Follow-the-fortunes is a reinsurance concept that often is misconstrued. Some wish to impose it on every reinsurance contract regardless of whether a follow-the-fortunes clause exists. Cedents invoke it to compel payment from their reinsurers. In a recent case, the Eleventh Circuit had an opportunity to weigh in on whether the follow-the-fortunes doctrine should be inferred regardless of the contract wording and whether the terms of the reinsurance contract contained follow-the-fortunes language.
In Public Risk Management of Florida v. Munich Reinsurance America, Inc., No. 21-11774 (11th Cir. Jun. 29, 2022), an insurer of public entities sought reinsurance coverage for an underlying claim involving a Section 1983 claim that the local government interfered with a property owner’s rights by allowing beach access through the property owner’s property. The facts indicated that the dispute had been going on for some time. The reinsurer only reinsured the cedent for a specific period of time on an occurrence basis and its reinsurance contract had typical reach-back language in its definition of an occurrence.
The cedent sought reinsurance coverage and the reinsurer sought a declaration that it had no obligation under the reinsurance contract to provide either a defense or indemnification of the underlying dispute. The reinsurer moved for summary judgment, which was granted by the district court, resulting in this appeal.
On appeal, the circuit court affirmed. Focusing just on the follow-the-fortunes argument, the cedent claimed that there was an express follow-the-fortunes clause and, even if there was none, the court should infer the follow-the-fortunes doctrine and compel the reinsurer to follow the cedent’s good faith settlement. The circuit court rejected these arguments.
In rejecting the cedent’s arguments, the court held that there was no express follow-the-fortunes clause and, in fact, the language of the reinsurance contract precluded the follow-the-fortunes concept.
Although [cedent] argues that Articles I and XI(C) of the Reinsurance Agreement constitute an express follow-the-fortunes clause, the above quotations demonstrate just the opposite. Squarely contrary to providing that [reinsurer] will be bound by [cedent]’s good faith coverage decisions—the core principle of the follow-the-fortunes doctrine—these provisions require that [cedent] must submit proof to [reinsurer] not only that [cedent] has paid amounts to its insured (i.e., the City), but also proof that [reinsurer]’s Reinsurance Agreement provides coverage for such payments. See Art. XI(C) (“Payment by the Reinsurer . . . will be made . . . after proof of payment by PRM and coverage hereunder is received by the Reinsurer.”).
The court also rejected the cedent’s argument that the doctrine should be implied by inference. While the court did not reach the issue of whether the doctrine could ever be inferred under the right circumstances, it declined to infer the application of the follow-the-fortunes doctrine under the circumstances of this case and in particular because of the specific language inconsistent with the application of the doctrine.
The court’s analysis and holding is consistent with recent decisions where the courts focus on the specific language of the contract and not on presumptions and inferences.