957 F.3d 337
2d Cir.2020Background
- Utica issued seven primary (now missing) and seven umbrella policies (each $10M) to Goulds for 1966–1972; Fireman’s Fund issued reinsurance certificates for the upper $5M of each umbrella.
- Each umbrella states Utica is liable only for "ultimate net loss . . . in excess of . . . the amounts of the applicable limits of liability of the underlying insurance as stated in the Schedule of Underlying Insurance Policies."
- The Schedules list per-person and per-occurrence limits for bodily injury but list aggregate limits only for property damage; no bodily-injury aggregate limits appear.
- Utica and Goulds settled coverage litigation in 2007, agreeing primary policies (including 1966–1972) had aggregate limits that were exhausted, and allocated remaining losses to the umbrella policies; Utica then sought recovery from Fireman’s Fund under the reinsurance.
- A jury found for Utica; District Court entered judgment for $64M (damages plus interest). On appeal, Fireman’s Fund argued the umbrella policies unambiguously required attachment only when losses exceeded the limits "as stated in the Schedule," so Fireman’s Fund owed nothing for bodily-injury losses that did not exceed the scheduled bodily-injury limits.
- The Second Circuit reversed: it held the umbrella language unambiguous that attachment is determined by the limits "as stated in the Schedule," including aggregate limits, and that the follow-the-settlements clause cannot override clear policy terms.
Issues
| Issue | Utica's Argument | Fireman’s Fund's Argument | Held |
|---|---|---|---|
| Whether the umbrella policies trigger only when losses exceed the underlying limits "as stated in the Schedule[s]" and thus require scheduled aggregate limits for bodily injury | The phrase refers only to occurrence (per-occurrence) limits; parties reasonably could allocate bodily-injury losses to umbrella even if no bodily-injury aggregate was listed | The umbrella unambiguously ties attachment to the limits "as stated in the Schedule," and because bodily-injury aggregate limits are not listed, umbrella (and thus reinsurance) does not attach for these losses | Held for Fireman’s Fund: the schedules control; "applicable limits of liability as stated in the Schedule" includes aggregate limits, so Fireman’s Fund owed nothing for losses that did not exceed the scheduled bodily-injury limits |
| Whether a follow-the-settlements clause binds the reinsurer to Utica’s settlement allocation even if that allocation contradicts the policy language | The follow-the-settlements clause requires Fireman’s Fund to accept Utica’s reasonable, good-faith allocation reflected in the 2007 Stipulation | Follow-the-settlements does not override or alter clear policy language; a reinsurer need not pay for allocations that are outside the unambiguous scope of the reinsured policy | Held for Fireman’s Fund: follow-the-settlements protects only reasonable, good-faith settlements that are within the terms of the reinsured policy; it cannot override unambiguous contract terms |
Key Cases Cited
- Glob. Reinsurance Corp. of Am. v. Century Indem. Co., 91 N.E.3d 1186 (N.Y. 2017) (New York law on enforcing unambiguous contract language negotiated at arm’s length)
- Travelers Cas. & Sur. Co. v. Gerling Glob. Reinsurance Corp. of Am., 419 F.3d 181 (2d Cir. 2005) (follow-the-settlements requires good faith and that settlement be within policy terms)
- Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London, 760 N.E.2d 319 (N.Y. 2001) (Court of Appeals: follow-the-settlements cannot mandate indemnification contrary to policy language)
- U.S. Fid. & Guar. Co. v. Am. Re-Ins. Co., 985 N.E.2d 876 (N.Y. 2013) (follow-the-settlements does not alter reinsurance terms)
- N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134 (2d Cir. 2004) (reinsurer not bound to pay outside scope of contractual obligations)
- Liberty Mut. Ins. Co. v. Ins. Co. of State of Pa., 841 N.Y.S.2d 288 (N.Y. App. Div. 2007) (Schedule limits control triggering of excess coverage)