretrial Mem. 14, Stip. Fact No. 31 (document # 95). Hanover was then reinsured by the American Accident Reinsurance Group (“AARG”). Id. at Stip. Fact No. 32. A portion of the risk ceded to AARG was in turn retroceded to Managed Compensation Insurance Company, Ltd. (“MCIC”), another entity owned and controlled by Swasey, id. at Stip. Fact No. 33, which then merged with and is now known as IRC Re. Id. at 13, Stip. Fact No. 17. Swasey continued as CEO of IRC Re and its majority stock holder. Id. at 14, Stip. Fact No. 27, 29. In effect, a Swasey company was at the beginning of the chain, IRC, Inc. which administered the program, and at the end of the chain, IRC Re which participated in reinsuring it.
In 1996, Swasey changed the direct insurer of the program from Hanover to Reliance National Insurance Company (“Reliance”). Id. at 15, Stip. Fact No. 37. Swasey procured reinsurance for the Reliance Compcare 2000 program, using a structure similar to what existed under the Hanover program. This time, plaintiff Trenwick America Reinsurance Corp. (“Trenwick”) was to provide reinsurance, Id., at Stip. Fact No. 33, and according to the plaintiffs, 19% of the risk was retro-ceded to IRC Re (“the Contract”). The latter arrangement is the subject of this lawsuit.
In early 2006, a dispute arose regarding the existence of a retrocessional agreement between Trenwick and IRC Re. When Trenwick’s agents tried to collect IRC Re’s share of the liabilities arising from the Compare 2000 program, IRC Re insisted — through Swasey and at the 11th hour — that it would not pay unless a copy of the written contract between Trenwick and IRC Re was produced. Trial Ex. 92, at 2. For the very first time in their dealings, Swasey claimed that if any type of agreement existed between IRC Re and Trenwick, it was merely an “agreement to agree.” Swasey Dep. 376:13-377:12, 396:19-23, 443:10-15, 501:2-3, 513:6-13, 517:19-20, 524:19-525:13, 541:12-24, Sept. 17, 2008. A reinsurance contract may have been contemplated, he contended, but was never actually prepared. Joint Pretrial Mem. 9.
Plaintiffs insist that there was a contract with IRC Re that it is indeed reflected in the documents, conduct and statements of all the parties, including Swasey, and if there were not, defendants who were charged with managing the program, were negligent for failing to prepare it. Compl. ¶¶ 100-03. Specifically, with respect to IRC Re, plaintiffs sue to recover $4,182,057.52 plus interest in unpaid losses and loss expenses that they claim is due on the Contract. See Trial Ex. 240, at TREN 13683. Since IRC Re apparently does not have the assets to cover the claimed losses, plaintiffs also seek to pierce the corporate veil and recover damages against IRC, Inc. and Swasey. Compl. ¶¶ 116-24.
Finally, plaintiffs seek damages and attorneys fees under Mass. Gen. L. Ch. 93A against all defendants relative to the alleged fraud and negligent misrepresentation, as well as for disavowing the contract in bad faith and engaging in a “moving target” strategy of constantly shifting positions throughout this litigation. Compl. ¶¶ 110-15.
The Court heard nine days of testimony, both through witnesses and depositions, and admitted hundreds of pages of exhibits documenting the reinsurance relationships between plaintiffs and all three defendants under both the Hanover and Reliance programs, as well as the corporate relationships between Mr. Swasey, IRC, Inc. and IRC Re.
There were two preliminary matters raised by the defendants at the last minute, ostensibly to keep this Court from addressing the merits of plaintiffs claim. First, the defendants claimed for the first time at trial that Trenwick and UNUM were not proper parties. Rather, SARF was the proper party and since one of the SARF members was a Massachusetts corporation, there was no diversity. As I describe below, that claim was waived by the defendants because it was not raised in a timely fashion. Second, the defendants that any contract between the parties required they arbitrate their claims. This claim was also waived because of timeliness.
I find that a contract did exist between IRC Re and the plaintiffs, and that the contract provided that 19% of the plaintiffs’ risk was retroceded to IRC Re. I make this finding notwithstanding the statute of frauds, based on the extensive record before me. I further find that IRC Re cannot escape liability here by raising the defenses that Reliance raised against the initial parties, because the “follow the fortunes” or the “follow the settlements” doctrine applies to the case at bar. This doctrine does not allow a reinsurer to raise defenses that the reinsured has already decided to waive in good faith.
I decline to pierce the corporate veil with respect to the defendants’ breach of contract claim against IRC Re; none of the factors for piercing are met in the case at bar.
And because I have found that a contract exists as between IRC Re and the defendants, a contract that has been breached, I do not have to address the other claims against IRC Inc. and Swasey that are predicated upon the failure to execute a written contract.
Nevertheless, neither Swasey nor IRC Inc. escape liability here. All of the defendants violated Chapter 93A in myriad ways. Swasey’s conduct and that of the companies he created, controlled and administered, pre-, post- and during litigation was simply outrageous, turning what should have been a routine claim against a reinsurer into a tortuous marathon.
II. FINDINGS OF FACT
A. The Hanover Compcare 2000 Program
Swasey created the Compcare 2000 program in 1994. He and managed and underwrote the program through IRC, Inc. and Occupational Health Underwriters, Inc. (“OHU”), two companies he founded and controlled. Cifuni Dep. Tr. 19:11-12; Trial Tr. vol. 8, 140. At first, Swasey used Hanover as the direct insurer for the Compcare 2000 program. Joint Pretrial Mem. 14. Hanover provided workers’ compensation and employers’ liability coverage to employers in Massachusetts and Maine. Id. at 14-15. The insurance provided by Hanover was reinsured on a ground-up quota share basis by several entities, including the American Accident Reinsurance Group (“AARG”), a reinsurance pool managed by managing underwriter Duncanson & Holt (“D & H”). Id. at 14. A fixed portion of the risk ceded to AARG in connection with the Hanover Compcare 2000 program in turn was retro-ceded to MCIC, a company that Swasey also controlled, which later became IRC Re. The AARG-MCIC relationship was reflected in two written retrocessional contracts. Trial Exs. 78-79; Joint Pretrial Mem. 13-14.
B. Background of the Reliance Compcare 2000 Program
On December 1, 1996, Swasey changed the direct insurer of the Compcare 2000 program from Hanover to Reliance. Joint Pretrial Mem. 15. Reliance and Trenwick then entered into a Workers Compensation Quota Share Reinsurance Agreement and Interests and Liabilities Contract to the Quota Share Agreement, effective December 1, 1996. Trial Exs. 82-83. Under this new arrangement, 54% of the risk insured by Reliance in connection with the Reliance Compcare 2000 program was now ceded to Trenwick. Joint Pretrial Mem. 15.
Trenwick in turn retroceded 100% of its risk to UNUM, the fronting company of a reinsurance facility known as the Special Accident Reinsurance Facility (“SARF”), for the period from 1996 through 1999. Trial Tr. vol. 2, 56-57, 118, June 22, 2010.
Both Trenwick and UNUM were represented by D & H and later by AAUL Reinsurance Management Services (“AUL RMS”), D & H’s successor. The latter companies were charged with managing the Compcare 2000 program. Joint Pretrial Mem. 16. D & H had authority on behalf of Trenwick to accept the reinsurance ceded to Trenwick under the Reliance Compcare 2000 program, and to further retrocede reinsurance on Trenwick’s behalf. Id.
The parties do not dispute the participants’ roles and authority in the Reliance Compcare 2000 program roles as they are outlined above. What they disagree about is whether 19% of the risk assumed by Reliance under Compcare 2000 was, in fact, further ceded to MCIC, later IRC Re.
C. Disavowal of the Trenwick-IRC Re Contract
1. Attempts to Collect IRC Re’s Alleged Outstanding Balances Relative to the Reliance Compcare 2000 Program
IRC Re’s liabilities, if any, relative to the Compcare 2000 program first became an issue when Tracie Pencak (“Pencak”) of AUL RMS, the reinsurance managing company, attempted to collect IRC Re’s outstanding balances in 2004 and into 2005. Trial Tr. vol. 2, 7:7-20. In January 2006, Pencak finally contacted Swasey directly to find out why IRC Re’s balances had not been paid. Id. at 8:8-13. Pencak and Swasey spent the next six to eight weeks reconciling data; by the end of these discussions, the parties’ numbers relating to what IRC Re owed were still approximately $300,000 apart. Id. at 9:3-7. Nevertheless, everything about these negotiations suggests that the participants acted as if there were unquestionably a contract, a contract involving a 19% retrocession. The only question was the actual amount owed.
On January 18, 2006, Pencak forwarded to Swasey, at his request, a copy of the ceding commission calculation adjustment called for in the Quota Share Agreement between Reliance and Trenwick. Trial Exs. 83, 197; Trial Tr. vol. 2, 11:17-21. On January 20, 2006, Pencak wrote to Swasey and indicated that, since she sent the files he requested, he should have everything he needed to reconcile the data and send payment. Trial Ex. 198. On January 26, 2006, Swasey emailed back, noting: “Tracie, we are getting closer.” Trial Ex. 200, at TREN 01752. While Pencak testified that she understood the statement to mean that IRC Re was “getting closer to making payment,” Swasey claimed at trial that he only meant that they were getting closer to resolving the amount that IRC Re owed on the Reliance Compcare 2000 business. Trial Tr. vol. 2, 26:9; Trial Tr. vol. 9, 92:10-13, July 2, 2010. In the January 26, 2006, email, Swasey also requested that Pencack send him all of Trenwick’s and AUL RMS’s retrocessional calculations and offsets representing the total net premium retroceded to IRC Re for all years of the Reliance Compcare 2000 program. Trial Ex. 200, at TREN 01752.
On January 30, 2006, Pencak again provided Swasey with the requested information in a chart attached to her e-mail. Id. at TREN 01753. Indeed, Pencak’s chart specifically identified the seven checks representing the premium payments that IRC Re in the amount of approximately $1.2 Million, checks that IRC Re plainly accepted in exchange for its contractual obligations under the Program. Id. Her calculations showed that the total amount then due from IRC Re was $2.7 million. Trial Ex. 200; Trial Tr. vol. 2, 27:13-23.
Pencak testified that no expenses were charged to IRC Re other than the ceding commission that IRC, Inc. established at the outset of the program. Trial Tr. vol. 2, 27:5-9. On February 14, 2006, Swasey and IRC, Inc. faxed Pencak documents reflecting what they believed the ceding commission calculations should be for each year of the program. Trial Ex. 106. Pencak corrected Swasey’s and IRC, Inc.’s calculations, specifically addressing their omission of “boards and bureaus” (a kind of tax assessed on workers’ compensation business) on February 16, 2006. Trial Ex. 201; Trial Tr. vol. 2, 33. Swasey then requested copies of the claims associated with the Reliance Compcare 2000 program, Trial Ex. 202, and Pencak again complied. Trial Ex. 203; Trial Tr. vol. 2, 35:18-20. On February 21, 2006, Swasey sent Pencak a “recalculated” version of the spreadsheet that she had provided to him earlier in their discussions. Trial Ex. 204. Swasey’s calculations acknowledged that the total due from IRC Re at that time was $2,361,095.30. Id. at TREN 01845. That day, Pencak sent an e-mail to Swasey identifying what she believed to be the parties’ remaining “differences.” Trial Ex. 205.
On February 23, 2006, Swasey answered Pencak with his version of the parties’ “differences.” Trial Ex. 107; Trial Tr. vol. 2, 44^15. He attached “revised calculation sheets” to his letter, which plainly showed what he understood to be IRC Re’s 19% share on the program. Trial Ex. 107, at IRC 00365; Trial Tr. vol. 9, 95. Swasey’s calculation sheets indicate that $1,930,587 was “due AUL” from IRC Re. Trial Ex. 107, at IRC00366.
Swasey further noted (in paragraph 7) that payment was subject to proof that “Trenwick, who retroceded to IRC Re” gave AUL negotiating rights on their behalf and that Trenwick adhered to all reporting requirements in the Retrocession Agreement. Trial Ex. 107, at IRC 00358. Swasey admitted on cross-examination that the intention of this paragraph was to tell Pencak that if she satisfied these two requests, IRC Re would pay. Trial Tr. vol. 9, 85. On February 24, 2006, Pencak responded to Exhibit 107 again “clarifying, correcting, and changing” Swasey’s calculations and assertions, and confirming that AUL RMS had the necessary authority to collect on Trenwick’s behalf. Trial Ex. 206; Trial Tr. vol. 2, 48-49. Pencak — not unreasonably — expected that payment would be forthcoming for all uncontested amounts. Trial Tr. vol. 2, 47.
2. IRC Re’s and Swasey’s Disavowal of the Contract
On February 28, 2006, Pencak followed up with Swasey by telephone to ask him where IRC Re’s payment was. Trial Tr. vol. 2, 52. Swasey responded that a fax would be coming shortly; suddenly, he refused to speak directly with her any further. Id. That afternoon, Pencak received a fax from Jennifer Baird of Beecher and Carlson Management. Ltd. (“Beecher Carlson”), the company which provided management and administrative services to IRC Re. Swasey Dep. 40:9-42:18. The fax attached a letter from Swasey, in which he conditioned further discussions with Pencak on her producing a written contract between IRC Re and Trenwick relative to Compcare 2000 program, Trial Ex. 92; Swasey Dep. 437:3-6. This was an issue never raised before in Swasey’s extended dealings with Pencak. Trial Tr. vol. 2, 53. The explanation was bogus, as I describe below. Swasey never contacted Pencak again. Id. The money was never paid.
On November 5, 2007, plaintiffs’ counsel wrote to Swasey demanding payment of $2,618,176.75, which plaintiffs alleged was then due from IRC Re as a retrocessionaire under the Reliance Compcare 2000 program. Joint Pretrial Mem. 17, Stip. Fact No. 51. Swasey responded — improbably, to say the least — that he found it “difficult for any and all of you to claim that we were at risk.” Trial Ex. 93, at 2. In light of the numerous discussions between Swasey and Pencak, discussions about the amount that IRC Re owed to plaintiffs and not whether anything was owed, the Court finds that this statement, and indeed, the entire course of Swasey’s, IRC Inc.’s and IRC Re’s dealings with Pencak from January 18, 2006 until March 2006 were plainly in bad faith.
D. The Evidence of a Contract Is Overwhelming
1. Admissions and Testimony of the Participants
At trial, plaintiffs presented a significant amount of evidence to establish the existence of an enforceable 19% retrocessional contract between IRC Re and Trenwiek, despite the fact that no formal, written agreement was produced. The evidence was of two kinds: First, plaintiffs presented testimony reflecting Swasey’s unmistakable intent that IRC Re take on risk during the negotiations to bring Reliance and D & H (later succeeded by AUL RMS) into the program, and the specific amount of that risk, as well as evidence that those parties expressly relied on IRC Re’s participation. Second, plaintiffs presented numerous documents — other than a formal contract — which likewise confirm IRC Re’s 19% participation.
The testimony of both Reliance and D & H representatives regarding their communications with Swasey, along with Swasey’s own testimony, could not be clearer. Swasey admitted at trial that MCIC/IRC Re “intended” to provide retrocessional coverage in connection with the program. Trial Tr. vol. 9, 78:7-15. He agreed that IRC Re’s purpose is “to take risks on programs that IRC, Inc. underwrites.” Id. at 73:14-17. Swasey acknowledged that “barring any problems” 19% would be retroceded to IRC Re. Id. at 41:6-7. When he approached Reliance about transferring the Compcare 2000 program from Hanover to Reliance, he told them in a April 10, 1996 letter that he wanted to keep the “current risk takers in place,” including MCIC, because he “owed it to them.” Trial Ex. 110; Swasey Dep. 246:13-247:16.
When speaking with Cecelia Abraham (“Abraham”), a Reliance underwriter, about Reliance’s potential participation in the Compcare 2000 program, Swasey informed her that MCIC would have “skin in the game,” which he explained meant that the company (MCIC and the IRC Re) would be taking on risk. Abraham Dep. 15:7-13, Jan. 29, 2009. Abraham testified that MCIC’s 19% share was “understood to be part of the deal ... And it was why the deal was done.” Id. at 23:11-13. She further testified that on October 21, 1996, Swasey attended a meeting to “begin the final round of negotiations” on the program, at which he reiterated that MCIC would “continue to take risk.” Id. at 31:18-32:2, 7-16. On November 21, 1996, shortly before the program was to commence, Abraham sent a draft reinsurance agreement to D & H, on which Swasey was copied, explaining: “Also not attached is the Interest and Liabilities Statement, but it is understood that Munich’s share will be 31 % and D & H’s share will be 54% (with 19% retroceded to MCIC).” Trial Ex. 156. Swasey never objected, nor did he indicate that he needed signed formal agreements for the program to begin. Trial Tr. vol. 9, 80:5-8; Abraham Dep. 65:19-66:2. (The objection would have been disingenuous, in any event. It was his responsibility as agent for IRC Inc. to get the signed agreements.)
I find Abraham’s testimony regarding her understanding that IRC Re had taken on the 19% risk to be entirely credible. At the time of her deposition, Abraham had not had any affiliation with Reliance for some time; neither she nor Reliance is a party in this suit. She could not have been clearer about her communications with Swasey. Indeed, she was indignant that Swasey and/or IRC Re had the audacity to claim that IRC Re did not take on risk in this program. By the end of the trial, I shared that indignation. Abraham Dep. 188:17-24.
In addition to Abraham, Swasey also spoke with Dennis Luc (“Luc”) of D & H about the role that IRC Re would play in the Reliance program. Trial Tr. vol. 9, 40:20-41:3. Luc was clear that if Swasey and IRC Re had not participated in the Reliance Compcare 2000 program by taking risk “at the back end,” D & H would not have participated. Luc Dep. 44:11-13, 44:17-24. While defendants claimed that it was Luc who had taken responsibility for executing a written contract, see Defs.’ Post-Trial Br. ¶ 4 (document # 146), I find otherwise. In any event, neither Luc nor anyone else involved in the program assumed that IRC Re’s participation was somehow contingent on the finalization of a written agreement.
2. Swasey’s Conduct
In addition to making it clear to the other parties in the Reliance Compcare 2000 program that IRC Re would be taking on risk, and the amount, Swasey and IRC Re surely acted as if a binding retrocessional agreement existed. From the inception of the Reliance Compcare 2000 program and continuing through the course of this litigation, D & H (and later, AUL RMS) sent quarterly account statements to IRC Re showing ceded premium and losses for each quarter. Trial Ex. 215; see Joint Pretrial Mem. 16, Stipulated Fact No. 50. Losses were offset against premium, and if the amount of ceded premium exceeded losses, D & H issued a check to IRC Re for the amount of the net premium due. If the losses exceeded the premium due to IRC Re, D & H requested payment of the balance.
Defendants concede that IRC Re received premium checks from plaintiffs in the amount of $1,179,601.15 in connection with the Reliance Compcare 2000 program. Joint Pretrial Mem. 16, Stipulated Fact No. 46. These payments were made by seven checks that were included with the quarterly account statements issued by D & H to IRC Re between September 22, 1997, and August 10, 2000. Trial Exs. 113, 124-130.
Moreover, defendants repeatedly acknowledged IRC Re’s retrocessional liabilities to plaintiffs, not merely to the other participants in the program, but notably to IRC Re’s own auditors and regulators. A few key examples: First, IRC Re posted a $1 million letter of credit (“LOC”) expressly to secure its retrocessional obligations under the program. Trial Ex. 153. Initially, IRC Re posted the LOC for the benefit of “Duncanson and Holt, agents for American Accident Reinsurance Group” as security for IRC Re’s obligations as a retrocessionaire in connection with the Hanover Compcare 2000 Program. Joint Pretrial Mem. 15, Stip. Fact No. 36; Trial Ex. 150. The beneficiary of the letter of credit was eventually amended to “Duncanson and Holt, Agents for Special Accident Reinsurance Facility.” Joint Pretrial Mem. 16, Stip. Fact No. 47; Trial Ex. 153.
Although Swasey testified that he was only aware that there was a LOC for the AARG facility, Trial Ex. 153; Trial Tr. vol. 9, 50:24-51-1, and was not aware of the amendment changing the beneficiary of the LOC to D & H/SARF, Trial Tr. vol. 9, 52:2-7, on cross-examination, he changed his mind. He conceded that he “was informed that it had been done,” but that he just had not seen the particular amendment document marked as Trial Exhibit 153. Id. at 68:3-15. Significantly, defendants offered no evidence to suggest that the LOC was posted to secure IRC Re’s obligations under any other program, or for some different purpose altogether. Plainly, the LOC evidences IRC Re’s participation in the Reliance program.
Second, the Reliance Compcare 2000 program — which began on December 1, 1996 with an expiration date of December 31, 1997 — had to be renewed on January 1 of each year. Id. at 126:3-6; Swasey Dep. 387:6-388:12. In his capacity as representative of IRC, Inc., as “intermediary” for the program, Swasey was involved in the initial 1996 placement, as well as all renewals. Trial Tr. vol. 9, 61:7-9. Indeed, he agreed he was “personally involved” at all stages of the process, from 1996 through 1999. Id. at 61:25-62:15. Defendants provided no convincing explanation for why Swasey would have continuously renewed the program if a key element of the program — IRC Re’s participation — was somehow contingent on the finalization of a written, retrocessional contract. There is simply no question that Swasey and defendant companies acted as if there was a valid, enforceable agreement by renewing IRC Re’s participation as a 19% retrocessionaire year after year, along with the other program participants.
Third, defendants repeatedly requested that D & H confirm IRC Re’s 19% participation in the Reliance Compcare 2000 program as a retrocessionaire of D & H or a D & H-managed entity (Trenwick or UNUM) to IRC Re’s external auditor, Deloitte and Touche (“Deloitte”). Joint Pretrial Mem. 16, Stipulated Fact No. 45; see Trial Exs. 143, 219. Defendants provided no explanation for why IRC Re asked a third party to confirm the details of a reinsurance contract that it is now claiming did not, in fact, exist. In addition, IRC, Inc. itself provided information directly to Deloitte concerning IRC Re’s agreement to participate in the Reliance program as retrocessionaire. Trial Ex. 94; Cifuni Dep. 93:24-94:3. On August 12, 1997, at Swasey’s direction, Joseph Cifuni of IRC, Inc. wrote to Robert Shaw of Deloitte attaching various charts showing the flow of activities to MCIC/TRC Re. Trial Ex. 94; Swasey Dep. 441:17-19; Cifuni Dep. 93:24-94:3. This letter admits that MCIC had “agreed to participate in the risk for Reliance National as retrocessionaire of D & H.” Trial Ex. 94.
Finally, defendants conceded IRC Re’s status as retrocessionaire in a draft Private Placement Memorandum and Business Plan for NESCIC (another company that Swasey considered starting) that was provided to D & H in or around March 1998, Trial Ex. 164, as well as in a revised business plan submitted to the Massachusetts Division of Insurance in August 1998 on behalf of NESCIC. Trial Ex. 165. The NESCIC business plan indicated that the insurance currently written by IRC Re consisted of a book of workers’ compensation insurance business “on which [IRC Re] is a nineteen percent quota share partner.” Trial Ex. 164, at TREN 06636. Swasey conceded that this refers to the Reliance Compcare 2000 program. Swasey Dep. 358:8-359:12.
At his deposition, Swasey equivocated, to say the least. He testified the statements he made in the business plan were based on the fact that IRC Re had “agreed to agree” to participate as a 19% quota share participant in the Reliance program. Id. at 372:21-373:2. The comment, however, rings completely hollow — as does much of Swase/s testimony.
3. Trial Exhibits
IRC Re’s 19% participation in the Reliance Compcare 2000 program is clearly reflected in numerous trial exhibits, including: Joseph Cifuni’s October 11, 2001 letter to AUL RMS alleging that a receivable of $566,258 was due to IRC Re in connection with the Reliance Compcare 2000 program, Trial Ex. 100, at 4IRC06127; numerous financial statements audited by Deloitte and in Deloitte’s actuarial reserve opinions, e.g., Trial Ex. 17, at 2IRC24775; IRC Re’s reserve analyses for 1998 and 2000, prepared by Deloitte, in which the Reliance Compcare 2000 program is described, Trial Ex. 9, at 2IRC01786; Trial Ex. 13, at 2IRC25093; hundreds of underwriting reports generated by OHU/IRC, Inc., Trial Exs. 72, 207; the February 13, 2006, letter of Jennifer Baird (of Beecher Carlson) to the Insurance Division of the Bermuda Monetary Authority acknowledging that IRC Re was the retrocessionaire for certain workers compensation coverage written by IRC, Inc. and insured by Reliance, Trial Ex. 160, which Swasey later conceded and referred to the Reliance Compcare 2000 program, Swasey Dep. 541:3-7; and the report of a joint underwriting review of the Reliance Comp-care 2000 program, reflecting MCIC’s 19% participation by way of a retrocession through D & H, that was received by Swasey and others at IRC, Inc. in October 1997 without objection. Trial Ex. 220, at 2IRC00421; Swasey Dep. 499:5-15; Abraham Dep. 105:8-106:16
Further, as described above, in all of the email communications between Swasey and Tracie Pencak, Swasey never asserted that IRC Re did not have a contract with plaintiffs. Trial Tr. vol. 2, 24:12-14. Indeed, in his February 23, 2006 letter to Pencak, he suggested that IRC Re would pay the amount he claimed was due (approximately $1.9 million), subject only to proof of AUL’s authority to contract for Trenwick. Trial Ex. 107, at IRC00358.
E. Defendants’ Position That There Was Merely an Agreement to Agree Is Not Remotely Credible
Defendants responded to the above evidence of a binding, retrocessional contract between IRC Re and Trenwick with the repeated claim that, because the necessary formal terms were never reduced to writing, there was, at most, only an “agreement to agree” between IRC Re and Trenwick. Swasey Dep. 374:2-6, 376:13-377:12, 396:19-23, 443:10-15, 501:2-3, 513:6-13, 517:19-20, 524:19-525:13, 541:12-24. Defendants also contended that because there was merely an “agreement to agree,” IRC Re held the $1,179,601.15 of premium payments it had received in a segregated “suspense” account pending the finalization of a written retrocessional contract. Id. at 258:13-259:21.
To the extent that this position rests alone on Swasey’s statements, I find it wholly incredible. During his video deposition, Swasey did not sit, dress or generally carry himself in a way to invite this Court to take him seriously or credit his words. And apart from Mr. Swasey’s conduct, which raised questions in my mind about his credibility, his testimony was internally contradictory and obviously false.
In fact, on more than one occasion at trial, Swasey admitted that he had given misleading or incorrect testimony during his deposition on key issues. As described below, he ultimately admitted that the testimony of IRC Re’s Bermuda managers proved that he had to have been wrong about the existence of a “suspense account,” in which premium payments from Trenwick were held. While he testified at his deposition that IRC Re could not have booked the plaintiffs’ payments as premium because no signed, written retroeessional agreement existed, Id. at 257:16-258:12, IRC Re’s 1999 financial statement refers to reinsurance balances relating to the Reliance Compcare 2000 program. Trial Ex. 8, at 4IRC02800, 4IRC02808. After reviewing Exhibit 8, Swasey did an about-face, conceding that he would “have to agree ... 100 percent” that he was able to “book premium” notwithstanding the fact that he did not have a signed written retrocessional agreement. Trial Tr. vol. 9, 114:19-24. In addition, Elizabeth Durrant of BF & M testified that the premium MCIC/IRC Re received was booked on IRC Re’s income statements. Durrant Dep. 56:11-14, 56:17-25, Feb. 26, 2009.
Swasey gave misleading testimony when he testified that he did not know anything about UNUM’s or SARF’s involvement in the Reliance Compcare 2000 program. Trial Tr. vol. 9, 137:4-7. Indeed, coming from the architect of the program, the comment was preposterous. In his deposition, he acknowledged that with regard to the January 1, 2000 program renewal, Trenwick agreed to remain on the risk subject to a 100% retrocession to UNUM. Swasey Dep. 432:8-20; see Trial Ex. 208, at TREN 5913. As for Swasey’s awareness of SARF’s involvement, plaintiffs’ premium checks were sent to IRC Re from D & H’s SARF/Trenwick fiduciary account. E.g., Trial Ex. 125. The calculation sheets that Pencak provided to Swasey in February 2006 identifying the amount IRC Re owed at that time, and which were later “recalculated” by Swasey, expressly referred to SARF. Trial Exs. 200, 204.
Finally, there were significant inconsistencies in Swasey’s testimony regarding discussions that he had with Luc, A & H’s representative, about critical clauses that were to appear in the final written Contract. For example, at his deposition, Swasey testified that he never discussed arbitration clauses with Luc. Swasey Dep. 484:19-485:2. At trial, Swasey he admitted the opposite — that he discussed with Luc it was “imperative” that IRC, Inc. “as the program manager and the architect of the [program] be involved in any form of arbitration,” and that relative to any disagreements, “IRC, Inc. must have a seat at that table.” Trial Tr. vol. 9, 42:13-22. When confronted with his inconsistency, Swasey conceded that although he now testified the issue of arbitration was “imperative,” he “apparently” did not even remember discussing it with Luc at his deposition. Id. at 65:2-5. Similarly, at his deposition, Swasey never mentioned a discussion of a commutation clause with Luc. While at trial, he claimed the opposite. Id. at 43:21-44:2.
Although Swasey used the phrase “agreement to agree” when referring to the “alleged” contract in this litigation, prior to the litigation, he did not, particularly when discussing the agreement with any of other parties involved in the Reliance Compcare 2000 program. Id. at 86:22-87:3; Swasey Dep. 424:19-25. Cifuni, IRC, Inc.’s CFO, conceded that Swasey never mentioned that IRC Re’s participation was contingent on anything, let alone “the execution of an agreement.” Cifuni Dep. 92:6-12. Nor did Swasey ever refer to the supposed “agreement to agree” in his discussions with Pencak until the very last minute, when he decided not to pay. Trial Tr. vol. 2, 32:13-15; 32:10-12; Trial Tr. vol. 9, 92:17-23. He took no affirmative steps towards memorializing the terms in a legally-binding, written contract himself, or to convey to Luc the fact that D & H needed to resolve the “agreement to agree” in order for it to have binding effect on IRC Re. Trial Tr. vol. 9, 87:4-9. Luc testified that “there were no issues” or outstanding terms to be discussed; IRC Re, through Swasey, behaved in all respects as if there were a retrocessional agreement. Luc Dep. Tr. at 176: 9-16.
Swasey somehow failed to inform the employees of Beecher Carlson, IRC Re’s Bermuda manager and the company that maintained all of IRC Re’s financial records, Trial Tr. vol. 8, 113:22-115:3, that there was only an “agreement to agree.” Swasey Dep. 541:12-17. Nothing in Exhibit 160 (Baird’s of Beecher letter to the “Bermuda Monetary Authority”), remotely suggested that Baird believed there was only an “agreement to agree.” Id. at 541:19-24. Nor did Swasey recall instructing Baird to clarify the status of IRC Re’s retrocessional contract on the Reliance Compcare 2000 program to the Bermuda Monetary Authority, even though he admitted that they would “certainly” want to know whether there was a retrocessional agreement as opposed to an “agreement to agree.” Id. at 541:25-542:7-12.
Swasey lied about the status of the approximately $1.2 million of cash premium payments that IRC Re received from plaintiffs. At his deposition, he insisted it was sitting in a “suspense” account. Id. at 258:13-259:21; Trial Tr. vol. 9, 102:22-24. Swasey explained that the “suspense” account was significant. The money in the account was “not his money” because there was only an “agreement to agree.” Trial Tr. vol. 9, 102:2-4. According to Swasey, “these monies would not have gone anywhere. These monies don’t belong to us, so obviously we’re holding the money.” Swasey Dep. 335:6-9. To the best of his knowledge, Swasey contended, the monies were sitting on deposit at the Bank of Butterfield in Bermuda. Id. at 335:18-25; Trial Tr. vol. 9,105:2-3.
Swasey’s assertion that the premium monies that IRC Re received from plaintiffs were somehow segregated or held in a suspense account is simply not supported by any document in the record, nor by any witnesses. There is no letter or email written to anyone at D & H suggesting that the premiums were not IRC Re’s. Trial Tr. vol. 9, 102:8-14. Nor is there “any document of any nature whatsoever, including an internal document,” that refers to the premium money as being segregated. Id. at 103:11-14.
None of the individuals who were responsible for handling IRC, Inc.’s or IRC Re’s finances knew anything about the so-called “suspense account.” See Baird Dep. 70:22-72:10, Feb. 25, 2009; Durrant Dep. 57:16-18, 58:15-59:6. In fact, Swasey conceded on cross-examination that if IRC Re’s Bermuda managers never heard of the “suspense” account, it would suggest that the account does not exist. And then, at last, he confessed: It has been “established according to BF & M and Beecher & Carlson that there is no such segregated account.” Trial Tr. vol. 9, 104:19-105:1; 106:1-3; 107:2-5.
Nor could Swasey point to any document that reflected the premium monies were in fact on deposit anywhere at the Bank of Butterfield. Id. at 105:4-22. He testified that it has been a “long time” since he looked at the bank account statement reflecting the approximately $1.2 million. Id. at 106:9-11. He admitted that the bank account was used for “purposes other than holding” the premium. Id. at 108:8-10.
In light of the above — defendants acting as if there was a Contract throughout the duration of the program, Reliance’s and D & H’s understanding that there was a Contract, the clear documentation of the 19% retrocession, and the fact that defendants never claimed that there was merely an “agreement to agree” until this litigation commenced, I find defendants’ contention that there was merely an “agreement to agree” to be, in a word, ludicrous.
III. CONCLUSIONS OF LAW
A. Defendants Have Waived Their Right to Claim That Trenwick or UNUM Are Not the Proper Plaintiffs in this Suit
Defendants argue, as a preliminary matter, that plaintiffs do not have standing to maintain their contract claims against defendants because any alleged contract would not have been between IRC Re and Trenwick or UNUM, but rather with SARF. Defs.’ Post-Trial Br. 6 (document# 146). Given SARF’s status, any claims would have to be brought by SARF’s individual members or, alternatively, plaintiffs would have to demonstrate their standing to pursue the claims belonging to SARF. Id. at 11. Furthermore, even if plaintiffs could establish standing to bring suit on behalf of SARF, or if each of the individual SARF members collectively brought the action, this Court lacks diversity jurisdiction because one member, John Hancock Life Insurance Company (“John Hancock”), was a citizen of Massachusetts, the same citizenship as Swasey. Id. (citing Compl. ¶ 17); see also Trial Ex. 170.
Defendants acknowledge that they conceded diversity jurisdiction in their answer. They claim that the admission was “premised on incomplete jurisdictional facts as pleaded in the complaint, which did not specify the citizenship of the remaining SARF members, including John Hancock.” Defs.’ Post-Trial Br. 11. Moreover, the claim was only raised at the very eve of trial.
Plaintiffs counter that defendants’ argument amounts to the claim that Trenwick is not the real party in interest but that SARF is. This claim, they contend, was waived under Rule 17, Fed. R. Civ. Pro. because defendants failed to raise it in a timely fashion. Pis.’ Trial Br. 48 (document# 120). While plaintiffs admit that the rules do not specify a particular procedure or time, they contend that it should be done with “reasonable promptness” or the court may conclude that “the point has been waived by delay.” Id. (citing 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1554 (2d ed.1990)). I agree. The Rule 17 claim is waived and, in any case, is without merit.
While the question of whether a real party in interest challenge may ever be deemed untimely has never been directly addressed in this jurisdiction, courts elsewhere have overwhelmingly held that a Rule 17 objection is waived if not raised with “reasonable promptness.” See, e.g., Hefley v. Jones, 687 F.2d 1383, 1388 (10th Cir.1982) (“The real party in interest defense ... should be raised in timely fashion or it may be deemed waived”) (citing Audio-Visual Marketing Corp. v. Omni Corp., 545 F.2d 715, 719 (10th Cir.1976)); Esquire Swimming Pool Prod., Inc. v. Pittman, 114 R.I. 238, 332 A.2d 128, 130 (1975) (“Undue delay in making such a challenge may result in the defendant’s being deemed to have waived his right to raise this objection.”) (citing 1 Robert Kent, R.I. Civ. Prac. § 17.1 (1969); 6 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1554 (1st ed.1971)); Whelan v. Abell, 953 F.2d 663, 672 (D.C.Cir.1992) (“[W]here a Rule 17(a) defense is made, judges abuse their discretion in allowing the plea as late as the start of the trial ... ”); United HealthCare Corp. v. Am. Trade Ins. Co., Ltd., 88 F.3d 563, 569 (8th Cir.1996) (objection waived when “not raised in a timely or seasonable fashion”) (citing Sun Ref. & Mkting Co. v. Goldstein Oil Co., 801 F.2d 343, 345 (8th Cir.1986) (quoting Chic. & NW Transp. Co. v. Negus-Sweenie, Inc., 549 F.2d 47, 50 (8th Cir.1977))); McLouth Steel Corp. v. Mesta Mach. Co., 116 F.Supp. 689, 691 (E.D.Pa.1953) (“[Ajfter two years of procedural maneuvering, the defendants presented their motion four days before the day on which the case was set for trial ... It is hard to see how a motion could be less timely”).
In the most analogous cases, defendants raised Rule 17 objections sixteen days before trial, Hefley, 687 F.2d at 1386, and four days before trial, respectively, McLouth, 116 F.Supp. at 691. In others, defendants raised their objections on the first day of trial, Whelan v. Abell, 953 F.2d at 668, at the close of plaintiffs case, Gogolin & Stelter v. Karn’s Auto Imp., Inc., 886 F.2d 100, 102 (5th Cir.1989), after default judgment had been entered, Bardoon Prop. v. Eidolon Corp., 326 S.C. 166, 485 S.E.2d 371, 371 (1997), and on appeal, United Healthcare Corp., 88 F.3d at 568; Negus-Sweenie, Inc., 549 F.2d at 49. In each instance, the court held the objection to have been waived.
To be sure, some courts have held that the objection can be raised by defendants at any time, or even by the court sua sponte, but those cases are distinguishable. See Calenda v. Allstate Ins. Co., 518 A.2d 624, 627 (R.I.1986) (holding that because defendant was never aware of a possible real party in interest objection, “the trial justice could properly raise the issue”); E. Brooke Matlack, Inc. v. Walrath, 24 F.R.D. 263, 267 (D.Md.1959) (deciding that despite defendant’s tardiness in raising a Rule 17 objection, even after the court had brought it to defendant’s attention earlier, the court would not decide the issue on the basis “of waiver of right to insist upon compliance with Rule 17(a)”); Clark v. Hutchison, 161 F.Supp. 35, 38 (D.Canal Zone 1957) (analogizing a real party in interest objection to a Rule 19 motion for failure to join a necessary party, and thus concluding that it could be raised at any time). First, in E. Brooke Matlack, 24 F.R.D. at 266 and Calenda, 518 A.2d at 627, the courts acknowledged the general rule that a Rule 17 objection could be waived due to excessive delay, even though it found no waiver on the facts of the case before them. Second, a critical issue in determining when delay is excessive is whether the defendants had enough information to raise the objection at a much earlier point in the proceedings. See Hefley, 687 F.2d at 1387 (“[Defendant] had the facts before him to assert this defense for a year and a half from the time the complaint was filed”); Pittman, 332 A.2d at 131 (“Nothing in the record suggests that defendants were ignorant of the real party in interest of the actual claims involved”).
In the case at bar, IRC Re which was controlled by the program’s very architect, Swasey, plainly knew that the members of the SARF facility were UNUM’s retrocessionaires on the Reliance Compcare 2000 program. In any case, defendants surely had ample time to investigate whether the SARF members were the proper plaintiffs between the complaint and trial.
Defendants never amended their answer to include failure to join the real party in interest as a defense, nor file a motion to dismiss under Rule 17. They never made the Rule 17 argument until they filed their pre-trial memoranda, approximately three years after the start of this litigation. In that time, tremendous resources have been expended by both sides on the assumption that Trenwick/UNUM would be the plaintiff. (Indeed, three different judges have presided over this case under the same assumption.)
I find that raising an objection to Trenwick and UNUM as the proper plaintiffs in this suit three years into the proceedings and on the eve of trial constitutes undue delay on defendants’ part. They have waived their right to object. (Indeed, this tactic is another version of raising the “no written contract” claim at the eleventh hour to avoid repayment of an acknowledged debt. It is a delaying tactic, putting off the day of reckoning.)
B. The “Follow the Fortune” Doctrine Applies to the Case at Bar
The unpaid losses that plaintiffs contend are now owed by IRC Re include liabilities on claims that were resolved as part of the settlement of an arbitration between Trenwick and Reliance. Compl. ¶ 68-71. Defendants claim that they may relitigate the defenses that Trenwick raised in its arbitration with Reliance before the settlement in this case. Defs.’ Opp’n to Mot. for Default J. 14-15 (document# 51). Whether or not defendants may do so depends on a doctrine known as “follow the fortunes” or “follow the settlement.” The “follow the fortunes” doctrine does not allow a reinsurer to raise defenses that the reinsured has already decided to waive in good faith. Christiania Gen. Ins. Corp. of New York v. Great Amer. Ins. Co., 979 F.2d 268, 280 (2d Cir.1992). As described below, it is not clear whether the doctrine is recognized in Massachusetts, and if so, whether a court can imply it as a matter of law without testimony on custom and practice in the relevant reinsurance industry. Since the status of the doctrine in Massachusetts is ambiguous, out of an abundance of caution I heard testimony concerning industry custom and practice on this point. Based on that testimony, I conclude the doctrine is applicable in the case at bar.
1. The “Follow the Fortunes” Doctrine
The “follow the fortunes” doctrine imposes a legal duty on the reinsurer to pay its share of a settlement made by the reinsured with the original parties. William Hoffman, On the Use and Abuse of Custom and Usage in Reinsurance Contracts, 33 Tort & Ins. L.J. 1, 60 (1997). Once the original insurer has been found liable, the doctrine requires the reinsurer to cover the reinsured, unless the reinsurer demonstrates that the original insurer’s liability resulted from fraud and collusion, or unless the claim was not reasonably within the scope of the original policy. N. River Ins. Co. v. CIGNA Reins. Co., 52 F.3d 1194, 1209, 1216-17 (3d Cir.1995). In effect, a reinsurer must accept its cedent’s good faith decisions “on all things concerning the underlying insurance terms and claims against the underlying insured.” N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134, 139-140 (2d Cir.2004).
The very purpose of the “follow the fortunes” doctrine is to preclude relitigation of coverage disputes. Allowing reinsurers to revisit coverage questions “would place the ceding insurer in an untenable position of advancing defenses in coverage contests that would be used against them by reinsurers seeking to deny coverage.” CIGNA, 52 F.3d at 1206. As such, the “follow the fortunes” doctrine prevents reinsurers from subverting two of the main goals of reinsurance — maximum coverage and settlements. If courts permitted a de novo review of the insurer’s decision-making process, cedents would ultimately litigate every coverage issue before making any attempt at settlement. Int’l Surplus Lines Ins. Co. v. Certain Underwriters & Underwriting Syndicates at Lloyd’s of London, 868 F.Supp. 917, 921 (S.D.Ohio 1994). As I noted, if a cedent “knew that its settlement decisions could be challenged by every reinsurer, there would be little incentive to settle with the insured.” Commercial Union Ins. Co. v. Seven Provinces Ins. Co. Ltd., 9 F.Supp.2d 49, 66 (D.Mass.1998), aff'd 217 F.3d 33 (1st Cir.2000).
2. Application of “Follow the Fortunes” to the Case at Bar
Plaintiffs argue that the “follow the fortunes” or “follow the settlements” doctrine is “inherent in every reinsurance relationship,” even when the parties have not formally expressed it in their agreement. Pi’s Mem. of Law in Supp. of Mot. in Limine for Rulings on the Applicability of the Follow the Fortunes Doctrine 8 (citing Robert W. Strain, Reinsurance 12 (1987)). While plaintiffs raised this issue in advance of trial, arguing that the doctrine must be implied as a matter of law prior to trial, id. at 2, the law in Massachusetts is unresolved. As such, I permitted testimony on custom and practice in the industry. In light of that testimony, I find that the “follow the fortunes” doctrine applies to this agreement, even in the absence of an express contract.
3. The Case Law
In Seven Provinces, on which plaintiffs rely, this Court addressed the scope of the “follow the fortune” doctrine in a situation where the parties had included an explicit contract clause to that effect. 9 F.Supp.2d at 65-66. Likewise, in Am. Empl. Ins. Co. v. Swiss Reins. Am. Corp., 275 F.Supp.2d 29, 36 (D.Mass.2003), the contract was clear. The parties were not asking the court to resolve whether “follow the fortunes” could be implied in reinsurance contracts. Am. Empl. Ins. Co., 275 F.Supp.2d at 36. To be sure, the court in Am. Empl. Ins. Co. relied on Aetna Cas. & Sur. Co. v. Home Ins. Co., 882 F.Supp. 1328, 1349 (S.D.N.Y.1995), for a broader proposition. The court in Aetna held that “it is customary within the reinsurance industry for reinsurers to follow the claim settlement decisions of the ceding company even in the absence of an explicit loss settlements clause,” 882 F.Supp. at 1349. Nevertheless, defendants correctly point out that this decision came only after the court heard testimony from Aetna’s expert witness on the existence of industry custom, which the court described as “pivotal.” Id. at 1350. Additionally, the court did not state that it was deciding the issue purely as a matter of law, but rather that determining whether the duty to follow loss settlements is an industry custom “is in the first instance a question of fact.” Id. at 1349 (citing Mentor Ins. Co. (U.K.) Ltd. v. Brannkasse, 996 F.2d 506, 513 (2d Cir.1993)); see also N. River Ins. Co. v. Employers Reins. Corp., 197 F.Supp.2d 972, 978-79 (S.D.Ohio 2002) (citing Nat’l Am. Ins. Co. of Cal. v. Certain Underwriters at Lloyd’s London, 93 F.3d 529, 537 (9th Cir.1996) (“[T]he existence of a custom or usage to ‘follow the settlements’ is in the first instance a question of fact”)). Furthermore, the court concluded that “the authorities advisedly do not speak with one voice” on whether “follow the fortunes” applies even when it is not expressed in the reinsurance contract. Aetna, 882 F.Supp. at 1349. This concession, coupled with the court’s reliance on expert testimony, suggests that while plaintiffs in this case may rely on Aetna to argue that custom and usage can empower the court to apply the “follow the fortunes” doctrine in the absence of an explicit clause, it does not support application of the doctrine without expert testimony on industry custom and usage.
4. Expert Testimony that “Follow the Fortunes” is Custom in the Reinsurance Market
Plaintiffs’ expert, Steven Mestman, offered persuasive testimony that the “follow the fortunes” doctrine is a customary component of almost every reinsurance agreement. Trial Tr. vol. 7, 39:21-40:2. Even defendants’ rebuttal expert witness, Glenn Matías, agreed that the “follow the fortunes” doctrine is a core tenet of the reinsurance business. Trial Tr. vol. 8, 57:20-22. Both agreed that the doctrine obligates a reinsurer to indemnify the ceding company so long as the underlying insurance payments are made in good faith and within the terms and conditions of the reinsurance agreement. Trial Tr. vol. 7, 40:3-6; Trial Tr. vol. 8, 69:14-17. Mestman added that “without question” the “follow the fortunes” doctrine would apply to a contract between the plaintiffs and IRC Re in accordance with industry custom and practice, and in accordance with all of the other agreements in the reinsurance chain. Trial Tr. vol. 7, 44:22-25; 45:2-6.
In addition to the custom and practice in the industry, Mestman noted that all of the other written contracts relative to the Reliance Compcare 2000 program had “follow the settlements” language, which he found particularly persuasive. Even Matías conceded that it would be “extraordinarily unusual” not to see a follow the settlements provision in the Retrocessional Contract with IRC Re in “some way, shape or form.” Trial Tr. vol. 8, 69:18-25.
Mestman explained that the rationale for the doctrine is to give assurance to the ceding company when they purchase reinsurance that if they comply with the agreement in a “diligent and fair way” and comply with its conditions, they can “expect to be paid as they pay.” Trial Tr. vol. 7, 40:22-41:1. Matías agreed that without “follow the fortunes,” the risk transfer mechanism of a reinsurance program would not work. Trial Tr. vol. 8, 70:1-3.
C. The Defendants Have Waived Their Right to Demand Arbitration
Defendants also argue that because all of the relevant contracts in the Reliance Compcare Program contained mandatory arbitration clauses, if this Court concludes that an enforceable contract exists between plaintiffs and IRC Re, the doctrine of concurrence would require that the Court imply the same arbitration provision in the retrocessional agreement between plaintiffs and IRC Re. Trial Tr. vol. 7, 24:3-25:18, 61:8-62:23. They also point to the testimony of Dennis Luc that he had never been involved in a risk bearing policy in which there was not an arbitration provision and Tracie Pencak that she could not recall any reinsurance contract without an arbitration clause.
While there may be some merit to defendants’ argument, it is far too late for arbitration after almost three years of litigation, a two-week bench trial, and the related costs incurred by all parties that would have been avoided if arbitration were demanded at the outset. The First Circuit has “repeatedly held that a party may, by engaging in litigation, implicitly waive its contractual right to arbitrate.” Navieros Inter-Americanos, S.A. v. M/V Vasilia Exp., 120 F.3d 304, 316 (1st Cir.1997) (holding that a party waived its right to arbitration where it delayed raising the issue until eve of trial); Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd,., 325 F.3d 54, 57, 61-62 (1st Cir.2003) (after participating in at least five depositions and 13 pre-trial conferences, defendants had waived their right to arbitration).
In their Joint Pretrial Memorandum, defendants first raised the claim that “[i]f there was a contractual relationship involving IRC Re, ... dismissal [of this Complaint] is warranted by reason of the arbitration provision in the contract.” Joint Pretrial Mem. 23 (document # 95). The fact that the “enforcement of arbitration [i]s [first] brought up when the trial [i]s near at hand,” as it was in this case, weighs heavily in favor of waiver. See Jones Motor Co. v. Chauffeurs, Teamsters & Helpers Local Union No. 633, 671 F.2d 38, 43-44 (1st Cir.1982) (finding it unfair to “require that parties go to arbitration despite their having advanced so far in court proceedings before seeking arbitration”; district court had rightly found a waiver of arbitration). An arbitration this late in the litigation would mean that the considerable time, energy and resources that the parties and this Court have expended in preparing and trying this case were wasted. See Menorah Ins. Co. v. INX Reins. Corp., 72 F.3d 218, 222 (1st Cir.1995) (finding that a delay of 15 months was sufficient to waive right to arbitration); Jones Motor Co., 671 F.2d at 42 (delay of more than one year was sufficient to demonstrate waiver).
D. The Statute of Frauds Does Not Bar Plaintiffs’ Breach of Contract Claim
1. Standard of Review
Defendants argue that because the “alleged” contract was a multi-year agreement, it falls within the ambit of, but does not satisfy, the requirements of the Massachusetts Statute of Frauds. The Massachusetts Statute of Frauds provides:
No action shall be brought: ... [u]pon an agreement that is not to be performed within one year from the making thereof ... [u]nless the promise, contract or agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or by some person thereunto by him lawfully authorized.
M.G.L.A. ch. 259, § 1.
Massachusetts’ courts have further articulated the elements that an agreement must contain in order to satisfy
the statute as follows: (1) reasonably identify the subject matter of the contract, (2) indicate that a contract with respect to this subject matter has been made between the parties, (3) state with reasonable certainty the essential terms of the unperformed promises in the contract, and (4) be signed by or on behalf of the party to be charged. Des Brisay v. Foss, 264 Mass. 102, 109, 162 N.E. 4 (