THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA v. EQUITAS INSURANCE LIMITED
Docket No. 20-3559-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Decided: May 22, 2023
August Term, 2022
Argued: December 1, 2022
Defendant-Appellant, a reinsurer, appeals from an order of the Southern District of New York (Swain, C.J.) granting summary judgment to Plaintiff-Appellee, its reinsured. On appeal, Appellant argues that the district court erroneously held that its reinsurance obligations to Appellee are co-extensive with Appellee‘s separate insurance obligations to a third party and that it presented no triable issue of fact on its late-notice defense. We disagree. The district court correctly determined that English law, which governs the relevant reinsurance policy, would interpret that policy to provide coverage that is co-extensive with Appellee‘s separate insurance obligations. The district court also correctly rejected Appellant‘s late-notice defense because Appellant has not shown the sort of extreme facts that would be necessary under English law to support recognition of that defense where, as here, timely notice is not a condition precedent to coverage. We therefore AFFIRM the district court‘s order granting summary judgment.
PETER R. CHAFFETZ (Andrew L. Poplinger, on the brief), Chaffetz Lindsey, LLP, New York, NY, for Plaintiff-Appellee.
SEAN THOMAS KEELY, Freeborn & Peters LLP, New York, NY, for Defendant-Appellant (Jill C. Anderson, Freeborn & Peters LLP, Chicago, IL, on the brief).
This is a reinsurance dispute between Defendant-Appellant Equitas Insurance Limited (“Equitas“) and Plaintiff-Appellee the Insurance Company of the State of Pennsylvania (“ICSOP“). In the late 1960s, ICSOP provided umbrella insurance to a predecessor of Dole Food Company for a policy period from October 1968 to October 1971 (the “ICSOP-Dole policy“). Equitas then reinsured part of ICSOP‘s exposure for the same three-year period.
Many years later, in 2009, homeowners in Carson, California, sued Dole for polluting their soil and groundwater. Dole and ICSOP settled those claims and allocated $20 million of the settlement liability to the ICSOP-Dole policy, even though the Carson plaintiffs’ property damages and personal injuries continued to accrue after the ICSOP-Dole policy period had ended. In doing so, the settlement followed California law‘s approach to allocation, known as the “all sums rule,” which treats any insurer whose policy was in effect during any portion of the time during which the continuing harm occurred as jointly and severally liable (up to applicable policy limits) for all property damages or personal injuries caused by a pollutant.
ICSOP thereafter sought reinsurance coverage from Equitas for its liability, only for Equitas to deny its claim on the basis that English law, which governs the reinsurance policy, would not have allocated ICSOP‘s liability on an all sums basis. Instead, Equitas asserted, English law would have prorated ICSOP‘s liability based on the number of years it provided coverage to Dole. Accordingly, Equitas contended that its reinsurance obligations were similarly limited. Equitas also defended its denial on the theory that ICSOP had deliberately delayed notice of claim, and thus forfeited any claim under the reinsurance policy.
ICSOP then brought this suit, claiming that Equitas was liable on the policy for the reinsured portion of ICSOP‘s settlement liability. Rejecting both of Equitas‘s arguments for denying coverage, the district court (Laura Taylor Swain, C.J.) granted summary judgment to ICSOP.
We agree with the district court. Although the question is not without doubt, we conclude that under the better reading of English law, Equitas‘s obligations under the reinsurance policy are co-extensive
Searching for a way around that presumption, Equitas urges that the United Kingdom Supreme Court would never apply the back-to-back presumption where, as here, a foreign jurisdiction‘s law has the effect of avoiding a reinsurance policy‘s coverage period. But the United Kingdom Supreme Court has never limited the presumption in that way, and it has in fact applied a version of the all sums rule in limited instances. Separately, English law has never recognized the defense of full repudiation based on late notice of claim where, as here, timely notice is not a condition precedent to coverage. While Equitas urges that English law would recognize such a defense on extreme facts, no such facts are present here.
We therefore AFFIRM the judgment of the district court.
BACKGROUND
In the late 1960s, a subsidiary of Castle & Cooke Inc. purchased land in Carson, California, where Shell Oil Company had formerly operated an oil and petroleum containment facility. The Castle & Cooke subsidiary demolished the facility and developed a housing tract. Decades later, in 2008, the California Department of Toxic Substances Control tested a site adjacent to the housing tract and found hazardous levels of petroleum hydrocarbons, including benzene, a known carcinogen, in the soil and groundwater. Soon after that discovery, Carson homeowners sued Dole Food Company (with which Castle & Cooke had, by then, merged) and Shell in California state court. According to their complaint, long-term benzene exposure can cause various latent diseases, such as anemia and leukemia, that can manifest many years after exposure. Thus, the homeowners sued for personal injuries and property damage related to the environmental contamination.
Shortly after suit was filed in October 2009, Dole notified its insurers. One insurer was ICSOP, a wholly-owned subsidiary of the American International Group, Inc. In 1968, ICSOP had issued umbrella insurance to Castle & Cooke (the “ICSOP-Dole policy“). The ICSOP-Dole policy covers up to $20 million for “all sums” for which Dole might be liable in damages “caused by or arising out of each occurrence happening during” a three-year policy period, from October 1, 1968, to October 1, 1971. J. App‘x 754.
Dole and its insurers settled the homeowners’ and other related lawsuits, assigning $20 million in liability to the ICSOP-Dole policy – even though that policy contained a three-year coverage period and even though the plaintiffs’ losses accrued over four decades. The parties do not dispute either the fact or the extent of ICSOP‘s liability under the ICSOP-Dole policy. As for ICSOP‘s liability in general, the ICSOP-Dole policy sets “occurrence” as the relevant thing that must happen during the policy period, id., and it defines occurrence to include “an event or a continuous or repeated exposure to conditions which result in Personal Injury or Property Damage,” id. at 755-56. As for the extent
As discussed more fully below, the all sums rule applies in long-tail liability cases – cases that involve, for example, injuries that manifest many years after exposure to a pollutant – and holds insurers jointly and severally liable, up to applicable policy limits, for all property damages or personal injuries caused by the pollutant so long as some of the continuing harm occurred while each policy was in effect. See Montrose Chem. Corp. of Cal. v. Superior Ct. of L.A. County, 460 P.3d 1201, 1206-07 (Cal. 2020), as modified (May 27, 2020).
To cover part of its losses, ICSOP notified Equitas, its reinsurance carrier, of Dole‘s claim against the ICSOP-Dole policy. In 1969, ICSOP had obtained facultative reinsurance1 from underwriters at Lloyd‘s of London to hedge some of the risk stemming from the ICSOP-Dole policy; Equitas later inherited those reinsurance obligations from Lloyd‘s. The reinsurance policy spans the same three-year period as the ICSOP-Dole policy, and it covers up to $7,234,125 for each $20 million limit that ICSOP pays to Dole. It provides that reinsurance coverage is “[a]s [o]riginal,” J. App‘x 779, 796, and it contains a follow-the-settlements clause, which reads:
Now We the Underwriters hereby agree to reinsure against loss to the extent and in the manner hereinafter provided.
Being a Reinsurance of and warranted same gross rate, terms and conditions as and to follow the settlements of the Company . . . .
Id. at 777, 793.
Equitas has refused to cover any portion of ICSOP‘s part of the settlement and to pay ICSOP‘s claim.
In September 2017, ICSOP filed suit against Equitas for reinsurance coverage in the Southern District of New York. At the close of discovery, the parties cross-moved for summary judgment. Equitas principally argued that ICSOP is not entitled to indemnity under the reinsurance policy because, while it did not dispute ICSOP‘s liability to Dole under the all sums rule, Equitas‘s liability to ICSOP under the reinsurance policy is governed by English law, which does not follow that rule. Equitas also asserted a separate repudiation defense, contending that it may fully repudiate the reinsurance policy because ICSOP deliberately delayed notice of claim for about six years after becoming aware that a claim was likely, and misled Equitas into believing that ICSOP had no claim against the reinsurance policy.
For its part, although it agreed that English law governed the reinsurance policy,
The district court agreed with ICSOP, holding that the parties’ obligations are co-extensive and rejecting Equitas‘s full repudiation defense. See Ins. Co. of State of Pennsylvania v. Equitas Ins. Ltd., No. 17-6850, 2020 WL 4016815, at *2-5 (S.D.N.Y. July 16, 2020). Consequently, it awarded ICSOP $7,234,125 in damages. Id. at *6. Equitas appeals from that judgment.
DISCUSSION
We review a grant of summary judgment de novo. Bey v. City of New York, 999 F.3d 157, 164 (2d Cir. 2021). We first consider the scope-of-coverage issue – whether Equitas‘s obligations under the reinsurance policy are, as the district court held, co-extensive with ICSOP‘s obligations under the ICSOP-Dole policy. We then consider Equitas‘s repudiation defense. Because, as the parties agree, English law governs the reinsurance policy, our role is to predict how the United Kingdom Supreme Court would resolve those issues. See Terra Firma Invs. (GP) 2 Ltd. v. Citigroup Inc., 716 F.3d 296, 299-300 (2d Cir. 2013) (predicting that “a rebuttable presumption of reliance” that attaches to some claims for “fraudulent misrepresentation” is “a burden-shifting device” under English law).2
I. Scope of Coverage
Under English law, a facultative reinsurance contract is “a separate contract” that “is not an insurance against liability.” Wasa Int‘l Ins. Co. v. Lexington Ins. Co. [2010] 1 AC 180 (HL) ¶ 32 (Lord Mance); see also Delver v. Barnes [1807] 127 Eng. Rep. 748 (CP) 749-50 (Mansfield, C.J.). Thus, “an insurer seeking indemnity under a reinsurance must, in the absence of special terms, establish both [1] its liability under the terms of the insurance and [2] its entitlement to indemnity under the terms of the reinsurance.” Wasa [2010] 1 AC 180 (HL) ¶ 35 (Lord Mance) (emphasis added). To be entitled to indemnity, ICSOP therefore must show that its liability was properly allocated under the terms of the ICSOP-Dole policy and that it is entitled to indemnity for that liability under the reinsurance policy.
A. Liability under the ICSOP-Dole Policy
Equitas does not dispute ICSOP‘s liability to Dole under the ICSOP-Dole policy or
i. American Tort and Insurance Law
As one commentator has put it, “[v]ery few developments have ever transformed either tort or insurance law, . . . and only one[] [development] has transformed both . . . .” Kenneth S. Abraham, The Long-Tail Liability Revolution: Creating the New World of Tort and Insurance Law, 6 U. Pa. J.L. & Pub. Aff. 347, 349 (2021) (emphasis omitted). That development is the rise in tort and insurance litigation concerning “long-tail harms,” a term that “describes a series of indivisible harms, whether bodily injury or property damage, that are attributable to continuous or repeated exposure to the same or similar substances or conditions that take place over multiple years or that have a long latency period.” Restatement of the Law of Liability Insurance § 33 cmt. f (Am. L. Inst. 2019) (identifying “asbestos-related bodily injuries and environmental property damage” as two “paradigmatic examples“).
In tort law, long-tail harms present “quintessentially difficult causation questions, largely because of the length of time between the defendant‘s allegedly tortious conduct and the manifestation of injury, disease, or damage that may have been caused by that conduct.” Abraham, supra, at 357-58. Those quandaries inspired judicial innovations regarding but-for causation. In the seminal case on market-share liability, for example, the Supreme Court of California addressed claims brought by the daughters of mothers who had ingested diethylstilbestrol (“DES“) during their pregnancies, which led to latent injuries manifesting in their daughters many years later. See Sindell v. Abbott Lab‘ys, 607 P.2d 924, 925-26 (Cal. 1980). Ordinarily, the doctrine of but-for causation would have required the plaintiff-daughters to prove which of many manufacturers had produced the DES that their mothers had ingested. See Id. at 927-28. But the Supreme Court of California relieved them of that near-impossible burden, holding that “[e]ach defendant will be held liable for the proportion of the judgment represented by its share of that market unless it demonstrates that it could not have made the product which caused plaintiff‘s injuries.” Id. at 937.
Similarly, when it comes to asbestos-related injuries, it is nearly impossible to prove with “absolute certainty which particular exposure to asbestos dust resulted in injury to” a particular plaintiff, especially for an employee who was exposed to several different sources of asbestos from several different employers. Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076, 1094 (5th Cir. 1973). In responding to that issue, courts developed more plaintiff-friendly causation rules. In Borel, for example, the Fifth Circuit (applying Texas law) held that it was enough for a victim of mesothelioma and asbestosis to show that he was tortiously ”exposed to the [asbestos-contaminated] products of all the defendants on many occasions.” Id. (emphasis added). Mere tortious exposure was sufficient, the court held, because “[i]t was . . . established that the effect of exposure to asbestos dust is cumulative, that is, each exposure may result in an additional and separate injury.” Id. Similarly, in
Those judicial innovations and others like them expanded the universe of liable defendants, and thus spawned ever more difficult questions concerning how to allocate that liability. Those questions still remain. There appears to be no majority American rule, for instance, governing how to allocate liability when multiple defendants are liable for an indivisible injury – like mesothelioma or other cancers or property damage – flowing from environmental contamination; some jurisdictions appear to employ hybrid approaches to apportioning liability. See Restatement (Third) of Torts: Apportionment Liab. § 17 cmt. a (Am. L. Inst. 2000) (collecting various approaches). On the one hand, eight years after Sindell, the Supreme Court of California rejected the imposition of joint-and-several liability in the context of market-share liability, confining liability instead to the defendants’ respective share of the market. See Brown v. Superior Court (Abbott Lab‘ys), 751 P.2d 470, 485-87 (Cal. 1988). On the other, the Borel court (again applying Texas law) imposed joint-and-several liability. 493 F.2d at 1095-96.
Related developments occurred in the world of insurance law as claims for long-tail harms made their way through the courts. With rising long-tail tort liability and a competitive American insurance market in the 1960s, comprehensive general liability insurance shifted from covering tort liability caused by an “accident,” which arguably covered only abrupt events that resulted in immediate harm, to covering tort liability caused by an “occurrence.” Abraham, supra, at 369-71.3 That change was “a recognition that the policy was to cover liability for harm caused by pollution and other similar, slowly-occurring processes.” Id. at 371.
The ICSOP-Dole policy descends from that lineage. Executed in the late 1960s, it covers Dole for ”all sums” that Dole “shall be obligated to pay by reason of liability imposed upon [Dole] by law,” and for “all damages, direct or consequential, . . . on account of personal injuries . . . and property damage, caused by or arising out of each occurrence happening during the policy period.” J. App‘x 754 (emphases added). Notably, the ICSOP-Dole policy defines “occurrence” broadly to include “an event or a continuous or repeated exposure to conditions which result in Personal Injury or Property Damage.” Id. at 755-56 (emphasis added).
That language appears to codify the so-called “continuous injury” trigger
actual apportionment of the injury is difficult or impossible to determine“). Hence, there is no dispute that ICSOP was liable to Dole.
The extent of ICSOP‘s liability to Dole presents a different, though also undisputed, question. The continuous injury trigger implicates distinct allocation issues because that trigger presents circumstances where multiple insurers, like multiple defendants in a tort action, might be liable. It also presents circumstances where, as here, a single insurer is liable even though that insurer provided coverage during only a short part of the period of exposure to the risk that later evolved into harm.5
In those circumstances, some jurisdictions, like California and Hawaii, follow
Courts have applied the all sums rule where language in the policy required the insurer to pay “all sums” for which the insured becomes liable on
account of an event during the policy period. California v. Cont‘l Ins. Co., 281 P.3d 1000, 1007-08 (Cal. 2012), as modified (Sept. 19, 2012); see also Keene Corp., 667 F.2d at 1047-50. The ICSOP-Dole policy contains that language. See J. App‘x 754. Thus, Equitas does not dispute the extent of ICSOP‘s liability to Dole under California law.
An alternative approach is to prorate responsibility “by year among triggered policy years.” Abraham, supra, at 380. For example, “[i]f a $200 million liability triggered twenty policy years, then each policy year would be potentially responsible for its pro-rata share of $10 million.” Id.
“There is some disagreement over the precise number of jurisdictions that have adopted each position” – the all sums rule or the pro rata approach – “in part because of variation in policy language and in part because of differing possible interpretations of the holdings in some cases.” Restatement of the Law of Liability Insurance § 41 cmt. c. What seems to be clear, however, is that “a significant number of courts” have adopted the all sums rule, “a clear majority” have adopted the pro rata approach, and “many courts have not yet taken a position.” Id.; see also Rossello v. Zurich Am. Ins. Co., 226 A.3d 444, 451 nn.12-13 (Md. 2020) (collecting some of the divide).
Whether to relax causation in tort, set a default rule that more expansively triggers insurance coverage, or allocate liability on a pro rata or all sums basis, are quintessentially public policy questions. As a federal court sitting in alienage jurisdiction, it is not our role to answer those questions. Instead, our role is to determine how English law would resolve those issues in the context of reinsurance. How English law has approached those issues in the context of tort liability and insurance is therefore helpful to understanding the parties’ arguments.
ii. English Tort and Insurance Law
As with American law, we begin our discussion of English law with torts. In Fairchild v. Glenhaven Funeral Services Ltd., [2003] 1 AC 32 (HL) ¶¶ 3-5 (Lord Bingham). The Lords considered whether there were “special circumstances,” in light of the medical uncertainty concerning how
After Fairchild, the House of Lords faced the allocation issue in Barker v. Corus UK Ltd. [2006] 2 AC 572 (HL). Ordinarily, under English law, if two tortfeasors are the proximate cause of an indivisible injury, like mesothelioma, both tortfeasors are jointly and severally liable. See id. ¶ 28 (Lord Hoffmann). Applying that apportionment rule, liability under Fairchild would seem to result in joint-and-several liability, because a necessary condition for Fairchild liability is that the claimant suffer an indivisible injury. Id. ¶ 61 (Lord Scott). But that would be incongruent with the basis of Fairchild liability, which is the creation of a material increase in risk, even if the defendant did not factually cause the injury. Id. ¶ 53 (Lord Scott); see also id. ¶ 126 (Baroness Hale) (“For the first time in our legal history, persons are made liable for damage even though they may not have caused it at all . . . .“). Thus, in Barker, the House of Lords rejected a rule that apportioned tort liability on a joint-and-several basis between multiple employers who exposed their employee to asbestos and were thereby liable under the Fairchild rule. Id. ¶ 48 (Lord Hoffmann); id. ¶ 62 (Lord Scott); id. ¶¶ 109-110 (Lord Walker); Id. ¶ 127 (Baroness Hale). The House of Lords instead allocated liability on a pro rata basis. Id.
In response, however, Parliament passed the
English insurance law followed that development. In Trigger, the United Kingdom Supreme Court held that insurers who cover employers who are liable under the Compensation Act 2006 are likewise liable for such claims against the employers. Id. ¶¶ 49-50, 71-74. Lord Mance explained that “[w]here two contracts are linked” – as in the reinsurance context – “the law will try to read them consistently with each other.” Id. ¶ 69. Thus, “[t]he intention under the present insurances must be taken to have been that they
Then in Zurich Insurance PLC UK Branch v. International Energy Group Ltd., the United Kingdom Supreme Court extended Trigger, holding that insurers are jointly and severally liable on an all sums basis for their insured‘s liability when that insured is jointly and severally liable pursuant to the Compensation Act. [2015] UKSC 33 ¶¶ 45-51, 54, 94-97 (Lord Mance). In so holding, the Court explained that “facultative liability insurance” – again, like facultative reinsurance – “normally responds to whatever may prove to be the liability incurred by the insured.” Id. ¶ 45. Thus, “[o]nce one accepts that causation equates with exposure, in tort and tort liability insurance law,” as was held in Fairchild and Trigger, “there is no going back on this conclusion simply because there was exposure by the insured of the victim both within and outside the relevant insurance period.” Id. ¶ 46. That is so despite, as a dissenting Lord pointed out, “the fundamental importance under English law of the temporal scope of a time policy,” id. ¶ 153 (Lord Sumption), quoting Wasa [2010] 1 AC 180 (HL) ¶ 15 (Lord Brown). Just as the California Court of Appeal recognized in Armstrong World Industries, 52 Cal. Rptr. 2d at 710-11, the United Kingdom Supreme Court recognized that the “primary question” concerns the duty that the insurer owes to the insured – in Zurich, to cover the insured‘s liabilities flowing from exposure to asbestos – not the relative position “between two insurers.” Zurich [2015] UKSC 33 ¶ 48 (Lord Mance). Viewed that way, “there is . . . nothing illogical about a conclusion that each of successive insurers is potentially liable in full, with rights of contribution inter se.” Id.
But the Compensation Act is limited to the particular situation of asbestos-related mesothelioma. Where that Act does not apply, as is the case here, neither does Zurich‘s adoption of joint-and-several liability. See id. ¶¶ 8-9, 35; cf. Wasa [2010] 1 AC 180 (HL). That is because policy periods are accorded fundamental importance under English law. See Municipal Mutual Ins. Ltd. v. Sea Ins. Co. Ltd. [1998] Lloyd‘s Rep. (Civ) 421, 436 (Hobhouse, L.J.) (“When the relevant cover is placed on a time basis, the stated period of time is fundamental and must be given effect to.“).
B. Indemnity under the Reinsurance Policy
As we have already noted, both parties agree that the reinsurance policy is governed by English law. And because the Compensation Act does not apply here, English law would not have allocated ICSOP‘s liability under the underlying ICSOP-Dole policy on an all sums basis. But that fact does not resolve the question whether the United Kingdom Supreme Court would construe the reinsurance policy as entitling ICSOP to indemnity for its properly allocated liability.
Under English law, the terms of a reinsurance policy must be interpreted in light of its “commercial purpose” and circumstances. GRAYDON S. STARING & HON. DEAN HANSELL, LAW OF REINSURANCE § 13:1 (Mar. 2022 update), quoting Reardon Smith Line Ltd. v. Hansen-Tangen [1976] 2 Lloyd‘s Rep. 621 (HL) 624-25 (Lord Wilberforce); see also Charrington & Co. v. Wooder [1914] AC 71 (HL) 82 (Lord Dunedin). In the context of facultative reinsurance, the original insurer reinsures part of its risk by paying the reinsurer “a proportional share of the premium.” Wasa [2010] 1 AC 180 (HL) ¶ 55 (Lord Collins). “[T]he obvious commercial intention” of that arrangement
English law therefore recognizes a “strong” – though not conclusive – presumption that “liability under a proportional facultative reinsurance is co-extensive with the insurance.” Id. ¶ 116. Thus, it will “almost invariably be the case” that losses falling within the original insurance policy will also fall within the reinsurance, “even if the losses are payable under a foreign law . . . which takes a view different from English law” on liability. Id. That “obvious” outcome “is simply commercial common sense.” Id. ¶ 60. While a facultative reinsurance contract can deviate from that presumption, “[s]uch a contract would . . . be wholly exceptional” and constitute “a departure from the normal understanding of the back-to-back nature of reinsurance.” Id. ¶ 62 (internal quotation marks and citation omitted).
A seminal English case applying that presumption is Forsikringsaktieselskapet Vesta v. Butcher [1989] 1 AC 852 (HL) (“Vesta“). There, an insurance policy covered a fish farm and contained a warranty requiring the farm to keep a 24-hour watch; the reinsurance policy in question, which covered that original insurance policy, contained the same warranty. Id. at 890-91 (Lord Templeman). The owner of the fish farm failed to keep the watch as required, and the farm was destroyed. Id. What destroyed the farm, however, was not failure to keep a watch, but rather a storm. Id. Under Norwegian law, which governed the original insurance policy, the breach of warranty was no defense to liability because the owner‘s failure to keep a watch was not what destroyed the fish farm. Id. at 891. Had the original policy been governed by English law – which governed the reinsurance policy – that same non-causative breach would have entitled the original insurer to refuse payment. Id. However, the House of Lords held that absent some “express declaration to the contrary in the reinsurance policy, a warranty must produce the same effect in each policy.” Id. at 892. It reasoned that the parties, who had access to a “Norwegian legal dictionary” when they agreed upon the original contracts, must have intended the clause to have the same meaning in both the insurance and the reinsurance – that is, the meaning given by Norwegian law – and thus provide back-to-back coverage. Id. at 911 (Lord Lowry).
Equitas argues that Vesta and, more broadly, the back-to-back presumption do not apply here. It insists that Wasa, a case with similar facts to this one, limits the back-to-back presumption. In Wasa, an insurance company, Lexington, issued a $20 million insurance policy to Aluminum Co. of America (“Alcoa“), which Lexington then reinsured in the London market with two English reinsurers. [2010] 1 AC 180 (HL) ¶¶ 18-21 (Lord Mance). Neither contract specified a governing law, although the insurance included a “service of suit clause” that required Lexington to “submit to the jurisdiction of any court of competent jurisdiction within the United States.” Id. ¶ 19 (internal quotation marks omitted). Both contracts covered a three-year period, but the Washington Supreme Court held that Pennsylvania law, which followed the all sums rule, applied to a group of consolidated claims and that the underlying Alcoa policy could therefore cover environmental damages spanning 44 years. Id. ¶¶ 12-13 (Lord Brown); id. ¶¶ 19-20, 25-26 (Lord Mance). Lexington sued its English reinsurers to cover their share of the risk. But this time, unlike in Vesta, the House of Lords held that the back-to-back presumption did not apply, and it instead strictly construed the reinsurance contract‘s three-year temporal provision. Id. ¶ 54 (Lord Mance); id. ¶ 116 (Lord Collins).
But Wasa differs from this case in one important aspect. There, the underlying Alcoa policy did not contain a choice-of-law clause, and it was unpredictable at the time of contracting that Pennsylvania law would govern the Alcoa policy. Here, by contrast, the underlying ICSOP-Dole policy contains an express choice-of-law clause directing the application of Hawaii law, which, Equitas concedes, like California law, follows the all sums rule in environmental suits involving continuous and indivisible injuries.
In Wasa, the absence of a choice-of-law clause was significant to Lords Collins and Mance, whose speeches garnered support from a majority of the Lords. Lord Mance explained that the Washington Supreme Court found that Pennsylvania law governed the Alcoa policy by “taking into account matters and events extraneous to th[at] policy.” Id. ¶ 49. The choice of Pennsylvania law could not, therefore, “be regarded as in any sense predictable at the time when the reinsurance was placed.” Id. It was for that reason that Wasa presented “materially different” circumstances from those presented in Vesta. Id. While in Vesta it was possible “to identify the foreign law which would govern the insurance” when the contract was formed, id. ¶ 44, in Wasa “[t]here was . . . no identifiable legal dictionary (formal or informal), still less a Pennsylvanian legal dictionary,” at the time of contracting that “could lead to any different interpretation of the reinsurance wording,” id. ¶ 49. Lord Collins distinguished Vesta on the same basis. “[I]n complete contrast to the Vesta case,” Lord Collins explained, “there was in 1977, when the [Wasa] insurance contract and the reinsurance contract were concluded, no identifiable system of law applicable to the insurance contract which could have provided a basis for construing the contract of reinsurance in a manner different from its ordinary meaning in the London insurance market.” Id. ¶ 108. Meanwhile, in Vesta, “the substance of the foreign law as to the consequences of a non-causative breach of warranty could be ascertained at the outset, if necessary by recourse to a relevant Norwegian . . . legal source.” Id.
Here, as in Wasa, the ability or inability to predict the law governing the original insurance when the parties execute reinsurance is no small factor. Under English law, “a contract has a meaning which is to be ascertained . . . when it is concluded.” Id. ¶ 45 (Lord Mance). Thus, absent an ability to predict the governing legal regime at the outset, an unspecified foreign law cannot dictate the meaning of a reinsurance contract. The presence of a choice-of-law clause in the ICSOP-Dole policy therefore distinguishes this case from Wasa.
To be sure, Wasa left open whether the presence of a choice-of-law clause would have revived the back-to-back presumption. In the course of arguing Wasa, counsel for Lexington asked the House of Lords, “what more could Lexington have done to reinsure themselves on a fully back to back basis?” Id. ¶ 51. Tellingly, among other responses, Lord Mance replied that “steps could . . . be taken to make the insurance subject to an identifiable governing law, though this would not necessarily foreclose all argument.” Id. (emphasis added).
But, even as Wasa does not altogether foreclose Equitas‘s arguments, we do not
i. The Fundamental Importance of a Policy Period
Equitas argues that Wasa hinged not just on the lack of a choice-of-law clause, but also on the fundamental importance of a policy period to English insurance law. That argument is not without force. As Equitas argues, a policy period is indeed accorded “fundamental importance” under English law. Id. ¶ 15 (Lord Brown). As Lord Brown pointed out in Wasa, if the policies were back-to-back, then Lexington, the insurer in that case, could have recovered the full loss no matter how short the period of cover, whether it was three years or “only three months.” Id. Disregarding a policy period would, Lord Collins wrote in Wasa, lead to some “very uncommercial consequences.” Id. ¶ 111. Similarly, Lord Mance explained that the “all sums” doctrine was a “fundamental and surprising change[] in the ordinary understanding . . . of a reinsurance period.” Id. ¶ 40. Vesta did not involve a policy period. Instead, it involved “uncommercial and technical points” of English law: the ability of an insurer to deny coverage based on a breach of a warranty that had no causal relationship to the insured‘s losses. Id. ¶ 56 (Lord Collins). In that area, Lord Mance explained in Wasa, “English law has long been recognised as unduly stringent and in need of review.” Id. ¶ 50.
Even so, Equitas‘s theory falls short for several reasons. To start, the opinion of Lord Brown, who relied most heavily on the fundamental nature of the policy period, did not gain majority support. Lords Mance and Collins, who were joined by a majority, put decisive weight on the inability to predict the governing legal regime at the time the contract was executed. See id. ¶ 49 (Lord Mance) (distinguishing Vesta on the basis that there was an “identifiable legal dictionary” to interpret the contracts in that case); id. ¶ 108 (Lord Collins) (describing the lack of an “identifiable system of law” as in “complete contrast” to Vesta).7 Moreover, as even Equitas‘s English law expert acknowledges, the back-to-back presumption is not “confined to such unattractive types of case[s]” like Vesta. J. App‘x 1178, ¶ 41. Rather, Lord Collins in Wasa explained that modern English law would likely apply the presumption even in a case involving a dispute about the definition of the very risk that the parties bargained to insure. [2010] 1 AC 180 (HL) ¶¶ 64-65, citing St. Paul Fire & Marine Ins. Co. v. Morice [1906] 11 Com. Cas. 153, a case that involved the meaning of “all risks of mortality” in an insurance dispute about coverage of a bull who was slaughtered on board a ship after contracting foot and mouth disease.
More significantly, Equitas‘s “fundamental importance” argument relies on its view that the all sums rule is “anathema” to English insurance law.
Appellant‘s Br. 21-22, 32. That view, however, rests on a misreading of Municipal Mutual [1998] Lloyd‘s Rep. (Civ) 421, as well as an incomplete account of English law. In Municipal Mutual, England‘s Court of Appeal declined to apply the back-to-back presumption to hold that the coverage period of an insurance policy was co-extensive with the coverage periods of several
And as outlined above, while English law does not generally follow the all sums rule, in more complex cases involving asbestos liability, English law has followed a version of the all sums rule, albeit in circumstances that are not present here. After the House of Lords initially eschewed apportioning tort liability jointly and severally between multiple employers who exposed their employees to asbestos, see Barker [2006] 2 AC 572 (HL) ¶ 49 (Lord Hoffmann), Parliament passed the
To be clear, we do not know whether Zurich, if applied here, would lead to the same outcome concerning ICSOP‘s liability to Dole or Equitas‘s liability to ICSOP. Zurich recognizes various rights to contribution, including under principles of self-insurance, see [2015] UKSC 33 ¶¶ 65-82, which may or may not differ from California‘s and Hawaii‘s approaches to contribution. The point of our reliance on Zurich is that the case recognizes a circumstance where an insurer can be jointly and severally liable for the whole of the insured‘s tort liability even though that liability might have accrued after the policy period‘s expiration. That recognition defeats Equitas‘s argument that the all sums rule is anathema to English law. Accordingly, Zurich reinforces the conclusion that English law would construe the reinsurance policy in this case as co-extensive with the ICSOP-Dole policy.
ii. Change in Law
Equitas next underscores that even if the presence of a choice-of-law clause distinguishes
Again, that argument has some merit. The Lords in Wasa were troubled not only by the inability to predict the governing legal regime but also by the resulting inability to predict the substantive rules of that regime. For example, Lord Phillips suggested that it was “unlikely” that the parties could have anticipated that the same words in the original insurance and the reinsurance would mean “radically” different things under different legal systems. Wasa [2010] 1 AC 180 (HL) ¶¶ 4-5. Lord Collins explained that in Vesta the “substance of the foreign law as to the consequences” of the 24-hour watch clause “could be ascertained at the outset,” whereas, in Wasa, it was impossible to predict that a U.S. court would apply the all sums rule because U.S. courts had not yet developed that rule when the parties executed their agreements. Id. ¶¶ 108-09.
That point cannot be decisive, however. The reinsurers in Wasa made the exact same argument. Assuming that the reinsurers were correct that Pennsylvania law had only later adopted the all sums rule, Lord Mance asked, “would that matter?” Id. ¶ 53. Noting an observation of Lord Justice Longmore, who sat on the appellate court from which the reinsurers had appealed, Lord Mance explained the Court of Appeal‘s view that “[i]t would have been ‘nothing to the point‘” if in Vesta, for example, “‘the relevant Norwegian statute had been enacted after the inception of the policy.‘” Id. (citation omitted). “[R]einsurers must,” Lord Justice Longmore had explained, “take the risk of any change in the law.” Id. And there, as here, “one is only talking at most about a change in the construction put at common law on a particular contract wording.” Id. Likewise, Lord Collins explained that “[i]t is elementary” that insurers and reinsurers “take[] the risk of changes in the law” and cannot “be heard to say that [they] rated the risk by reference to the then current scope of the original insured‘s duty . . . provided that the risk is within the reinsurance.” Id. ¶ 110.
Thus, when parties fail to define in their insurance agreements a term such as “all sums” – the term that invokes the all sums rule – they adopt the meaning a common law court will ascribe to it, and thereby bear the rewards and risks of the common law‘s dynamic nature. See Trigger [2012] UKSC 14 ¶ 70 (Lord Mance), citing Kleinwort Benson Ltd v. Lincoln City Council [1999] 2 AC 349 (HL) 378-79 (Lord Goff) (explaining that “when . . . judges state what the law is, their decisions . . . have a retrospective effect” not only “in relation to the particular case” but “also inevitabl[y] in relation to other cases in which the law as so stated will in future fall to be applied” because no “common law system . . . can operate otherwise if the law is [to] be applied equally to all and yet be capable of organic change“); Woodland v. Essex County Council [2013] UKSC 66 ¶ 28 (Lady Hale) (“The common law is a dynamic instrument. It develops and adapts to meet new situations as they arise. Therein lies its strength. But therein also lies a danger, the danger of unbridled and unprincipled growth to match what the court perceives to be the merits of the particular case.“).
To that end, turning back to Zurich and Trigger, the United Kingdom Supreme Court acknowledged in those decisions
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This case unquestionably presents an issue that was expressly left open in Wasa, and has not since been resolved by the United Kingdom Supreme Court. We thus cannot be certain that our prediction as to how that Court would resolve this case had it been litigated in England is correct. But it remains our responsibility to make our best considered judgment of how that Court would decide the issue, based on the available precedents.8
We have carefully reviewed those precedents, and for the reasons set forth above, we conclude that under English law the back-to-back presumption is strong, and we do not believe that the United Kingdom Supreme Court would condition that presumption on the importance of a policy term or the predictability of how a foreign court might later interpret that term. Accordingly, the back-to-back presumption applies to the reinsurance policy, thus rendering the parties’ obligations co-extensive.
B. Late Notice of Claim
Separately, Equitas claims that ICSOP‘s failure to provide timely notice of claim allows it to fully repudiate the reinsurance policy. Equitas concedes, however, that timely notice is not a condition precedent to a claim for coverage under the reinsurance policy. Where timely notice is not a condition precedent, English law rejects the defense of partial repudiation – that is, an insurer‘s ability to reject a claim for coverage. See Friends Provident Life & Pensions Ltd. v. Sirius Int‘l Ins. [2005] EWCA (Civ) 601 ¶ 32 (Lord Mance). That would seem to foreclose Equitas‘s more radical defense of full repudiation based on late notice of claim.
Nevertheless, Equitas‘s English law expert opines that on “extreme facts,” “dishonest non-notification” that causes “serious prejudice to” an insurer might give
Even accepting for a moment the expert‘s proposed standard, however, the facts that Equitas alleges – that ICSOP notified Equitas some six years after becoming aware that a claim was likely under the reinsurance policy, that ICSOP failed to inform Equitas of the likely claim in response to queries about other claims, and that some of ICSOP‘s failures may even have been deliberate – do not suffice to show serious prejudice. Equitas‘s expert defined serious prejudice as something that goes to the “root of the whole” contract. Id. at 1189-90, ¶¶ 68, 72. We see none of that in this record, and thus no reason to go where no English court has gone. Accordingly, we agree with the district court that Equitas‘s late-notice defense is unavailing.
CONCLUSION
For the reasons set forth above, we AFFIRM the judgment of the district court.