442 F.Supp.3d 576
S.D.N.Y.2020Background
- Global Reinsurance (reinsurer) issued facultative certificates to Century Indemnity (cedent) reinsuring portions of Century’s excess liability policies for Caterpillar; Century’s underlying policies contained a Supplementary Payments clause requiring defense costs to be paid in addition to indemnity limits (non‑eroding).
- Each facultative certificate included: a Preamble referencing limits "set forth herein," Item 4 ("Reinsurance Accepted") stating a dollar amount (e.g., "$1,000,000 part of $10,000,000"), a Following Form Clause (reinsurance "shall follow" the insurer and be "subject in all respects to all the terms and conditions" of the underlying policy), and a Payments Provision that separately addresses (1) loss payments, (2) expenses when there are loss payments, and (3) expenses when there are no loss payments.
- Century sought contribution from Global for indemnity and defense costs arising from long‑tail asbestos claims; Global paid up to the Item 4 dollar amounts but disputed exposure beyond those caps for defense costs when there were losses.
- Procedural history: district court originally ruled for Global; Second Circuit questioned earlier precedent and certified a contract‑interpretation question to the New York Court of Appeals; New York Court of Appeals required traditional contract interpretation; matter remanded and the district court held an evidentiary hearing on ambiguity and industry custom.
- The court found the agreement integrated with the underlying Century policies, considered industry custom (crediting Century’s experts on a presumption of concurrency unless non‑concurrency is explicit), and concluded Item 4 caps indemnity and caps expenses only when there are no loss payments, but does not cap expenses incurred when there are loss payments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Item 4 dollar amount caps the reinsurer’s liability for both indemnity and defense expenses | Global: Item 4 is the single limit "subject to the terms" and caps losses and expenses combined | Century: Item 4 caps indemnity only; Following Form Clause and Payments Provision make expenses concurrent with underlying policy and thus expenses (when there are losses) are uncapped | Item 4 caps indemnity and caps expenses only when there are no loss payments; expenses incurred when there are losses are payable proportionately and are not capped by Item 4 |
| Whether the contract is ambiguous and extrinsic evidence (industry custom) may inform meaning | Global: Text is unambiguous; no industry custom overrides plain meaning | Century: Text is informed by a 1970s industry presumption of concurrency; custom shows parties expected expenses to follow underlying policy unless non‑concurrency was explicit | Contract construed as unambiguous on the key point once read as a whole; court relied on industry custom to interpret "part of" percentages and to confirm that non‑concurrency would be explicit, supporting Century’s reading re: concurrency for expenses when losses exist |
| Whether prior precedent (Bellefonte/Unigard/Excess) mandates that per‑occurrence caps limit total reinsurance including expenses | Global: Earlier cases and some appellate decisions suggest certificate limits cap expenses too | Century: Those cases are distinguishable or not controlling after New York Court of Appeals’ instruction to apply ordinary contract rules | Court held those precedents do not control here; directed to apply traditional contract interpretation and specific contract language rather than a presumption that Item 4 caps all expenses |
Key Cases Cited
- Bellefonte Reinsurance Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir.) (reinsurer liability for defense costs interpreted under certificate language)
- Unigard Sec. Ins. Co. v. North River Ins. Co., 4 F.3d 1049 (2d Cir.) (applied Bellefonte to limit reinsurer expense liability)
- Global Reinsurance Corp. of Am. v. Century Indem. Co., 843 F.3d 120 (2d Cir.) (Second Circuit questioned Bellefonte/Unigard and certified question)
- Global Reinsurance Corp. of Am. v. Century Indem. Co., 30 N.Y.3d 508 (N.Y.) (Court of Appeals: no strong presumption; apply traditional contract interpretation)
- Global Reinsurance Corp. of Am. v. Century Indem. Co., 890 F.3d 74 (2d Cir.) (remand directing district court to construe policies by their language and context)
- Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (N.Y.) (Court of Appeals’ prior alignment with Bellefonte discussed but distinguished)
- Utica Mut. Ins. Co. v. Clearwater Ins. Co., 906 F.3d 12 (2d Cir.) (distinguished; contract language there differs on payments of losses and loss expenses)