Fireman's Fund Obtains Second Circuit Reversal in Long-Running Reinsurance Dispute Involving Asbestos Claims and Policies Without Aggregate Limits

The Second Circuit has reversed a $64 million judgment against Fireman's Fund Insurance Co. in the latest ruling in a long-running dispute related to primary and excess policies that Utica Mutual Insurance Co. issued to a company later embroiled in asbestos claims.

We've been closely following this dispute at the district court level. For a full recap, see our posts noting that the district court refused to seal summary judgment exhibits, allowed "follow-the-fortunes" (also known as "follow-the-settlements") evidence, and refused to change a credibility determination. We've also covered a companion case on several occasions.

To recap, Utica Mutual Insurance Co. issued primary and excess policies to Goulds Pump Inc. Utica reinsured a portion of the excess policies with Fireman's Fund Insurance Co. Goulds subsequently faced thousands of asbestos claims related to its products. Utica defended and indemnified those claims pursuant to its policies.

A dispute arose between Utica and Goulds because Utica's policies allegedly did not contain aggregate limits. To avoid potentially catastrophic losses as a result of that purported omission, Utica settled its dispute with Goulds. The parties agreed, among other things, that the primary policies contained aggregate limits and that Goulds' umbrella policies would cover losses that exceeded the primary policies' aggregate limits. They also stipulated the settlement was fair, just, and reasonable and resolved within the terms of the policies.

Utica subsequently sought reimbursement from Fireman's Fund pursuant to the reinsurance contracts. In short, the district court denied cross-motions for summary judgment, and a jury subsequently returned a $64 million verdict in favor of Utica following a 12-day trial.

Fireman's Fund appealed to the Second Circuit. It argued that it did not owe anything to Utica because the reinsurance certificates contained a "follow form" clause that provided that Fireman's Fund's liability "shall follow that of [Utica] and ... shall be subject in all respects to all the terms and conditions of [the umbrella policies]" and the umbrella policies provided they only applied in excess of the limits stated in the schedules accompanying the umbrella policies, which Fireman's Fund claimed did not contain any aggregate limits for bodily injury claims.

Applying New York law, the Second Circuit agreed. It explained that the plain language of the excess policies provided that they only applied "in excess of ... the amounts of the applicable limits of liability of the underlying insurance as stated in the Schedule of Underlying Insurance Policies," and "the limits of liability listed in [those] Schedules for bodily injury d[id] not include aggregate limits." The court rejected Utica's argument that the language in the excess policies only required occurrence limits, not aggregate limits, to be listed as inconsistent with the plain language of the excess policies and New York's principles of contract interpretation.

Utica argued, however, that Fireman's Fund was obligated to reimburse it pursuant to the reinsurance contracts because those contracts contained a "follow-the-settlements" clause that provided that all "claims involving this reinsurance, when settled by [Utica], shall be binding on [Fireman's Fund]." The Second Circuit explained that follow-the-settlements clauses may "not alter the terms or override the language of reinsurance policies." Adopting Utica's argument would "render the follow form clause in the reinsurance contract and the umbrella policy language defining Utica's loss meaningless" and would contradict the parties' expressed agreement.

The Second Circuit therefore reversed the judgment against Fireman's Fund.

Utica Mutual Insurance Co. v. Fireman's Fund Insurance Co., No. 18-828 (2d Cir. Apr. 28, 2020).