SDNY Finds Cedent Entitled to Indemnification for $20 Million Settlement Payment Under English Law

The question before the Southern District of New York was whether, under English law, certain facultative reinsurance policies obligated a reinsurer to indemnify its cedent for a $20 million settlement. The finding was notwithstanding the three-year stated policy period of each of the reinsurance policies, as the insured was held liable on an "all sums" basis for a continuous injury occurring outside the relevant policy period.

Similar to the laws in the United States, "[u]nder English law, settlements paid under the reinsured policy are presumed to be covered as a matter of law by the reinsurance policy if the reinsured can prove: (1) that the reinsured has actually paid the settlement sums; and (2) that the claim arguably falls within the insurance/reinsurance policy under which the payment was made as a matter of law." Further, English law has a strong presumption that liability under a proportional facultative reinsurance policy is "co-extensive" with the underlying insurance policy.

Accordingly, the court found both the cedent and the reinsurer assumed the risk that the cedent could be held liable on an "all sums" basis for continuous injury occurring outside the insured's policy period. Thus, the reinsurer would have to indemnify the cedent for any settlement the cedent was required to pay its insured as a result of the injury under the follow-the-settlements provision in the reinsurance policies.

The court also rejected the reinsurer's argument that the cedent breached its notice obligations by providing notice of the claims nearly six years after the cedent first became aware of an occurrence likely to result in a claim under the policies. The court found the reinsurer failed to meet its burden establishing its cedent acted with "extreme dishonesty" such that the reinsurer was "seriously prejudiced" under English law, or that its cedent acted in "bad faith" under New York law. The cedent's motion for summary judgment was granted.

Insurance Company of Pennsylvania v. Equitas Insurance Ltd., No. 1:17-cv-06850 (S.D.N.Y. July 16, 2020).