In Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., the Second Circuit Court of Appeals affirmed a district court order granting summary judgment to plaintiff Fireman’s Fund, holding that defendant OneBeacon is obligated under a reinsurance policy’s “follow-the-settlements” clause to provide coverage for a settlement paid by Fireman’s Fund to its insured.
The case involved a reinsurance policy that OneBeacon’s predecessor-in-interest (General Accident) issued to Fireman’s Fund. The policy reinsured one of three excess insurance policies that Fireman’s Fund had issued to its insured, ASARCO, for two policy years in the early 1980s. All three excess policies issued by Fireman’s Fund to ASARCO provided coverage for $20 million in losses “but applied to varying policy years and had different attachment points (that is, points at which excess coverage was triggered)”. Faced with significant potential liability from asbestos-related claims, ASARCO sought coverage for those claims from Fireman’s Fund under all of the excess policies. After 10 years of litigation, Fireman’s Fund agreed to pay ASARCO $35 million in settlement of ASARCO’s claims under the three excess policies. To pursue reinsurance for the settlement it paid to ASARCO, Fireman’s Fund allocated the settlement amount among the three excess policies “in proportion to its calculation of the policies’ likely respective exposures,” which resulted in an allocation of $8.1 million to the OneBeacon policy. Fireman’s Fund then sought reinsurance coverage from OneBeacon for a percentage of that amount. The OneBeacon reinsurance policy included a “follow-the-settlements” clause, which provided “[a]ll claims involving this reinsurance, when settled by [Fireman’s Fund], shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlements.” However, OneBeacon denied the claim, asserting that the underlying policies were not exhausted and “Fireman’s Fund should have allocated the entire settlement amount to the other two excess policies.” The district court granted summary judgment in favor of Fireman’s Fund, concluding that OneBeacon had no basis for challenging Fireman Fund’s allocation of a portion of the settlement amount to the third policy.
The Second Circuit affirmed the district court’s entry of summary judgment, holding that the third policy’s terms “did not unambiguously require exhaustion of the underlying insurance policies through actual payment of the policy limits by the underlying insurers,” and “the underlying policies could be exhausted by a below-limits settlement and the third policy would cover so long as the policyholder’s total covered losses exceeded the policy’s attachment point.” The court then pointed out because ASARCO’s losses exceeded the third policy’s attachment point, “Fireman’s Fund could reasonably allocate a portion of the settlement to that policy.” Finally, the court rejected OneBeacon’s argument that the reinsurance policy required payment of policy limits in full by the underlying primary and excess insurers before any reinsurance coverage would attach, concluding that “[b]ecause Fireman Fund’s allocation was not contrary to the terms of any of the applicable policies, the reinsurance policy’s follow-the-settlements clause binds OneBeacon to honor the allocation.”
Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., No. 20-4282 (2d Cir. Sept. 15, 2022).