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Global Reins. Corp. of Am. v. Century Indem. Co.

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

Submitted by Michael Carolan

Date Promulgated: May 9, 2018

 

Global Reins. Corp. of Am. v. Century Indem. Co., No. 15-2164, 2018 U.S. App. LEXIS 12121 (2d Cir. May 9, 2018).

Court: U.S. Court of Appeals for the Second Circuit

Issue Decided:  Interpretation of Facultative Reinsurance Certificates Under New York Law

Submitted by Michael T. Carolan*

This case involves the interpretation of reinsurance facultative reinsurance certificates under New York law and whether the dollar amount stated in the “Reinsurance Accepted” section of a facultative certificate caps the amount reinsurers are obligated to pay for both loss and loss adjustment expenses incurred by the ceding company.  The issue is often referred to as the “Bellefonte” issue in light of the 1990 decision of the U.S. Court of Appeals for the Second Circuit in Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990).

Adhering to Bellefonte, the U.S. District Court initially ruled in this case that the language in the facultative certificate unambiguously capped the reinsurer’s liability for both loss and loss adjustment expense. On appeal, in December 2016, because the proper interpretation of the facultative certificate was an issue of New York law, the Second Circuit certified a question to the New York Court of Appeals asking:  “Does the decision of the New York Court of Appeals in Excess Insurance Co. v. Factory Mutual Insurance Co., 3 N.Y.3d 577, 822 N.E.2d 768, 789 N.Y.S.2d 461 (2004), impose either a rule of construction, or a strong presumption, that a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs?”  Global Reinsurance Corp. of America v. Century Indemnity Co., 843 F.3d 120, 128 (2d Cir. 2016).

In December 2017, the New York Court of Appeals answered the certified question in the negative, stating that “[r]einsurance contracts are governed by the same principles that govern contracts generally,” and that a court reviewing a reinsurance contract “must look to the language of the policy above all else” to determine the contract’s meaning because “New York law does not impose either a rule, or a presumption, that a limitation on liability clause necessarily caps all obligations owed by a reinsurer, such as defense costs, without regard for the specific language employed therein.”  Global Reinsurance Corp. of America v. Century Indemnity Co., 30 N.Y.3d 508, 518-519 (2017).

Following the answer by the Court of Appeals, on May 9, 2018, the Second Circuit concluded that “[t]he decision from the Court of Appeals…requires us to remand this case to the district court for consideration in the first instance of the contract terms at issue, employing standard principles of contract interpretation.”  The Second Circuit added: “Though reasonable in light of our reasoning in Bellefonte and Unigard, it is now clear that the district court’s determination that the contract was unambiguous was premised on an erroneous interpretation of New York state law.”  Accordingly, quoting the Court of Appeals, the Second Circuit directed that upon remand the district court “should ‘construe each reinsurance policy solely in light of its language and, to the extent helpful, specific context.’”

 

* Michael T. Carolan is a partner in the Washington, D.C. office of Troutman Sanders LLP.