Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America and Pacific Employers Insurance Company v. OneBeacon Insurance Company f/k/a CGU Insurance Company f/k/a General Accident Insurance Company of America
Issue Discussed: Bellefonte
Submitted by Sylvia Kaminsky
Date Promulgated: October 17, 2017
Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America and Pacific Employers Insurance Company v. OneBeacon Insurance Company f/k/a CGU Insurance Company f/k/a General Accident Insurance Company of America, No. 1280 EDA 2016, Pa. Super., 2017 Pa. Super. LEXIS 806
Court: Superior Court of Pennsylvania
Issue Decided: Whether the language in a facultative certificate provided coverage for defense expenses in excess of the liability limit of the certificate
In Century Indemnity Company (“Century”) and Pacific Employers Insurance Company (“PEIC”) v. OneBeacon Insurance Company (“OneBeacon”), the Superior Court of Pennsylvania (“the Court”) was asked to decide on an appeal by the reinsurer, OneBeacon Insurance Company (“OneBeacon”), the following issues: whether the Philadelphia County Court of Common Pleas in a non-jury trial properly ruled that the facultative certificates at issue provided for defense expenses in excess of the liability cap; whether Century Indemnity Insurance Company (“Century”) was estopped from raising its defenses based upon prior court decisions; and whether the cedents were entitled to interest on certain proofs of loss. The Court affirmed the decision reached in the court below finding in favor of the cedents.
The case involved two cedents that issued similar underlying excess blanket catastrophe liability policies which included a “second obligation to provide coverage for defense costs” to insureds who were involved with massive asbestos-related losses. The facultative certificates issued by OneBeacon’s predecessor reinsured a certain layer of the underlying policies which were renewed the following year by endorsement and a new certificate respectively. The certificates were on a double sided preprinted form which listed the type of insurance, the underlying policy limits and the ceding company’s retention. They contained General Provisions which provided in relevant part:
“…the liability of the Reinsurer specified in Section IV shall follow that of the Company and except as otherwise specifically provided herein, shall be subject in all respects to all the terms and conditions of the Company’s policy.”
“All claims involving this reinsurance, when settled by the Company, shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlements, and in addition thereto…its proportion of expenses…”
OneBeacon paid the “Reinsurance Accepted” limit amounts on the certificates but refused to pay any defense costs above the stated limit. The trial court denied OneBeacon’s motion for summary judgment in which OneBeacon argued that it paid the “Reinsurance Accepted” limit which was its maximum liability; that the cedents were estopped from seeking defense costs in addition to said limit; and that it owed no interest since it had no duty to pay prior to the time that it issued payment. The trial court denied OneBeacon’s motion and determined that the certificates were ambiguous and consequently that OneBeacon could present extrinsic evidence at trial. The trial court further ruled that the cedents were not collaterally estopped from asserting their claims based on prior decisions. The trial court granted partial summary judgment in favor of the cedents concluding that OneBeacon had a duty to pay promptly following receipt of a proof of loss and awarded the cedents pre-judgment interest. A 3 day non-jury trial followed in which the trial court found in favor of the cedents.
In affirming the trial court’s decision and noting that “this is a case of first impression for Pennsylvania courts,” the Court provided a very detailed history and analysis of the Bellefonte case and its progeny. The Court stated that in Bellefonte the decision concluded that the “in addition thereto” language merely outlined the different components of potential liability under the certificate and did not indicate that either component is not within the overall stated limitation. The Court also noted that in Bellefonte, the court also emphasized the “subject to” clause in the certificates which made all the provisions subject to the liability limits. In comparing the language of the certificates in Bellefonte, the trial court herein determined that while the language was similar, it contained slight variations and that Bellefonte did not establish a blanket rule that all limits of liability are presumptively expensive-inclusive but that each certificate must be analyzed as a whole to discern its meaning. While the Court stated that the General Conditions of the certificates were almost identical to Bellefonte, it agreed with the trial court that the “subject to” language was materially different and did not expressly provide that all of the coverage is subject to the “Reinsurance Accepted” limit. In Bellefonte the “subject to” clause stated that the reinsurance was subject to the conditions and amount of liability set forth in the certificate. In this case, the “subject to” clause stated that the reinsurance was subject to the General Conditions set forth on the reverse side of the certificate. The Court found that the certificates did not expressly provide that all of the coverage was subject to the “Reinsurance Accepted” limit. “Accordingly, absent language providing that the entire certificate is subject to the “Reinsurance Accepted” amount, a reasonable interpretation of the language is that where the underlying policy covers expenses in addition to liability limits, the reinsurance certificate provides the same coverage.” The Court specifically held that a reasonable interpretation of the certificates’ reference to OneBeacon’s liability refers only to liability for losses which is supported by the General Conditions that require the reinsurer to pay its proportion of losses, “and in addition thereto” its proportion of expenses. The Court concluded that because the certificates followed the underlying policy, it would cover expenses above the liability limit. The Court rejected OneBeacon’s arguments which included its position that the wording does not distinguish between losses and expenses and therefore its limit is capped.
The Court did agree that the certificate language was ambiguous as to whether defense costs are limited to the stated limit and that summary judgment was properly denied allowing for extrinsic evidence at trial. It discussed at length OneBeacon’s arguments regarding extrinsic evidence and expert testimony in which OneBeacon claimed that such evidence was inadmissible and unpersuasive. The Court rejected One Beacon’s arguments finding that the testimony of the cedents’ underwriters was proper as to their underwriting intention and as to their companies’ requirement that the reinsurance provide concurrent coverage with the underlying policies. The Court also found admissible cedents’ expert who testified on the industry’s custom and usage regarding the language in the facultative certificates issued during the early 1980’s. The Court noted that OneBeacon was able to present its own expert to refute the cedents’ expert. The Court further held that the cedents were not collaterally estopped from raising their defenses. The Court found that the language of the certificates in the cases of Global Reinsurance Corp. of America v. Century Indemnity Co., 2014 WL (S.D.N.Y. 2014), (on appeal as the Second Circuit certified the question to the New York Court of Appeals and “is therefore far from settled,”) and Pacific Employers Ins. Co. v Global Reinsurance Corp. of America, No. 09-6055, 2010 WL 1659760 (E.D. Pa 2010), are different from the ones under review in this matter and that the rulings in those cases do not constitute a final judgment for purposes of collateral estoppel. Finally, the Court found that the cedents met their burden of proving damages. Having submitted their proofs of loss under the certificates which attached no other conditions for payment, the Court found OneBeacon’s failure to pay and its failure to actively seek information entitled cedents to an award of pre-judgment interest.
*Sylvia Kaminsky is an attorney and a certified ARIAS arbitrator and umpire. She is a member of the ARIAS Board of Directors and the co-chair of the ARIAS Law Committee.