Case at a Glance
A district court granted partial summary judgment to the reinsured with respect to five reinsurance agreements, holding: (1) that the asbestos-related personal injury losses submitted to the reinsurer were covered by the reinsurance agreements; (2) that the limit of liability in the reinsurance agreements unambiguously included loss adjustment expenses; and (3) that the reinsurer was bound to indemnify the reinsured for payments made by the reinsured to its insured under a settlement agreement that resolved disputed claims submitted by the insured under some of the reinsured policies. The Court of Appeals disagreed, remanding for further factual analysis and consideration with respect to the first two issues and holding that the reinsurer was not bound by the settlement entered into by its reinsured under the facts presented. All three of these issues were decided based upon the Court of Appeal’s interpretation of the reinsurance agreements and the underlying reinsured policies.
Summary of Decision
This case arises out of an unusual insurance program that suffered high losses from asbestos-related person injury claims. Over a period of about 40 years, Utica Mutual Insurance Company issued various primary and umbrella liability insurance policies to Goulds Pumps, Inc. The primary policies for 1978 – 1981 did not contain any aggregate limit of liability, which, in the words of the Court of Appeal, “exposed Utica to potentially limitless liability.” Clearwater Insurance Company reinsured the 1978 and 1979 Utica umbrella insurance policies under two reinsurance certificates (the “Clearwater Certificates”) and reinsured the 1979-1981 Utica umbrella policies as part of a pool of reinsurers managed by Towers, Perrin, Forster & Crosby, Inc. (the “TPF&C Memoranda”). The five reinsurance agreements provided indemnity for both losses and loss adjustment expenses paid by Utica. Each reinsurance agreement contained an aggregate limit, and the total limit of all five reinsurance agreements was $7,712,500. Goulds faced many thousands of asbestos-related personal injury claims, for which it turned to Utica for coverage. In the face of potentially staggering liability on the primary policies that did not have limits, Goulds and Utica each filed lawsuits against each other concerning these policies, and ultimately reached a settlement that treated the policies as having agreed-upon defined aggregate limits. Utica began to pay Goulds for its insured losses under the terms of their settlement.
When Utica’s payments reached an amount that the district court described as that which “Utica regarded as an amount sufficient to trigger its coverage under its reinsurance contracts,” Utica started to submit claims on its reinsurance. Clearwater initially paid Utica under their reinsurance agreements. After paying nearly $1 million Clearwater stopped paying Utica, taking the position that the absence of limits in the Utica primary policies, which it had not reinsured, meant that the losses never exhausted those policies and reached and triggered the umbrella policies, which it had reinsured. Litigation ensured, with Utica seeking additional loss payments from Clearwater and Clearwater seeking to recoup the amounts it had paid.
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