Granite State Ins. Co. v. Clearwater Ins. Co.

Issue Discussed: Notice

Submitted by Robert A. Kole

Date Promulgated: April 2, 2015

Issue Decided: Whether, in the absence of a choice of law provision in the applicable reinsurance certificates, a New York court would apply the substantive law of New York or Illinois in determining the effect of a cedent’s failure to give prompt notice.



Clearwater Insurance Company (“Clearwater”) issued facultative certificates (the “Certificates”) to Granite State Insurance Company (“Granite State”), which required prompt notice “of any event or development which [Granite State] reasonably believe[d] might result in a claim against [Clearwater].”  Granite State issued billings to Clearwater under the Certificates, relating to two asbestos-related personal injury settlements.  The district court concluded that Granite State did not provide Clearwater with timely notice of the claims.  Granite State did not challenge the conclusion about timeliness on appeal.

The parties agreed that the most significant contacts in the case pointed toward the application of Illinois law.  However,

Granite State argued that: (a) Illinois law was unsettled on the topic of whether prejudice was required, because there is no Illinois Supreme Court authority on point; and (b)  in the absence of a choice of law provision or settled Illinois law, a New York court should apply New York law.  Granite State further argued that under Unigard Sec. Ins. Co. v. N. River Ins. Co., 594 N.E.2d 571, 575 (N.Y. 1992), New York law requires a reinsurer to establish prejudice in order to succeed on a late notice defense.


Following the decision in AIU Ins. Co. v. TIG Ins. Co., 577 Fed. App’x 24 (2d Cir. 2014), the Second Circuit concluded that Illinois law was settled, and that Illinois Courts had adopted a “no prejudice” rule.  The Court cited to several state and federal cases as support. See Keehn v. Excess Ins. Co. of Am., 129 F.2d 503 (7th Cir. 1942); Allstate Ins. Co. v. Emplyrs. Reins. Corp., 441 F. Supp.2d 865 (N.D. Ill. 2005); Cas. Ins. Co. v. Constitution Reins. Co., No. 91 L 14732 (Ill. Cir. Ct. Cook Cnty. Jan. 22, 1996).  Accordingly, because Illinois’ no prejudice rule is in actual conflict with New York’s prejudice requirement, and because it was undisputed that a significant contacts analysis favored Illinois law, the Court applied Illinois’ no prejudice rule, and therefore barred Granite State’s claims for reinsurance coverage.

[1] Robert A. Kole is co-chair of the Insurance and Reinsurance Practice Group of Choate, Hall & Stewart LLP in Boston, Massachusetts,  and co-chair of the ARIAS Law Committee.