SDNY Issues Favorable Decision for Fireman’s Fund Insurance Company in Reinsurance Dispute

October 2020 – Chaffetz Lindsey client Fireman’s Fund Insurance Company (“Fireman’s Fund”) recently won summary judgment on its claims for reinsurance coverage of its settlement with ASARCO, Inc. (“ASARCO”) relating to asbestos claims.  Paul Gardephe of the Southern District of New York issued the ruling.

Fireman’s Fund issued three excess liability insurance policies to ASARCO, a company involved in the mining and processing of asbestos.  When ASARCO faced thousands of claims for exposure to asbestos, it turned to its insurers for coverage.  Firemen’s Fund faced potential exposure of up to $60 million ($20 million for each of its three policies), but eventually settled with ASARCO for $35 million.  Fireman’s Fund then allocated that settlement across its three policies based on its exposure analysis, assigning a certain percentage of the settlement to each policy.  OneBeacon reinsured a 15% share of “Policy 3” under a Facultative Certificate, but refused to pay its share of the settlement.

The arguments in this case involved an interesting (and novel) byplay between the follow-the-settlements doctrine (which generally prohibits a reinsurer from second-guessing a cedent’s settlement and allocation, so long as they were reasonable) and the contractual provision that the Fireman’s Fund excess policies were not triggered unless underlying policies had been “exhausted.”  OneBeacon argued that because Fireman’s Fund did not pay the full limits of Policy 2 (which sat underneath Policy 3 in the relevant coverage tower), Policy 3 could not have been triggered.  On that basis, OneBeacon argued that any allocation to Policy 3 was unreasonable.  In contrast, Fireman’s Fund argued that: (1) under a line of Second Circuit cases, Policy 3 could be triggered where – as here – the  underlying policies were exhausted by settlement rather than by actual payment of the full limits; and therefore (2) OneBeacon was required to defer to Fireman’s Fund allocation under follow-the-settlements.

The court agreed with Fireman’s Fund, finding that the language of the Fireman’s Fund policies was ambiguous as to how an underlying policy could be exhausted, and distinguishing the myriad of cases presented by OneBeacon (which relied on different policy language).  Because Fireman’s Fund allocation was thus NOT in violation of the policy terms, the court held that OneBeacon was require to follow it.

The Chaffetz Lindsey team included Steve Schwartz, Karen Baswell, and Oslen Grant.  The court’s decision can be found here.  Additional articles about the decision are available from Law360 and HarrisMartin, though a subscription might be required for access.