United States Fidelity & Guaranty Co. v. American Re-Insurance Co., 20 N.Y.3d 407

USF&G settled asbestos claims totaling about $975 million plus $12.3 million in claimant attorneys’ fees; reinsurers dispute allocation of that settlement.
MacArthur/Western Asbestos coverage litigation centered on whether USF&G properly defended and insured MacArthur, and whether policy terms and timing affected coverage.
USF&G’s reinsurance treaty was excess-of-loss with a $100,000 per-loss retention and no aggregate limit; reinsurers’ liability mirrors number of covered losses.
The settlement and related bankruptcy plan created a MacArthur trust to handle asbestos liabilities; allocation decisions determine how much of the settlement falls within reinsurers’ exposure.
Follow the settlements clause generally binds reinsurers to cedent decisions on allocation, but courts scrutinize reasonableness and good faith when conflicts of interest exist; this case focuses on the reasonableness of USF&G’s allocations.
Key disputed assumptions include: (i) all settlement amounts within policy limits vs. bad-faith claims; (ii) lung-cancer claims valued at $200,000 each and other diseases at lower values; (iii) allocating all losses to the 1959 policy year.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether USF&G’s allocation reasonably attributed nothing to bad-faith claims.	Reinsurers: allocation was not reasonable due to bad-faith claims’ value.	USF&G: allocation can be reasonable even if motivated by own interests; good-faith/consistency with underlying settlement matters.	Issue of fact; cannot decide as a matter of law.
Whether USF&G inflated values for non-bad-faith claims (e.g., lung cancer) to shift costs to reinsurers.	Allocation overvalued certain claims covered by reinsurance.	Values were within arm’s-length negotiation range.	Issue of fact; must be decided at trial.
Whether allocating all losses to the 1959 policy year was reasonable.	Allocation exploited the 1959 policy to maximize cedent’s protection.	Applying continuous trigger/all sums/no stacking rules is reasonable, given California law.	Summary judgment in USF&G’s favor on this aspect; not unreasonable.
Whether the alleged retroactive treaty amendment increasing per-loss retention created a dispute of material fact.	There was an oral/implicit amendment to raise retention; could affect liability.	No written endorsement or final agreement; amendment not proven.	Insufficient evidence of an amendment; no genuine issue of material fact.

Travelers Cas. & Sur. Co. v. Insurance Co. of Am., 609 F.3d 143 (3d Cir. 2010) (follow the settlements allocations should be deference-bound but reasonable)
Travelers Cas. & Sur. Co. v. Gerling Global Reins. Corp. of Am., 419 F.3d 181 (2d Cir. 2005) (allocation must be legitimate/credible; not purely reinsurance-driven)
North River Ins. Co. v. ACE Am. Reins. Co., 2002 WL 506682 (SD N.Y. 2002) (allocation review in reinsurance disputes guidance)
Commercial Union Ins. Co. v. Seven Provinces Ins. Co., Ltd., 217 F.3d 33 (1st Cir. 2000) (allocation must be legitimate or credible; cannot override policy terms)
Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645 (Cal. 1995) (continuous trigger rule context for occurrence-based policies)
Lockheed Corp. v. Continental Ins. Co., 134 Cal. App. 4th 187 (Cal. App. 2005) (distinguishing occurrence vs. accident-based policies; impact on triggers)
State of California v. Continental Ins. Co., 55 Cal.4th 186 (Cal. 2012) (approval of stacking; relevance to allocation choices)