Global Reinsurance Owes Century Share of Asbestos Defense Costs

Reinsurance contracts between Global Reinsurance Corp. of America and Century Indemnity Co. are “concurrent” with commercial liability policies Century issued to Caterpillar Tractor Co. and obligated Global to pay 50% of the excess litigation expenses Century incurred in defending Caterpillar from asbestos litigation, the Second Circuit ruled.

That’s true regardless of the reinsurance contracts’ liability cap, the appeals court held.

The case was back before the appeals court following remand to a Manhattan federal judge. The judge reversed her prior ruling in the case, which found that the liability cap in the reinsurance contracts applied to both the losses Caterpillar sustained—and Century paid—on asbestos exposure claims and related litigation costs.

The reversal was based on the New York Court of Appeals’ answer to a question it certified to that court seeking clarification of New York law, the U.S. Court of Appeals for the Second Circuit said.

Contrary to then-circuit precedent, New York’s top court said “facultative” reinsurance agreements like those Global entered with Century between 1971 and 1980 are read the same as any other contract and don’t enjoy a presumption that a stated cap on overall liability controls other provisions, it said.

Facultative agreements are reinsurance purchased by an insurer for a single risk or package of risks.

The lower court properly applied the New York Court of Appeals’ guidance in finding Global isn’t entitled to a declaratory judgment that the liability caps in its agreements with Century extended to both losses and litigation expenses, the Second Circuit said Monday. It rejected Global’s appeal.

The reinsurance contracts all contain standard “follow-form” or “follow-the-fortunes” clauses incorporating the terms and conditions of Century’s underlying contracts with Caterpillar, Judge Steven J. Menashi said. The underlying agreements obligate Century to defend Caterpillar from commercial liability claims without regard to the agreements’ cap on liability, the judge said.

“In industry parlance,” that means the reinsurance contracts ran concurrently with the underlying agreements, he said.

The follow-form clauses control because they’re more specific than the general caps on liability stated in the reinsurance pacts, Menashi said.

That interpretation is supported by Century’s expert witnesses, who testified that “the principle of concurrency” was fundamental to facultative reinsurance in the 1970s, the judge said.

The circuit precedent the district court initially relied on before reversing course is no longer good law in light of the New York Court of Appeals’ guidance, Menashi said.

Judges Guido Calabresi and Rosemary S. Pooler joined the opinion.

Freeborn & Peters LLP represented Global. O’Melveny & Myers LLP and White & Williams LLP represented Century.

The case is Global Reins. Corp. of Am. v. Century Indem. Co., 2021 BL 493338, 2d Cir., No. 20-01476, 12/28/21.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *