Reinsurer Loses Collateral Estoppel Argument But Wins Anyway

Insurance companies and their reinsurers continue to battle over whether the cost of defending underlying asbestos claims is covered by reinsurance. Obviously, this depends on the wording of the reinsured policies and the reinsurance contracts. Some insurance companies have battled with their reinsurers for years and reinsurers have turned to issue preclusion (collateral estoppel) as a means of dismissing the insurance company’s complaint. In a recent New York case, this effort failed, but the reinsurer prevailed on the main claim in any event.

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Second Circuit Finds for Cedent in Follow-the-Settlements Asbestos Settlements Allocation Dispute

Courts have long held that a cedent’s settlement allocation decisions fall within the follow-the-fortunes/follow-the-settlements doctrines. Nevertheless, with the many ways settlements and claims can be allocated to policies and then ceded to applicable reinsurance contracts there are bound to be disagreements that arise. In a recent case involving a cedent’s allocation of asbestos settlements to excess polices, the reinsurer raised various issues why it did not have to respond to the portion of the settlement billed to it, including that the cedent failed to exhaust the underlying excess policies. The case worked its way to the Second Circuit Court of Appeals, no stranger to follow-the-settlements and allocation decisions.

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New York Appeals Court Holds Follow-the-Settlements Does Not Apply When Coverage Is Beyond the Scope of the Reinsured Policy

The follow-the-settlements doctrine severely limits the ability of a reinsurer to deny coverage to settlement paid by the cedent. But the doctrine is not absolute. As many courts have said, a follow-the-settlements clause does not create coverage where none existed. In a recent case, a New York intermediate appellate court addressed the application of a follow-the-settlements clause to a claim for defense costs paid under umbrella policies for asbestos settlements.

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Seventh Circuit Reiterates the Great Deference Given to Arbitral Awards

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The great deference given to arbitrators and their awards is unquestionable in the US. Under the Federal Arbitration Act, there is no appeal of an arbitral award. Parties can only seek to modify, vacate or confirm an arbitration award. The court’s scope of review of an arbitration award is narrow. Where, as in reinsurance arbitrations, arbitrators are given even greater leeway to decide cases–especially where there is an honorable engagement clause–the courts’ scope of review of an arbitration award is restricted even further.

In a recent case, the Seventh Circuit reiterated these concepts in the context of a reinsurance arbitration with multiple awards involving the billing of asbestos-related losses.

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Second Circuit Rules Facultative Certificates Respond On a Cost-Inclusive Basis in Asbestos Dispute

Insurance coverage and reinsurance disputes over asbestos settlements continue to occupy the courts. Many of the reinsurance disputes revolve around how facultative certificates of reinsurance must respond to underlying asbestos settlements involving umbrella policies. The issue typically involves whether the expenses associated with the defense of the underlying claims is recoverable in excess of the underlying policy limits. In a recent case, the Second Circuit issued a fairly long decision on this issue.

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Exhaustion Found Ambiguous Causing Reinsurer to Follow the Settlement

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In a recent facultative reinsurance dispute over the payment of an asbestos settlement, a New York federal court found the term “exhaustion” ambiguous and granted summary judgment to the cedent requiring the reinsurer to pay its share of an asbestos settlement.

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