{"id":899518,"date":"2022-01-20T14:45:16","date_gmt":"2022-01-20T21:45:16","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=899518"},"modified":"2022-01-20T14:45:20","modified_gmt":"2022-01-20T21:45:20","slug":"bellefonte-rule-reinsurance","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/bellefonte-rule-reinsurance\/","title":{"rendered":"What Goes Around Comes Around"},"content":{"rendered":"\n

Jonathan Bank, Matthew Murphy and Ernesto Rafael Palomo | Locke Lord<\/a><\/p>\n\n\n\n

In 1990, the Second Circuit in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co.<\/em>, 903 F.2d \u200e\u200e910 (2d Cir. 1990), affirmed a District Court judgment that reinsurers were not obligated to pay \u200eadditional sums for defense costs over and above the limits of liability specified in a facultative \u200ereinsurance certificate. Since then, the Bellefonte <\/em>rule acted as a de facto <\/em>cap for both indemnity and \u200eexpense under a facultative certificate. This issue of \u2018limits\u2019 had been hotly contested, and Bellefonte <\/em>\u200eseemed to put it to rest. \u200e<\/p>\n\n\n\n

BUT NOT SO FAST: After several intervening decisions cast doubt on the continued viability of the \u200eBellefonte <\/em>rule, the Second Circuit recently ruled that Bellefonte \u201cno longer constitute[s] the law\u201d of \u200ethe Second Circuit.\u200e<\/p>\n\n\n\n

In Global Reinsurance Corporation of America v. Century Indemnity Company<\/em>, No. 20-1476, 2021 WL \u200e\u200e6122136 (2d Cir. Dec. 28, 2021), cedent Century sought reinsurance payments from Global \u200eReinsurance under facultative reinsurance certificates. Global filed a declaratory judgment action for \u200eapplication of the Bellefonte <\/em>rule \u2013 that the stated policy limits of the reinsurance certificates \u201ccapped \u200eGlobal\u2019s reinsurance obligations with respect to both losses and defense costs.\u201d Id<\/em>. at *1. The District \u200eCourt applied the Bellefonte <\/em>rule and the holding in Unigard Security Insurance Co. v. North River \u200eInsurance Co.<\/em>, 4 F.3d 1049 (2d Cir. 1993) to hold in favor of Global.\u200e[1]<\/sup><\/a> Century appealed, arguing that \u200ethe reinsurance certificates did not impose a cap on litigation expenses because the certificates \u200e\u200e\u201cwere written to be \u2018concurrent with,\u2019 or the same as,\u201d the policies that Century issued to its insured, \u200ewhich provided that defense expenses were not subject to the policies\u2019 limits. Id<\/em>.\u200e<\/p>\n\n\n\n

The Second Circuit certified the question to the New York Court of Appeals, and then remanded the \u200ecase to the District Court after the New York Court of Appeals answered that New York law does not \u200eimpose a rule of construction or presumption that \u201ca reinsurance certificate\u2019s liability limit caps the \u200ereinsurer\u2019s liability with respect to both indemnity losses and defense costs regardless of whether the \u200eunderlying policy being reinsured is understood to cover defense costs in excess of the policy\u2019s \u200eliability limit.\u201d Id<\/em>. at *2. On remand, and after conducting an evidentiary hearing that included \u200etestimony from six industry experts, the District Court held that the language of the reinsurance \u200ecertificates did not cap <\/strong>Global\u2019s obligation \u201cto pay its proportionate share of Century\u2019s defense costs \u200ewhen Century suffers indemnity losses.\u201d Id<\/em>. The District Court explained that \u201cconcurrent treatment of \u200edefense costs was incorporated into the certificates through each certificate\u2019s \u2018follow-form\u2019 clause, \u200ewhich made Global\u2019s reinsurance subject to the same terms and conditions of the underlying \u200eCentury policies except as otherwise specifically provided.\u201d \u200e<\/p>\n\n\n\n

Upon examination of the reinsurance certificates\u2019 \u201cunambiguous language as well as the testimony \u200eof Century\u2019s experts confirming that a strong presumption of concurrency prevailed in the \u200ereinsurance market at the time the certificates were issued\u201d, the Second Circuit affirmed the District \u200eCourt\u2019s decision, and acknowledged that Bellefonte <\/em>and Unigard <\/em>\u201chave been undermined\u201d by the \u200eanswer of the New York Court of Appeals.\u200e<\/p>\n\n\n\n

Following the Global Reinsurance decision, depending on the wording of a facultative certificate, \u200ereinsurers may now find themselves at risk of increased exposure to payment of cedents\u2019 defense \u200ecosts where the cedent has made an indemnity payment. This decision presents another \u200ereminder that when negotiating the terms of reinsurance agreements, do not simply accept \u200eboilerplate wording, but take care to be sure that the \u2018wording\u2019 reflects what both parties intend, \u200ebecause you\u2019ll never know in advance whether \u2018what goes around comes around\u2019.\u200e<\/p>\n\n\n\n

[1] In Unigard, the Second Circuit applied the Bellefonte rule to conclude that the follow-form clause in a reinsurance certificate \u201cdid not \u200e\u200e\u2018override the limitation on liability\u2019 and that therefore the reinsurer was not liable for expenses in excess of the liability limit.\u201d \u200e4 F.3d \u200eat \u200e\u200e1070-71.\u200e<\/sup><\/p>\n\n\n\n

<\/p>\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Jonathan Bank, Matthew Murphy and Ernesto Rafael Palomo | Locke Lord In 1990, the Second Circuit in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d \u200e\u200e910 (2d Cir. 1990), affirmed a District Court judgment that reinsurers were not obligated to pay \u200eadditional sums for defense costs over and above the limits of liability… Continue reading What Goes Around Comes Around<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10721],"tags":[9895,11614,8881,10306],"class_list":["post-899518","post","type-post","status-publish","format-standard","hentry","category-insurance","tag-advise-consult","tag-bellefonte-rule","tag-indemnity","tag-reinsurance-disputes","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nWhat Goes Around Comes Around - 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