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Commercial Union Ins. Co. v. Swiss Reinsurance Am. Corp.

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

Submitted by Amy Kline

Date Promulgated: June 27, 2005

 

Commercial Union Ins. Co. v. Swiss Reinsurance Am. Corp., 413 F.3d 121 (1st Cir. 2005)

Court: United States Court of Appeals for the First Circuit

Issue Decided: Whether specific limits of certificate controls over follow the form and follow the fortunes clauses.

Submitted By: Amy S. Kline[1]

Key Holding              

The First Circuit Court of Appeals addressed whether a settlement by the cedent constituted a single occurrence over a three-year period or whether the per occurrence limit applied separately for each policy year. In holding that the per occurrence limit applied separately for each year, the court held that the follow the form and follow the fortunes clauses obligated the reinsurer to accept the ceding company’s occurrence-per-year interpretation, but that, consistent with Bellefonte,[2] the reinsurer’s liability was subject to the specific limits of the certificate. The court held, however, that the “reinsurance accepted” provision of the certificate did not address the per occurrence issue.

Key Takeaways

Commercial Union reaffirms the “Bellefonte Rule” that a reinsurer’s liability is limited to the stated limits on the certificate, but also holds that the certificate limit may not operate to cap liability for multiple occurrences.

 

[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).