Court of Appeals Accepts Second Circuit Certified Question Whether Reinsurance Cap Limits Liability for Both Losses and Expenses

On January 10, 2017, in Global Reinsurance Corporation of America v Century Indemnity Company, the Court of Appeals formally accepted the following certified question from the U.S. Court of Appeals for the Second Circuit:

“Does the decision of the New York Court of Appeals in Excess Insurance Co.v. Factory Mutual Insurance Co., 3 N.Y.3d 577 (2004), impose either a rule of construction, or a strong presumption, that a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs?”

In Global Reinsurance, Global issued reinsurance certificates to Century to reinsure insurance policies that Century had issued to Caterpillar Tractor Company.  After Caterpillar was sued in numerous cases relating to alleged exposure to asbestos in Caterpillar’s products, Century was obligated to pay for Caterpillar’s defense expenses in addition to paying up to the liability limits of its policies.  According to Global, Century has paid $60 million to Caterpillar and has agreed to pay $30.5 million more.  Of that amount, Global alleges that 10% is the actual liability loss and 90% is defense costs.

In this dispute, the parties each interpret the reinsurance certificate differently.  Global claims that its liability is capped by the total amount in the “Reinsurance Accepted” section of the certificate, which was intended to include both liability and expenses.  Century counters that the reinsurance cap applies only to the “loss” (e.g., settlement amount, judgment award), and that Global is liable to pay all expenses that exceed that amount.

The U.S. District Court for the Southern District of New York adopted Global’s interpretation, holding that the certificates unambiguously limited Global’s liability for both losses and expenses. See Glob. Reins. Corp. of Am. v. Century Indem. Co., No. 13 Civ. 06577, 2014 WL 4054260, at *4‐7 (S.D.N.Y. Aug. 15, 2014).  Noting that the Court of Appeals had not explicitly spoken on this issue, whether a liability cap in a reinsurance policy limits liability for both losses and expenses, the Second Circuit certified the question to the Court of Appeals.  The Court will now decide the issue upon full briefing and argument.

The Second Circuit’s opinion can be found here.

The Court of Appeals’ order can be found here.

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