Century Indemnity Co. v. OneBeacon Insurance Co.

Issue Discussed: DJ Expenses / Costs within or in Addition to Limits

Submitted by Amy Kline

Date Promulgated: March 27, 2015

Century Indemnity Co. v. OneBeacon Insurance Co., No. 2012-02928 (Phila. Ct. Com. Pl., Mar. 27, 2015)

Court: Court of Common Pleas, Philadelphia County, Pennsylvania

Issue Decided: Whether reinsurer’s liability for expenses was subject to facultative reinsurance certificate’s liability limit.

Submitted By: Amy S. Kline[1]

Key Holding

The Philadelphia Court of Common Pleas held, on the reinsurer’s motion for summary judgment, that the “reinsurance accepted” limit in the reinsurance certificates was ambiguous as to whether it placed a total cap on the reinsurers’ liability, including expenses. The court distinguished Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co.[2] holding that it did not establish a blanket rule that all limits of liability are presumptively expense-inclusive.  The court continued that the “Subject to” language is key in creating such a presumption, but that presumption can be overcome.  Moreover, even if a condition mirrors the language used in Bellefonte, “a court must still analyze the certificate as a whole in order to discern its meaning and conclude whether expenses are included, or in addition, to the limit of liability.”

In analyzing the certificates, the court found that there were variations from the certificate in Bellefonte.  Here, the reinsurance accepted provision stated: “In consideration of the payment of the net premium and subject to the general conditions set forth on the reverse side hereof, the reinsurer does hereby reinsure [Name of Company’s Insured].”  According to the court:

Instead of the terms being subject to the liability as in Bellefonte, the liability is subject to the terms and conditions.  This places greater emphasis on the conditions themselves, which may trump other aspects of the certificates.  As a result, a condition that excludes expenses in calculating the total loss limit holds more weight than the amount of ‘Reinsurance Accepted’ when interpreting these certificates.

This was a difference that “cannot be ignored.” The court further stated that “Bellefonte highlighted the importance of the ‘subject to’ clause, and Utica demonstrated the ability of a court to reach a different interpretation.  If anything, the terms of the certificates may have created a presumption of expense-exclusiveness.”  The court opined that even if the certificates were analogous to Bellefonte, the Court would still have denied the motions on the grounds that a latent ambiguity exists.

Finally, the court held that extrinsic evidence was necessary to construe the terms of the contract in its entirety. “The application of industry custom and usage influences the meaning of the certificates, and highlights the existence of genuine issues of material fact which are to be determined by the finder of fact.”[3]

This case proceeded to trial and on February 23, 2016, the court entered judgment for the cedent and against the reinsurer. Relying, in part, on expert evidence of industry custom and practice, the court found that the “Limit of Liability in the underlying policies only attaches to liability for losses. Therefore, the amount stated in [the reinsurance accepted provision] of the policies only applies to OneBeacon’s proportionate share of liability of losses” and “does not establish an overall ceiling or absolute limit on OneBeacon’s entire liability under the certificates.”[4]

Key Takeaways

The Court of Common Pleas in Philadelphia distinguished Bellefonte and held, on summary judgment, that the reinsurance accepted provision of the facultative certificates was ambiguous and, following trial, that expenses were in fact not included. The court emphasized, however, that its holding was fact-, and contract term-specific:

[I]t is vital to focus on the exact terms of the contracts at hand. A slight variation in the terms may lead to a different outcome. Therefore, courts should continue to conduct their own analyses to determine the appropriateness of extrinsic evidence, and not view this court’s limited admission as setting a blanket precedent. These findings are limited to the instant certificates at hand.

[1]               Amy Kline is a Vice-Chair of the Litigation Department and a Partner in the Insurance Practice Group of Saul Ewing LLP, resident in Philadelphia, Pennsylvania.

[2]               Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990).

[3]               In OneBeacon, the broker industry, as amici, urged the court to “consider the longstanding reinsurance industry practice and custom treating the loss limits in facultative certificates as expense-exclusive, in accordance with industry expectation that the reinsurance coverage with be concurrent with the underlying insurance policy.”

[4]               Century Indem. Co. v. OneBeacon Ins. Co., 2012-02928 (Phila. Ct. Com. Pl. Feb. 23, 2016).