Arbitration / Court Decisions

On December 4, 2014, the Second Circuit addressed whether a facultative reinsurance certificate (“certificate”) covering an umbrella policy obligates a reinsurer to indemnify expense payments in addition to losses. The Court found the certificate ambiguous as to whether the reinsurer’s reimbursement liability included expense payments and consequently remanded and vacated the instant action back to the Northern District of New York.

Utica Mutual Insurance Company (“Utica”) issued an umbrella policy to Goulds Pumps Inc. (“Goulds”), exposing the carrier to significant payment obligations stemming from asbestos claims against Goulds. As reinsurer, Munich Reinsurance America, Inc. (“Munich”) paid out $5 million dollars, the limit under the certificate. Utica filed suit for additional unpaid and future expense payments associated with the Goulds’ policy. The trial court granted summary judgment for Munich reasoning that the certificate’s $5 million limit of liability applied to expenses and therefore Munich’s obligation for reimbursement had been met.

Distinguishing prior case law that found certificates “unambiguously expense-inclusive,” the Second Circuit found this certificate ambiguous as to expense-inclusion. They reasoned that Munich’s obligations to Utica for “losses or damages” to the liability limit on the certificate could be construed as specifically excluding expenses. The Court also noted that “settlement payments,” while not expressly included in the liability limit, were considered part of the calculation. The Court remanded the action to allow the trial court to interpret the certificate’s inclusion or exclusion of expenses. Utica Mut. Ins. Co. v. Munich Reins. Am. Inc., No. 13-4170-cv (2d Cir. Dec. 4, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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In a case on which we previously reported on January 29, 2014, a federal court in New York recently ruled that a reinsurer was not required to pay amounts in excess of the sums stated in the Liability Clauses of two facultative certificates, even though the word “limit” was not used. Rather, the reinsurer’s liability was stated as a percentage share of the underlying policy limit. The reinsured argued that certain defense expenses must be reimbursed, even though they exceeded the agreed-upon percentage share, because the facultative certificates were silent on whether defense expenses count toward the amount reinsured. Applying Second Circuit and New York law, the court concluded that the contract was unambiguous and that the reinsurer’s overall liability for both indemnity and defense expenses was capped at the amount stated in the Liability Clauses of the facultative certificates. The Court ruled that a percentage share of an underlying policy limit is itself a limit on liability. The court also denied the reinsured’s request for discovery regarding the “custom and practice” related to limit-of-liability provisions in reinsurance contracts. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Nov. 20, 2014).

This post written by Catherine Acree.

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