Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 957 F.3d 337 (2d Cir. 2020)
Issue Discussed: Reinsurance Contract Interpretation/Follow-the-Settlements
Submitted by Michele Jacobson, TaLona Holbert
Date Promulgated: April 28, 2020
Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 957 F.3d 337 (2d Cir. 2020)
Court: United States Court of Appeals for the Second Circuit
Date Decided: April 28, 2020
Issue Decided: Reinsurance Contract Interpretation/Follow-the-Settlements
Submitted by Michele L. Jacobson and TaLona H. Holbert[1]
In Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., the United States Court of Appeals for the Second Circuit held that, based on the express, unambiguous language of the parties’ reinsurance contracts, Fireman’s Fund Insurance Company (“Fireman’s Fund”) was not obligated to reimburse Utica Mutual Insurance Company (“Utica Mutual”) for claims paid on underlying umbrella policies.
Fireman’s Fund appealed from a $64 million dollar judgment (representing damages and interest) awarded by the United States District Court of the Northern District of New York following a jury verdict in Utica Mutual’s favor. The jury found that Fireman’s Fund breached its obligations under reinsurance contracts with Utica Mutual. Fireman’s Fund argued on appeal that under the terms of the relevant reinsurance contracts, it did not owe the obligations at issue to Utica Mutual as a matter of law. The Second Circuit agreed and reversed the judgment, holding that (1) the underlying umbrella policies did not provide coverage for claims that did not exceed the per person occurrence limits enumerated in the policies and (2) the “follow-the-settlements” clauses in the reinsurance contracts did not require Fireman’s Fund to pay claims in excess of aggregate limits agreed upon by Utica Mutual and its insured.
Utica Mutual insured Goulds Pump, Inc. (“Goulds”) under both primary and umbrella policies. Under the umbrella policies, Utica Mutual was liable
only for the ultimate net loss resulting from any one occurrence in excess of . . . the amounts of the applicable limits of liability of the underlying insurance as stated in the Schedule of Underlying Insurance Policies, less the amount, if any, by which any aggregate limit of such insurance has been reduced by payment of loss.
Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 957 F.3d at 344 (quoting from the umbrella policies).
Schedules of Underlying Insurance Policies (the “Schedules”) were included in each of the seven umbrella policies that Utica Mutual issued to Goulds. Each umbrella policy had a $10 million coverage limit. The Schedules in the umbrella policies listed separate limits for bodily injury and property damage claims, including per person limits, per occurrence limits, and aggregate limits. Though the seven umbrella policy Schedules provided aggregate limits for property damage claims, none of the umbrella policy Schedules listed an aggregate limit for bodily injury claims.
Fireman’s Fund issued seven reinsurance contracts to Utica Mutual reinsuring the upper $5 million of the Goulds umbrella policies. The seven reinsurance certificates contained “follow form” and “follow the settlements” clauses.
In 2007, Utica Mutual and Goulds settled a dispute as to whether thousands of asbestos bodily injury claims arising from exposure to Goulds’ products were covered under the Utica Mutual primary policies. Utica Mutual and Goulds agreed that primary policies dated from 1966 to 1972, which were missing, contained aggregate limits and that the umbrella policies would cover losses that exceeded the aggregate limits of the primary policies for bodily injury claims. Since Utica Mutual had defended and indemnified Goulds’ asbestos bodily injury claims since the 1980s, Utica Mutual and Goulds agreed under the settlement that the 1966 to 1972 primary policies had been exhausted, thus triggering coverage under the umbrella policies.
In 2008, Utica Mutual sought reimbursement from Fireman’s Fund for claims paid under the umbrella policies, pursuant to the parties’ reinsurance agreements. The next year, after Fireman’s Fund had not made any payments, Utica Mutual brought suit against Fireman’s Fund. Utica Mutual claimed that Fireman’s Fund was bound by Utica Mutual’s settlement with Goulds under the “follow form” and “follow-the-settlements” clauses in the reinsurance agreements. Under those clauses, Utica Mutual argued that Fireman’s Fund was required to reimburse Utica Mutual for claims paid under the umbrella policies. Utica Mutual sought a total of $35 million, which represented $5 million for each year from 1966 to 1972 (the dates of the primary policies that Utica Mutual and Goulds agreed contained aggregate limits that had been exhausted), plus interest.
Fireman’s Fund argued that the umbrella policies only provided coverage for losses that exceeded the limits stated in the Schedules. According to Fireman’s Fund, the Schedules did not contain aggregate limits for bodily injury claims. As many of the asbestos bodily injury claims that Utica Mutual paid were small, those claims did not exceed the per person or per occurrence limits in the umbrella policies’ Schedules. Therefore, Fireman’s Fund argued that its obligations under the reinsurance contracts had not been triggered.
The dispute was tried to a jury. The jury returned a verdict for Utica Mutual on its breach of contract claim. Judgment was entered in favor of Utica Mutual, awarding $35,000,000 plus pre-judgment interest in the amount of $29,092,191.78. An appeal to the Second Circuit ensued.
Applying New York law, the Second Circuit agreed with Fireman’s Fund that the umbrella policies only applied in excess of limits stated in the umbrella policies’ Schedules. The Court read the umbrella policies’ language to mean that Fireman’s Fund was only liable to Utica Mutual if the losses at issue exceeded the limits enumerated in the Schedules of the umbrella policies. The parties did not dispute that the limits of liability for bodily injury as contained in the Schedules do not include aggregate limits. Rather, Utica Mutual argued that the aggregate limits for bodily injury claims were not required to be stated in the Schedules because the umbrella policies solely called for the underlying occurrence limits to be scheduled. According to Utica Mutual, the policies’ discussion of “applicable limits of liability” after making specific reference to liability “resulting from any one occurrence” showed that “applicable limits of liability” (as set forth in the Schedules) referred only to occurrence limits. The Second Circuit rejected Utica Mutual’s argument in this regard, finding that Utica Mutual’s reading would render the aggregate limits for property damage contained within the Schedules to be superfluous, along with any other non-occurrence limits provided in the Schedules. Moreover, the repeated inclusion of aggregate limits for property damage in the Schedules without a corresponding aggregate limit for bodily injury claims supported the notion that the parties were capable of including an aggregate limit for bodily injury claims but intended not to do so. Since the Court found the language of the umbrella policies to be unambiguous, the Court ruled that it must give the words their plain meaning. Thus, Fireman’s Fund had no obligation to pay for bodily injury claims that did not exceed bodily injury limits identified in the policies’ Schedules.
The Court also rejected Utica Mutual’s alternative argument that, even if Fireman’s Fund was not actually liable for the losses, Fireman’s Fund was nonetheless bound to Utica Mutual’s interpretation of the umbrella policies in its settlement with Goulds as a result of the “follow-the-settlements” clauses in the reinsurance contracts. While reaffirming follow-the-settlements authority, the Second Circuit held that, because Utica Mutual’s position “directly contradicts the relevant language in the reinsurance contracts and umbrella policies,” the “follow-the-settlements” clause and principle was inapplicable. Utica Mut. Ins. Co., 957 F.3d at 347. The Second Circuit concluded: “where, as here, the relevant policy terms are unambiguous, a reinsured cannot insulate itself from the application of those terms under “follow-the-settlements.” Id. at 348. Accordingly, the Second Circuit reversed the judgment in favor of Utica Mutual.
[1] Michele L. Jacobson is a Partner and TaLona H. Holbert is an Associate in the Insurance Industry Practice Group of Stroock & Stroock & Lavan LLP.
