Unigard Security Insurance Co. v. North River Insurance Company

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

Submitted by Amy Kline

Date Promulgated: September 9, 1993

Unigard Security Insurance Co. v. North River Insurance Company, 4 F.3d 1049 (2d Cir. 1993) 

Court: United States Court of Appeals for the Second Circuit

 Issue Decided: Whether reinsurer’s liability for expenses was subject to facultative reinsurance certificate’s liability limit.

Key Holding              

The Second Circuit Court of Appeals reconfirmed, and expanded, the analysis of the court in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co.[2]and held that a reinsurer’s liability is limited to the stated amount of the certificate. The court also reconfirmed that the follow the fortunes clause, which was virtually identical to that in Bellefonte, “did not ‘override the limitation on liability’ and that therefore the reinsurer was not liable for expenses in excess of the liability limits.” The court also reviewed the follow the form clause, an issue not raised in Bellefonte, and held that the reinsurer agreed to reinsure ‘in consideration of the payment of the reinsurance premium and subject to the terms, conditions, limits of liability, and Certificate provisions set forth herein.”  The Court also rejected the argument that past practices demonstrate that the reinsurer expected to pay expenses under the certificate, holding that “Bellefonte’s gloss upon the written agreement is conclusive. The efficiency of the reinsurance industry would not be enhanced by giving different meanings to identical standard contract provisions depending upon idiosyncratic factors in particular lawsuits.  The meaning of such provisions is not an issue of fact to be litigated anew each time a dispute goes to court.”

Key Takeaways

Unigard reaffirms the “Bellefonte Rule” that a reinsurer’s liability is limited to the stated limits on the certificate.

[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).