A federal appellate court on Tuesday overturned a jury’s award of $64 million against Fireman’s Fund Insurance Co. for allegedly breaching the terms of a reinsurance agreement.
The 2nd Circuit Court of Appeals found that Fireman’s Fund was not liable for claims made by Utica Mutual Insurance Co. under the terms of seven reinsurance contracts that backed up coverage for a New York manufacturing company that sued for asbestos injuries.
The appellate panel found that the reinsurance certificates provided to Utica by Fireman’s were not triggered by the aggregate amount that Utica paid to settle multiple claims; the coverage kicked in only if the payment to settle a single “occurrence,” or accident, exceeded the thresholds stated in schedules included in each policy.
“Given the unambiguous language in the umbrella policies, Fireman’s Fund had no obligation to pay for bodily injury claims that did not exceed bodily injury limits identified in the Schedules,” the court said.
The dispute between the insurers took root more than a half a century ago. From 1966 to 1972, Fireman’s Fund agreed to reinsure umbrella policies that Utica had issued to Goulds Pumps, a Seneca, Falls, N.Y. manufacturing company founded in 1848. Those policies contained schedules that stated an aggregate limit for property damage, but listed only per-occurrence limits for bodily injury claims.
Utica and its policyholder, Goulds Pumps, defended thousands of claims alleging bodily injury caused by asbestos from the company’s products, starting in the 1980s. By 2007, Utica contended that it had paid all that was owed under its insurance contracts with Goulds. The pump manufacturer disagreed and both sides asked federal courts in New York and California for declaratory judgments.
The courts never ruled. The two sides reached a settlement in 2007, agreeing that Utica had paid all that was owed under its primary policies, but $325 million was still available under the umbrella policies that Utica had reinsured with Fireman’s.
The district court judges signed off on the settlement. Utica then asked Fireman’s Fund for $35 million in reimbursement, which amounted to $5 million a year, for seven years. The insurer contended that Fireman’s covered the top half of the policy limit for each umbrella policy issued to Gould’s during those seven years, which would allow it to recoup amounts paid over $5 million up to the $10 million total limit on each policy.
Fireman’s Fund refused. Utica Mutual sued.
A jury for the U.S. District Court in Syracuse, N.Y. ruled that Fireman’s Fund had breached its reinsurance agreement and awarded Utica the $35 million plus $29 million in pre-judgment interest.
Utica argued that Fireman’s Fund was obligated to honor its settlement with Goulds because its reinsurance contract contained a “follow-the-settlements” clause that required it to accept Utica’s interpretation of the umbrella policies. The 2nd Circuit disagreed, saying the New York Court of Appeals has held that follow-the-settlement clauses cannot be used to overturn the language of reinsurance policies.
The court said the limits on the umbrella policies were clearly stated. The schedule for the 1966-67 umbrella policy, for example lists a $100,000 per person limit and a $300,000 per accident limit for bodily injury claims and a $50,000 per accident limit and a $100,000 aggregate limit for property damage claims.
The court rejected Utica’s argument that the aggregate limits did not have to be stated because Fireman’s Fund’s liability to pay when claims cost exceeded more than $5 million during a policy period was implied by the reinsurance certificate. Other portions of the policy would make no sense if that interpretation were accepted, the panel said.
“Indeed, the Schedules would serve very little purpose since, under Utica’s approach, one could read into the Schedules limits not otherwise stated, even if doing so would directly contradict language in the umbrella policies,” the court said.
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