Without the Bellefonte Presumption, Reinsurer Denied Partial Summary Judgment
Friday, July 26, 2019

You remember Bellefonte, right?  Bellefonte Reinsurance. Co. v. The Aetna Casualty & Surety Co., 903 F.2d 910 (1990).  When the New York Court of Appeals in Global Reinsurance Corp. of Am. v. Century Indemn. Co., 30, N.Y.3d 508 (2017), took the wind out of reliance on Bellefonte as authority for the stated limits in a facultative certificate capping a reinsurer’s liability, courts were required to review the actual language of the reinsurance contract and interpret that language according to the standard rules of contract interpretation without reliance on any presumptions.  One of those cases went back from the Second Circuit to the district court to interpret the operative language of the underlying umbrella policies because the following clause in the facultative certificates required that the reinsurer follow the cedent’s liability for defense costs unless the underlying umbrella policies were inconsistent with the facultative certificates.

In Utica Mut. Ins. Co. v. Clearwater Ins. Co., No. 6:13-cv-1178 (GLS/TWD), 2019 U.S. Dist. LEXIS 124077 (N.D.N.Y. Jul. 25, 2019), after the Second Circuit remanded this case back to the district court, Utica Mut. Ins. Co. v. Clearwater Ins. Co., 906 F.3d 12 (2d Cir. 2018), the district court had to determine whether the cedent was entitled to recover defense costs from the reinsurer.  That determination all depended on whether the cedent was obligated to pay defense costs to the policyholder under its umbrella policies.

In denying the reinsurer’s motion for partial summary judgment, the court found the operative language of the umbrella policies to be ambiguous, finding that the “not covered by” language was susceptible to more than one reasonable meaning.  The court noted that the reinsurer did not provide any extrinsic evidence to allow the court to resolve the ambiguity as a matter of law.

The relevant provision required the cedent to defend the insured for any occurrence “not covered by the policies listed in the schedule of underlying insurance . . . but covered by the terms and conditions of this policy . . . .”  Each side, the court found, had a reasonable interpretation of the meaning of “not covered by.”

The real issue was whether the exhaustion of the primary policies meant that the occurrence was no longer covered by the primary policies so as to trigger the defense obligations under the umbrella policies.  As the court stated, “the language here suggests that [the cedent] would provide defense costs to [the policyholder] for accidents that the underlying policies did not compensate them for, but it does not unambiguously state whether it is referring to compensation that does not occur because it is outside of the scope of the underlying primary policies’ coverage grant or because the underlying policy has been exhausted.”

Finding that the provision could apply to either or both situations, the court denied the motion and set the case down for trial.

 

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