22 F.4th 83
2d Cir.2021Background
- Between 1971–1980 Global issued ten facultative reinsurance certificates to Century reinsuring portions of liability policies Century issued to Caterpillar; the underlying Century policies paid defense costs in addition to liability limits.
- Each certificate contained (a) a Declarations “Reinsurance Accepted” dollar limit, (b) a preamble making Global’s obligations “subject to” limits, (c) a follow‑form clause incorporating the underlying policy’s terms, and (d) a payments provision allocating a proportionate share of losses and expenses.
- After asbestos claims, Century paid indemnity and defense costs to Caterpillar and sought reinsurance contributions; Global paid only up to the certificate limits and sought a declaratory judgment that those limits capped defense costs.
- The district court initially ruled for Global relying on Bellefonte and Unigard; the Second Circuit certified a question to the New York Court of Appeals about whether New York law presumes liability caps are cost‑inclusive.
- The New York Court of Appeals answered no—reinsurance contracts are governed by ordinary contract principles and there is no rule or strong presumption that per‑occurrence caps include defense costs; on remand the district court found the follow‑form language and industry custom required concurrency and denied Global declaratory relief.
- The Second Circuit affirmed: the follow‑form clauses (and credible evidence of market practice) require Global to pay its proportionate share of defense costs in addition to the certificate limits; Bellefonte and Unigard no longer control to the extent they conflict with New York law.
Issues
| Issue | Global’s Argument | Century’s Argument | Held |
|---|---|---|---|
| Whether the per‑occurrence “Reinsurance Accepted” dollar limits cap Global’s liability for defense costs | Limits unambiguously cap all payments (losses + expenses) | Follow‑form clause incorporates underlying policies, so defense costs are payable in addition to limits | Follow‑form + industry custom require concurrency; limits do not cap defense costs when indemnity losses exist |
| Whether the certificates are unambiguous and whether extrinsic industry evidence may be considered | Contract language is clear; no extrinsic evidence needed | Language is reasonably susceptible; industry custom clarifies meaning | Apply ordinary contract rules; follow‑form language is dispositive; expert evidence of custom supports concurrency |
| Whether Bellefonte and Unigard remain controlling or are displaced by New York law | Bellefonte/Unigard bind and support cap interpretation | New York Court of Appeals (Global IV/Excess) rejects any presumption that caps are cost‑inclusive | New York Court of Appeals controls; Bellefonte and Unigard are no longer good law to the extent they conflict |
Key Cases Cited
- Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990) (held certificate limits capped reinsurer liability for defense costs)
- Unigard Sec. Ins. Co. v. North River Ins. Co., 4 F.3d 1049 (2d Cir. 1993) (applied Bellefonte to hold limits controlled over follow‑form)
- Excess Ins. Co. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (N.Y. 2004) (addressed whether reinsurance limits are presumptively cost‑inclusive)
- Global Reins. Corp. of Am. v. Century Indem. Co., 30 N.Y.3d 508 (N.Y. 2017) (New York Court of Appeals: no rule/presumption that per‑occurrence caps are cost‑inclusive; apply ordinary contract rules)
- In re Arab Bank, PLC Alien Tort Statute Litig., 808 F.3d 144 (2d Cir. 2015) (federal courts must follow intervening state‑court precedent even if it conflicts with prior circuit panel precedent)