Utica Mut. Ins. Co. v. Clearwater Ins. Co.
906 F.3d 12
2d Cir.2018Background
- Utica insured Goulds (1970s–1980s) with primary and umbrella liability policies; several primary policies lacked aggregate limits, exposing Utica to large asbestos-related liabilities.
- Clearwater issued five facultative reinsurance instruments (two Clearwater certificates and three TPF&C memoranda) covering portions of Utica’s 1978–1981 umbrella layers, with stated liability amounts totaling $7,712,500.
- Utica and Goulds settled in 2007 treating some primary policies as if they had aggregate limits; Utica then sought reinsurance recoveries from Clearwater as its obligations to Goulds triggered reinsurance claims.
- Clearwater initially paid nearly $1 million, then stopped, arguing (among other things) that its stated liability limits capped all payments (including loss expenses) and that it was not bound by Utica’s settlement allocations.
- The district court granted partial summary judgment to Clearwater on the limits question and later granted summary judgment to Utica that Clearwater must indemnify pursuant to Utica’s settlement; both rulings were appealed.
Issues
| Issue | Plaintiff's Argument (Utica) | Defendant's Argument (Clearwater) | Held |
|---|---|---|---|
| 1) Are Clearwater’s obligations for "loss expenses" capped by the stated liability limits (expense-inclusive) or payable in addition (expense-supplemental)? | Certificates are expense-supplemental because the underlying umbrella policies expressly obligate Utica to pay expenses "in addition to the applicable limit of liability," and the certificates follow the underlying policies. | Stated liability limits are hard caps that include loss expenses; the certificates’ liability figures cap all payments. | Follow-the-form clause makes Clearwater’s obligations expense-supplemental; remanded to determine which specific expenses are covered. |
| 2) Does the umbrella phrase "not covered by the policies listed in the schedule of underlying insurance" require Utica to pay additional expenses for asbestos claims? | Utica: "not covered by" means not collected under underlying insurance (so umbrella expenses can be extra after exhaustion). | Clearwater: "not covered by" means outside the scope of coverage (so umbrella not triggered where primary policies cover the risk). | Court vacated district-court ruling and remanded for factual/legal determination of the phrase’s meaning and whether umbrella obligations were triggered for asbestos payments. |
| 3) Do the TPF&C memoranda bind reinsurers to Utica’s voluntary Goulds settlement absent prior TPF&C authorization? | Utica: Obtaining TPF&C authorization was impossible (TPF&C ceased managing the pool), so condition precedent is excused and settlement binds reinsurers. | Clearwater: Memoranda condition reinsurer liability on prior authorization; Utica failed that condition and cannot invoke impossibility or prevention to excuse it. | Condition precedent (TPF&C authorization) was not satisfied; Utica did not establish impossibility or that Clearwater prevented authorization; Utica not entitled as a matter of law to require payment under the memoranda. |
| 4) Do the Clearwater certificates contain an express or implied follow-the-settlements obligation binding Clearwater to Utica’s settlement allocations? | Utica: The certificates’ "liability" language requires Clearwater to follow Utica’s settled liabilities (i.e., follow settlements). | Clearwater: Language is a follow-the-form clause (follow liabilities of the policy), not a follow-the-settlements clause; no basis to imply a settlements obligation into a negotiated contract between sophisticated parties. | Certificates do not contain an express follow-the-settlements clause; court will not imply such an obligation—Clearwater must indemnify only for Utica’s proven liability under the umbrella policies (remanded for determination). |
Key Cases Cited
- Global Reinsurance Corp. of America v. Century Indemnity Co., 30 N.Y.3d 508 (N.Y. 2017) (New York Court of Appeals: limitation-on-liability clauses do not presumptively cap defense/expense obligations; interpret contract language and surrounding circumstances)
- Unigard Sec. Ins. Co. v. N. River Ins. Co., 4 F.3d 1049 (2d Cir. 1993) (follow-the-form clauses make reinsurer liability track cedent policy terms)
- North River Ins. Co. v. ACE Am. Reins. Co., 361 F.3d 134 (2d Cir. 2004) (where express follow-the-settlements clause exists, reinsurer may be bound by cedent’s settlements)
- Travelers Cas. & Sur. Co. v. Gerling Glob. Reins. Corp. of Am., 419 F.3d 181 (2d Cir. 2005) (discussing follow-the-settlements/follow-the-fortunes obligations)
- Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990) (example of expense-inclusive construction where certificate was expressly "subject to" limits)
- Marin v. Constitution Realty, LLC, 28 N.Y.3d 666 (N.Y. 2017) (clear, unambiguous contracts between sophisticated parties are enforced according to plain meaning)