AIU Ins. Co. v. TIG Ins. Co. (2d Cir. 2014)

Issue Discussed: Notice

Submitted by Daniel M. Perry, Aluyah I. Imoisili

Date Promulgated: August 27, 2014

Issues Decided: Must a reinsurer prove prejudice to succeed on a late notice defense under Illinois law?

In AIU Ins. Co v. TIG Ins. Co., the court affirmed the district court’s grant of a motion for summary judgment in favor of Defendant-appellee TIG Insurance Company (“TIG”). The court held that Illinois law applied, and determined that the reinsurer did not need to show prejudice to assert a late notice defense.

Background

AIU Insurance Company (“AIU”) issued umbrella insurance to the Foster Wheeler Corporation (“Foster Wheeler”). TIG, through its predecessor International Insurance Company, reinsured those policies through facultative reinsurance certificates.

In the late 1990s, Foster Wheeler was a party to numerous asbestos-related lawsuits. In 2003, Foster Wheeler tendered claims to AIU relating to the asbestos-related lawsuits, and the parties ultimately reached a settlement. In 2007, AIU gave TIG notice of its intent to bill TIG as reinsurer under the reinsurance certificates. TIG refused to pay, arguing that AIU had provided late notice.

Thereafter, AIU instituted proceedings seeking recovery under the reinsurance certificates. The district court granted TIG’s motion for summary judgment. The district court held that Illinois law applied, and that it did not require a reinsurer to prove prejudice in a late notice dispute.

AIU appealed the district court’s grant of the motion for summary judgment, arguing that the court should have applied New York substantive law to decide whether proof of prejudice was required. Additionally, AIU argued that the district court erred in holding that Illinois law does not require the reinsurer to demonstrate prejudice to avoid coverage.

Holding

The Second Circuit affirmed the district court’s ruling. Applying New York’s choice of law rules, the court held that Illinois was the state having the most significant relationship to the transaction and the parties. The court was unconvinced by the plaintiff’s argument that the applicable contacts with New York outweighed those with Illinois.

The Second Circuit held that AIU’s three-year delay in notifying TIG was not prompt, or reasonable, and highlighted that AIU was engaged in significant litigation with Foster Wheeler during the period of delay. The court further held that Illinois law does not require a reinsurer to demonstrate prejudice resulting from late notice. The court disagreed with AIU’s argument that Illinois law is unsettled as to whether late notice must be proven. The court explained that, despite a lack of statement from the Illinois Supreme Court or its appellate division, various courts, including Keehn v. Excess Insurance Co. of America, 129 F.2d 503, 504-506 (7th Cir. 1942), have held that Illinois does not require reinsurers to demonstrate that they were prejudiced by the late notice they received.

*Daniel M. Perry is a partner and Aluyah I. Imoisili is an associate in the law firm of Milbank, Tweed, Hadley & McCloy LLP.