Pesky Facts Result in a Denial of Summary Judgment in a Post-Settlement Allocation Case

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Since the 1970s cedents and reinsurers have been battling over long-term environmental pollution damage. Disputes have arisen over the number of retentions that the cedent should take, the manner in which settlement with the insured should be allocated and other issues. In a recent case, a reinsurer sought summary judgment on a cedent’s breach of contract claim over a specific pollution claim. Unsurprisingly, disputed facts got in the way.

In Alabama Municipal Insurance Corp. v. Munich Reinsurance America, Inc., No. 2:20cv300-MHT (M.D. Ala Apr. 26, 2023), the cedent and reinsurer disputed (over several claims) how many retentions the cedent was required to take and how many claims existed. The cedent settled the underlying loss and submitted the costs to the reinsurer as a single loss against one treaty. The cedent sued the reinsurer alleging breach of contract, among other claims, for failing to pay the settled loss as a single claim under the treaty.

In denying the reinsurer’s motion for summary judgment, the court noted that unlike many other reinsurance contracts, this treaty did not contain a follow-the-settlements or follow-the-fortunes clause helps inform whether the reinsurer was required to follow the allocation decisions made by the cedent:

Some reinsurers have responded to difficulty presented in circumstances such as these by incorporating loss-settlement clauses into their treaties, clearly describing the obligations of both the insurer and the reinsurer in the face of prospective or negotiated settlements. (citations omitted). In the treaty between AMIC and Munich, however, there is no such clause.

The court found no evidence of a follow-the-settlements clause that would bind the reinsurer to the cedent’s allocation decision. The court also found that there was a genuine factual dispute over what damages were being sought under the settled claim and whether damages in other years would affect the underlying liability. Neither party, held the court, established a factual predicates for their allocation arguments.

Interestingly, in an earlier decision, the reinsurer prevailed on a motion for summary judgment on the cap under the treaty for the ultimate net loss covered by the treaty on a different underlying claim. Alabama Municipal Ins. Corp. v. Munich Reinsurance America, Inc. (Feb. 1, 2023).

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