381 F. Supp. 3d 185
N.D.N.Y.2019Background
- Utica issued primary and umbrella liability policies to Goulds (1964–1987); Munich facultatively reinsured parts of the 1973 and 1977 umbrella policies ($5M excess of $5M in 1973; $1M excess of $2M in 1977).
- Massive asbestos claims against Goulds triggered allocations across multiple policy years; Utica settled with Goulds in 2007 and then billed reinsurers for allocated losses and loss-adjustment expenses.
- Utica claimed the 1973 umbrella had been modified by a midterm "1973 defense endorsement" making defense expenses supplemental to limits; Munich disputed having received/relied on that endorsement earlier.
- Utica billed Munich under the 1973 Certificate for $2.76M in expenses; Munich refused. Munich had paid Utica $1,731,368.21 under the 1977 Certificate (including $731,368.21 in expense) and later sought reimbursement of $789,813.47.
- After a ten-day bench trial, the court (Sannes, J.): (1) refused to imply a follow‑the‑fortunes/follow‑the‑settlements term into the 1973 Certificate; (2) held the 1973 umbrella's "occurrence not covered by" language does not mean exhaustion-generated gaps; (3) held the 1973 Certificate did not independently obligate Munich to pay the challenged declaratory‑judgment expenses; (4) held Munich’s Utica II claim for reimbursement under the 1977 Certificate is barred by the voluntary‑payment doctrine.
Issues
| Issue | Utica's Argument | Munich's Argument | Held |
|---|---|---|---|
| Whether a follow‑the‑fortunes / follow‑the‑settlements obligation should be implied into the 1973 Certificate | Industry custom and expert testimony show reinsurers routinely deferred to cedents; term should be implied | No such clause appears in the Certificate; courts should not imply such a重大 term between sophisticated parties | Declined to imply; Utica failed to prove the doctrine was "fixed and invariable" in the facultative market at the time |
| Whether "occurrence not covered by" in the 1973 defense endorsement includes occurrences covered by the primary but rendered uninsured by exhaustion (i.e., obligates Utica to provide defense supplemental to limits) | The phrase should be read to include occurrences that become "not covered" because the primary exhausted, so endorsements triggered supplemental defense | "Not covered" means risks/types of loss the underlying policies do not insure (horizontal gap), not exhaustion; context and retained‑limit provisions show exhaustion does not convert coverage | Unambiguous for Munich: "occurrence not covered by" refers to risks not within the underlying policy, not exhaustion; Utica had no supplemental defense duty under the umbrella based on exhaustion |
| Whether Paragraph 3 of the 1973 Certificate ("allocated loss expense") creates an independent obligation on Munich to pay Utica's defense/declaratory‑judgment expenses even if Umbrella did not obligate Utica | "Allocated loss expense" is not expressly tied to the obligee requirement in ¶1 and can obligate Munich for certain expenses (including DJ expenses) | Facultative reinsurer reinsures the cedent's risk under the named policy; "incur" requires legal liability; expenses must be allocable to losses the umbrella actually obliged Utica to pay | Certificate read as a whole requires that allocated loss expenses be tied to expenses Utica was legally liable to pay under the umbrella; DJ expenses at issue are not "allocated" to covered umbrella losses and are not recoverable |
| Whether Munich may recover the $789,813.47 it paid under the 1977 Certificate (reimbursement/overpayment) | N/A (Munich sought reimbursement) | Utica raised defenses including voluntary payment, lack of reimbursement right, account stated | Payment by Munich was a voluntary payment made with insufficient diligence given Utica's incomplete documentation; voluntary payment doctrine bars Munich's recovery; judgment for Utica in Utica II |
Key Cases Cited
- N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134 (2d Cir. 2004) (describing follow‑the‑fortunes/settlements doctrines and limits on reinsurer review)
- Travelers Cas. & Sur. Co. v. Gerling Global Reins. Corp. of Am., 419 F.3d 181 (2d Cir. 2005) (noting relationship between follow‑the‑fortunes and settlement contexts)
- Clearwater Ins. Co. v. Lexington Ins. Co., 906 F.3d 12 (2d Cir. 2018) (refusing to imply a follow‑the‑settlements clause into facultative certificates absent express language)
- Global Reins. Corp. of Am. v. Century Indem. Co., 30 N.Y.3d 508 (N.Y. 2017) (New York Court of Appeals: courts should be reluctant to imply major contractual terms between sophisticated parties)
- Viking Pump, Inc. v. Century Indem. Co., 148 A.3d 633 (Del. 2016) (contrasting interpretation that "not covered" can include exhaustion—court distinguished Viking’s policy language and declined to follow it here)
- Employers Ins. Co. of Wausau v. Am. Reins. Co., 256 F. Supp. 2d 923 (W.D. Wis. 2003) (district court found reinsurers liable for certain declaratory‑judgment expenses where DJ expenses were tied to coverage of the reinsured policy; distinguished on facts)
- Metz v. U.S. Life Ins. Co. in City of N.Y., 662 F.3d 600 (2d Cir. 2011) (defining "incur" as becoming legally liable or subject to payment)