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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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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When Claims-Made Primary and Occurrence Excess Policies Clash

Decades ago, professional liability policies, like most liability policies, were written on an occurrence basis. If a claim was incurred during the insurance policy period, the policy would respond to the claim regardless of when the claim was made against the defendant and noticed to the insurance company. As we know from environmental and asbestos claims, that can take decades.

Then along came claims-made polices. Under a typical claims-made policy, if a claim is made against the defendant and reported to the insurance company during the policy period, that insurance policy will respond to the claim regardless of when the occurrence took place (as long as the claim occurred after the policy’s retroactive date). If the claim was made after the policy period and , that policy would

In New York, legislative and regulatory efforts to keep medical professionals practicing in New York led to a quirky medical malpractice insurance system where most primary medical malpractice policies were claims-made policies, but New York medical professionals were provided with excess policies written on an occurrence basis.

This leads to a recent case that explored the issues that arise when occurrence-based excess policies sit on top of claims-made primary policies.

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