238 F. Supp. 3d 314
N.D.N.Y.2017Background
- Utica insured Goulds (primary and umbrella policies) for years including 1966–1972; Utica reinsured $5M of each $10M umbrella with FFIC via facultative certificates containing a follow-the-settlements clause.
- The original primary policies for 1966–1972 are missing; central factual dispute is whether those primary policies included bodily-injury aggregate limits that would have caused umbrella/reinsurance layers to be reached.
- Utica settled Goulds’ asbestos exposure claims in Feb 2007 for $325M, with stipulations that primary policies had aggregate limits and were exhausted; Utica gave notice to FFIC only in July 2008 and submitted bills in 2008–2009 totaling ~$35M.
- FFIC investigated, sought documents, and delayed payment; Utica sued in July 2009 for breach of the reinsurance certificates and bad faith; FFIC counterclaimed for rescission and asserted defenses including late notice and that it need not follow the settlement.
- After discovery, the court resolved multiple summary‑judgment and pleading motions: it dismissed Utica’s bad‑faith damages claim (Count II) and declined to exercise jurisdiction over a duplicative declaratory-count (Count III); other disputed issues (aggregate limits, follow‑the‑settlement, rescission, timing of notice) present triable issues and survive summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Counts II and III are duplicative of Count I | Count II (bad faith) alleges distinct investigative misconduct and seeks attorneys’ fees; Count III seeks declaratory relief about future obligations | FFIC: Counts II and III merely repackaged Count I breach claim | Court: Count II may stand (different conduct and remedies); Count III dismissed as duplicative |
| Whether FFIC is entitled to summary judgment that it owed no coverage for 1966, 1968–1971 because umbrella declarations show no BI aggregates | Utica: declarations pages are incomplete; extrinsic evidence admissible because contracts are incomplete/ambiguous | FFIC: absence of aggregate on declarations proves no BI aggregate, so reinsurance never triggered for those years | Court: Denied — material issues of contract completeness and admissibility of extrinsic evidence preclude summary judgment |
| Whether Utica can recover extra‑contractual attorneys’ fees for bad faith (Count II) | Utica: FFIC unreasonably delayed, mishandled investigation; conduct led to consequential damages | FFIC: had reasonable basis to investigate (late notice, missing primary policies, aggregation question); high Sukup standard unmet | Court: Granted summary judgment for FFIC; Utica cannot meet the high bad‑faith standard (must show no arguable basis and conduct beyond an arguable difference of opinion) |
| Whether FFIC must “follow the settlement” (follow‑the‑settlements doctrine) | Utica: settlement was reasonable and supported by extrinsic evidence; motive to access reinsurance is not dispositive | FFIC: stipulations were gratuitous and designed to maximize reinsurance recovery; settlement unreasonable/bad faith | Court: Denied summary judgment for both sides — reasonableness and good faith present triable issues for jury |
| Whether FFIC may rescind the certificates based on Utica’s alleged nondisclosure of aggregate limits | Utica: aggregates were standard; FFIC’s underwriter testimony is weak; rescission barred/waived | FFIC: evidence (correspondence, broker notes, underwriting practice) supports failure to disclose and materiality — rescission should be litigated | Court: Denied Utica’s motion; rescission counterclaims raise disputed material facts and are timely |
| Whether notice to FFIC was due before Feb 1999 (precluding certain prejudice claims) | Utica: no reasonable possibility FFIC reinsurance would be implicated before 1999; Utica did not know about FFIC until 2008 | FFIC: objective standard—reasonable possibility arises earlier (e.g., when Gen Re was notified in 1996); earlier notice could have prevented prejudice | Court: Denied Utica’s motion; timing of notice is a factual question for the jury under Christiania’s “reasonable possibility” standard |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions must be supported by factual allegations)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard and burdens)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine dispute and materiality at summary judgment)
- Christiania Gen. Ins. Co. v. Great Am. Ins. Co., 979 F.2d 268 (2d Cir. 1992) (notice obligation arises when a reasonable possibility exists that reinsurance will be involved)
- Gerling Global Reins. Corp. v. Travelers Cas. & Sur. Co., 419 F.3d 181 (2d Cir. 2005) (standard for reinsurer proving cedent bad faith under follow‑the‑settlements)
- U.S. Fid. & Guar. Co. v. Am. Re-Ins. Co., 20 N.Y.3d 407 (N.Y. Ct. App.) (reasonableness standard for settlement allocations under follow‑the‑settlements)
- Sukup v. State, 19 N.Y.2d 519 (N.Y. 1967) (high bar for extra‑contractual attorney‑fee recovery for insurer bad faith)