North River Insurance Co. v. Employers Reinsurance Corp.
Issue Discussed: Follow the Fortunes / Settlements
Submitted by Cecilia Froelich Moss, Karen C. Baswell
Date Promulgated: March 11, 2002
North River Insurance Co. v. Employers Reinsurance Corp., 197 F. Supp. 2d 972 (S.D. Ohio 2002)
Court: United States District Court for the Southern District of Ohio
Issues Decided: Whether, as a matter of law, the follow the settlements doctrine applied to the reinsurance certificate even if it did not explicitly provide for it.
In a dispute over reinsurance coverage for a settlement regarding non-product asbestos claims under a facultative certificate, the parties filed cross-motions for partial summary judgment on the issue of whether the follow the settlements doctrine should be read into a reinsurance certificate which did not contain a traditional express follow the fortunes/settlements clause.
Applying New Jersey law, the court rejected the cedent’s argument that the follow the settlements doctrine is inherent in every reinsurance contract as a matter of law, or that it should be implied in every reinsurance contract as a matter of custom or practice in the industry. Instead, the court held that whether the doctrine could be implied as a matter of custom or policy “will vary depending on which state’s laws apply to the contract dispute.” 197 F. Supp. 2d 972, 986 (S.D. Ohio 2002).
The court also rejected the cedent’s argument that two separate clauses in the Certificate which referred to the payment of settlements should be read as follow the fortunes/settlements clauses.
Finally, the court addressed whether a follow the settlements requirement could be read into the certificate at issue in the absence of an express provision. The court concluded factual issues precluded summary judgment to either party on this issue. The court noted in particular that the parties had presented opposing testimony on the applicability of the doctrine from people involved in the drafting of the certificate, experts in the reinsurance industry, and relevant treatises.
Whether the follow the settlements doctrine should be implied in a given reinsurance contract is a question of state law. Where a state’s law requires that the practice be clearly established and there is conflicting testimony on this point, summary judgment is inappropriate.
* Cecilia Froelich Moss is a founding partner of Chaffetz Lindsey LLP, where her practice focuses on representing major insurance companies in reinsurance disputes and in coverage litigation. Ms. Moss also handles large scale commercial disputes in court and in international arbitration.
* Karen C. Baswell is an associate of Chaffetz Lindsey LLP, focusing on insurance and reinsurance dispute resolution. Ms. Baswell also has experience representing clients in commercial litigations and international arbitrations.