Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co.

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

Submitted by Amy Kline

Date Promulgated: December 2, 2004


Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004)

Court: New York Court of Appeals

Issue Decided: Whether reinsurers’ obligation to pay sums for certain loss adjustment expenses arising from a “follow the settlements” clause is subject to the indemnification limit stated in a reinsurance policy.

Submitted By: Amy S. Kline[1]

Key Holding

Reinsurers are not required to pay loss adjustment expenses in excess of the stated limit in the reinsurance policy. Once the reinsurers have paid the maximum amount stated in the policy, they have no further obligation to pay any costs related to loss adjustment expenses. The follow the fortunes clause did not change this result; to require reinsurers to reimburse litigation costs beyond the stated limit in the policy would render the liability cap negotiated in the policy meaningless.

Key Takeaways

Factory Mutual expands the “Bellefonte Rule,”[2] which related to specific contract language of a reinsurance certificate, to a rule of general applicability to any and all reinsurance certificates, thereby further limiting reinsurers’ financial obligations. The court also refused to distinguish Bellefonte and Unigard[3] on the basis that those cases involved liability, rather than property, insurance.



[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 Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990).

[3]               Unigard Sec. Ins. Co., Inc. v. North Riv. Ins. Co., 4 F.3d 1049 (2d Cir 1993).