Global Reins. Corp. of Am. v. Century Indem. Co.
Issue Discussed: Under New York law were declaratory judgment expenses & costs within, or in addition to, the dollar limit stated in the Declarations of the parties’ facultative reinsurance certificates
Submitted by Tom Stillman
Date Promulgated: March 2, 2020
Global Reins. Corp. of Am. v. Century Indem. Co.
Issue Discussed: Under New York law were declaratory judgment expenses & costs within, or in addition to, the dollar limit stated in the Declarations of the parties’ facultative reinsurance certificates
Submitted by Tom Stillman[1]
Date Promulgated: March 2, 2020
Global Reinsurance Corporation Of America v. Century Indemnity Company, 13 Civ. 6577 (United States District Court, S.D.N.Y.)
Court: United States District Court, Southern District Of New York
Case Description: Between 1962 and 1981 Century issued insurance policies to the Caterpillar Tractor Company that obligated Century to pay for third party liability claims up to each policy’s stated liability limit. The policies contained a separate “Supplementary Payments” provision that required Century to pay defense costs in addition to the limit for indemnity. Between 1971 and 1980, Global sold Century facultative reinsurance for the policies. The Declarations of the certificates contained a dollar limit. After it paid losses under the Caterpillar policies, Century billed Global for both its indemnity and expense payments. Global refused to pay more than the limit stated in the certificates’ Declarations. It sought a declaratory judgment that the limit capped its total liability.
Century contended that the limit capped Global’s indemnity liability but not that for defense costs. The District Court for the Southern District Of New York granted Global’s motion for summary judgment, Glob. Reinsurance Corp. Of Am. v. Century Indemn. Co., No. 13 Civ. 6577, 2014 WL 4054260 (S.D.N.Y. Aug 15. 2014) primarily relying on the Second Circuit’s decision in Bellefonte Reinsurance Co., v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990). On appeal, the Second Circuit certified a question to the New York Court Of Appeals asking whether New York law imposed either a rule of construction or a strong presumption, that a per occurrence liability cap in a reinsurance contract capped the total of the reinsurer’s liability. Glob. Reinsurance Corp. Of Am. v. Century Indemn. Co., 843 F.3d 120, 122 (2d Cir. 2016). The Court Of Appeals answered that there was no such presumption. Instead it stated that New York law requires that a court interpreting a policy must look at its language and apply the principles governing contracts generally. Glob. Reinsurance Corp. Of Am. v. Century Indemn. Co., 30 N.Y. 3d 508 (2017). The Second Circuit remanded the case to the District Court with directions “to construe each reinsurance policy solely in light of its language and, to the extent helpful, specific context”. Glob. Reinsurance Corp. Of Am. v. Century Indemn. Co., 890 F.3d 74, 77 (2d. Cir. 2018).
Holding: The plain and unambiguous meaning of the reinsurance contracts is that the dollar amount stated on the facultative certificates caps indemnity payments and also caps expense payments when there are no losses, but does not cap expense payments when there are losses.
As directed by the Second Circuit on remand, the District Court held an evidentiary hearing to determine whether the reinsurance agreement was ambiguous and whether and how industry specific context might help to interpret it. The parties presented a joint statement of facts, declarations and expert testimony.
The Court found that the reinsurance agreement between the parties was unambiguous. Applying New York’s rules of contract construction, the Court concluded that the certificates incorporated the underlying insurance policies so that they were integral to and part of the reinsurance agreement. Rather than give precedence to the dollar limit contained in the Declarations of the certificates, as Global advocated, the court relied on language in both the certificates and the policies to support its holding.
The Court concluded that its textual interpretation was confirmed by the credible testimony from Century’s expert as to industry custom and practice at the time the agreement was drafted. On the basis of such testimony the Court found that the parties would have considered whether the reinsurance and insurance were concurrent and would have presumed that they were in fact concurrent in absence of an explicit statement of non-concurrency. Non-currency was expressly stated as to expenses when there are no losses, but in contrast no such express statement was made as to expenses when there are losses.
Finally, the Court rejected reliance on prior decisions in conflict with the Second Circuit’s direction on remand to “‘construe each reinsurance policy solely in light of its language and, to the extent helpful, specific context.’”
[1] Tom Stillman has been an independent arbitrator since 2008, with a wide range of business and legal experience focusing on reinsurance and business problems of insurance companies. He was formerly Senior Vice President and Deputy General Counsel at the CNA Insurance Companies.
