843 F.3d 120
2d Cir.2016Background
- Century issued nine reinsurance certificates to Global (1971–1980) reinsuring portions of Century’s general liability policies issued to Caterpillar.
- Thousands of asbestos suits against Caterpillar led Century to pay indemnity and substantial defense expenses to Caterpillar; Century seeks reimbursement from Global under the certificates.
- A representative certificate (Certificate X) stated a per-occurrence “Reinsurance Accepted” dollar amount ($250,000 part of $500,000 each occurrence excess of Century’s $500,000 retention), a “follow” clause, and a clause allocating reinsurers’ proportionate share of settlements and, in addition, their proportion of expenses.
- Global argued the stated Reinsurance Accepted amount unambiguously caps Global’s liability for losses and expenses combined; Century argued the cap applies only to losses and expenses are payable in addition.
- The district court granted summary judgment for Global, relying on this Court’s decisions in Bellefonte and Unigard that treated the certificate limit as an overall cap on both losses and defense/expense obligations.
- The Second Circuit panel found the question of New York law unsettled—specifically whether New York’s Excess decision created a rule or strong presumption that a per-occurrence cap limits total reinsurance (losses plus expenses)—and certified that question to the New York Court of Appeals.
Issues
| Issue | Century's Argument | Global's Argument | Held |
|---|---|---|---|
| Whether the per-occurrence "Reinsurance Accepted" amount is an absolute cap on reinsurer liability for losses and expenses combined | The cap applies only to losses; reinsurer must pay expenses (e.g., defense costs) in addition to the stated amount | The stated amount caps total reinsurer liability for losses and expenses combined | District court held the cap covers losses and expenses; Second Circuit certified to NY Court of Appeals whether Excess creates a controlling rule/presumption |
| Whether Bellefonte/Unigard rule should govern interpretation of these certificates | Bellefonte/Unigard were wrongly decided; industry practice and purpose of reinsurance support reading expenses outside the cap | Bellefonte/Unigard control and preclude expanding liability beyond the stated cap; stare decisis supports continuity | Second Circuit declined to overrule precedent and instead sought guidance from NY Court of Appeals on whether Excess modifies or establishes a rule |
| Whether Excess v. Factory Mutual controls the interpretive question | Century: Excess did not decide the antecedent question and so does not impose a presumption that caps include expenses | Global: Excess follows and reinforces the rule that subordinate clauses cannot expand liability beyond stated cap | Court concluded Excess is not directly controlling on whether the cap is an absolute coverage limit and certified the specific question to NY Court of Appeals |
| Whether industry custom/practice or other extrinsic evidence should alter the textual reading of certificates | Industry custom and premium allocation indicate reinsurer assumed proportional risk including expenses, supporting expenses outside the cap | Contract text and precedent (Bellefonte/Unigard) require following the written cap; extrinsic evidence cannot override the cap | Court acknowledged industry arguments but deferred to NY Court of Appeals to decide whether such considerations affect construction under NY law |
Key Cases Cited
- Bellefonte Reinsurance Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990) (held certificate limit capped reinsurer liability for defense costs as well as losses)
- Unigard Sec. Ins. Co. v. N. River Ins. Co., 4 F.3d 1049 (2d Cir. 1993) (applied Bellefonte to a certificate with a "follow the form" clause; limitation on liability prevails)
- Excess Ins. Co. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (N.Y. 2004) (refused to allow subordinate clauses to expand reinsurer liability beyond an assumed policy limit)
- Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London, 96 N.Y.2d 583 (N.Y. 2001) (describes purpose of reinsurance as spreading risk)