Amerisure Mut. Ins. Co. v. Transatlantic Reinsurance Co.

Decision Date23 November 2021
Docket NumberCase No. 2:18-cv-11966
Citation573 F.Supp.3d 1176
CourtU.S. District Court — Eastern District of Michigan

Carl H. Poedtke, DLA Piper LLP, Emily Danya Gilman, Matthew Freilich, Stephen W. Schwab, DLA Piper LLP, Chicago, IL, Lori M. McAllister, Dykema Gossett, Lansing, MI, for Plaintiff.

Chelsea R. Mikula, Tucker Ellis LLP, Cleveland, OH, Ronie Schmelz, Tucker Ellis LLP, Los Angeles, CA, Timothy J. Jordan, Garan Lucow, Detroit, MI, for Defendant.


STEPHEN J. MURPHY, III, United States District Judge

In the present reinsurance dispute, Defendant moved for summary judgment, ECF 69, and Plaintiff moved for partial summary judgment, ECF 71.1 The parties fully briefed the motions. After rescheduling the motion hearing several times, the Court decided to resolve the motions without a hearing. See E.D. Mich. L.R. 7.1(f)(2). For the reasons below, the Court will deny Defendant summary judgment and grant Plaintiff partial summary judgment.


In the early 1980s, Plaintiff, a Michigan insurance company, issued general liability and umbrella insurance policies to a company called Armstrong Machine Works. ECF 39-2; 39-3; 39-4; 39-5; 39-6. Armstrong produced inverted bucket steam traps that contained asbestos. ECF 70-1, PgID 1943 (under seal). At the time, however, the asbestos did "not present a disposal hazard under ordinary circumstances" because it was " ‘locked-in’ or ‘encapsulated’ " and was "not friable." ECF 77-2, PgID 3339, 3343.

In 1981 and 1982, Armstrong's general liability coverage contained a $1 million aggregate limit. ECF 39-2, PgID 461. Under the coverage, Plaintiff not only covered $1 million of Armstrong's losses due to legal liability, but also "supplementary payments" like claim defense expenses. ECF 39-3, PgID 479. The 1981 and 1982 umbrella policies contained $15 million and $30 million aggregate limits respectively. ECF 39-4, PgID 487; ECF 39-5, PgID 489. Like the general liability coverage, both umbrella policies required Plaintiff to cover Armstrong's losses up to the aggregate limit as well as defense and supplementary payments. ECF 39-6, PgID 492.

In 1981 and 1982, Defendant, a New York reinsurance company, issued facultative certificates that covered a portion of Plaintiff's risk under the respective umbrella policy. ECF 39-7; 39-8. The parties contracted through a New York broker. ECF 39-7, PgID 498; ECF 39-8, PgID 502.

During the underwriting process, the asbestos in Armstrong's products was not addressed. See ECF 67-1, PgID 1348, 1388 (under seal). Defendant claimed that it would have never issued the reinsurance certificates had it known of an "asbestos exposure" in Armstrong's products. ECF 69-3, PgID 1877. Defendant even issued a "Home Office Bulletin" in 1980 that stated, "[i]t is the policy of [Defendant] to exclude coverage where there is a known asbestos exposure." ECF 75-17, PgID 2638 (under seal). But Plaintiff claimed that it knew only "of the presence of a rubberized gasket that contained encapsulated asbestos" during the underwriting. ECF 69-2, PgID 1864.

In the end, Defendant issued two facultative certificates to Defendant. ECF 39-7; ECF 39-8. Each certificate contains two sections: a declaration and general conditions. Id.

Item four of the 1981 certificate's declaration states that the "Reinsurance Accepted" is $2 million part of $4 million "each occurrence and in the aggregate where applicable excess of" $1 million "each occurrence and in the aggregate where applicable excess of primary." ECF 39-7, PgID 498.2 The certificates require Defendant to provide reinsurance on a "Contributing Excess" basis. Id. ; ECF 39-8, PgID 502.

Under the certificates’ general conditions, Defendant's liability "follow[s]" Plaintiff's "liability in accordance with the terms and conditions of the policy reinsured hereunder except with respect to those terms and/or conditions as may be inconsistent with the terms of th[e] Certificate." ECF 39-7, PgID 499 ¶1; ECF 39-8, PgID 503 ¶1. "Contributing Excess" is defined as "[Plaintiff's] policy applies in excess of other valid insurance, reinsurance or a self-insured retention and the limit of liability of [Defendant] applies proportionally to all loss settlements in the percentage(s) set forth in Item 4 of the Declarations." ECF 39-7, PgID 499 ¶10; ECF 39-8, PgID 503 ¶10. The term "loss" means "only such amounts as are actually paid by [Plaintiff] in settlement of claims or in satisfaction of awards or judgements." ECF 39-7, PgID 499 ¶3(d); ECF 39-8, PgID 503 ¶3(d). "The term ‘loss’ shall not include loss expense." ECF 39-7, PgID 499 ¶3(d); ECF 39-8, PgID 503 ¶3(d). "The term ‘loss expense’ [ ] mean[s] all expenses incurred in the investigation, adjustment, settlement or litigation of claims, awards or judgments, including the salaries and expenses of [Plaintiff's] staff adjusters but excluding the office expenses of [Plaintiff] and the salaries and expenses of all other employees of [Plaintiff]." ECF 39-7, PgID 499 ¶3(f); ECF 39-8, PgID 503 ¶3(f). The certificates also require Plaintiff to "notify [Defendant] promptly of any event or development which [Plaintiff] reasonably believes might result in a claim against [Defendant]." ECF 39-7, PgID 499 ¶3(a); ECF 39-8, PgID 503 ¶3(a).

Each certificate became "valid and binding when signed by a duly authorized representative" of Defendant. ECF 39-7, PgID 499; ECF 39-8, PgID 503. Defendant's President and Secretary signed each certificate. ECF 39-7, PgID 498–99; ECF 39-8, PgID 502–03.

Over the years, Armstrong was sued in thousands of cases for injuries related to its asbestos-containing product. See ECF 67-2, PgID 1682 (under seal). In 2004, an actuarial report for Plaintiff found an increased exposure to asbestos claims for all Plaintiff's policyholders. ECF 67-2, PgID 1446–48, 1451–96 (under seal). Plaintiff responded by increasing its reserves for asbestos losses by tens of millions of dollars. ECF 67-2, PgID 1632–34 (under seal). Two years later, Plaintiff notified a reinsurer that its obligations under a reinsurance treaty with Armstrong had been triggered. ECF 67-2, PgID 1647, 1650–54 (under seal). Plaintiff also agreed to share costs for Armstrong's asbestos losses with another insurer. ECF 67-2, PgID 1638–45 (under seal). Two more years later, Plaintiff questioned whether Armstrong might exhaust the limits on the primary insurance policies. ECF 67-2, PgID 1662–64 (under seal). And in 2013, Armstrong exhausted its primary policies from 1976 to 1986. Id. at 1679 (under seal).

In March 2014, Plaintiff provided notice under the certificates to Defendant when half of the indemnity amount reached the reinsurer's retention. ECF 67-1, PgID 1314–20 (under seal); ECF 77-3, PgID 3347, 3355–56. And in January 2017, the claims reached Defendant's reinsurance layer. ECF 75-4 (under seal). After Defendant refused to pay, Plaintiff sued for breach of the 1981 facultative certificate. ECF 1.


The Court must grant a motion for summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A moving party must identify specific portions of the record that "it believes demonstrate the absence of a genuine issue of material fact."

Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met its burden, the non-moving party may not simply rest on the pleadings but must present "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (emphasis omitted) (quoting Fed. R. Civ. P. 56(e) ).

A fact is material if proof of that fact would establish or refute an essential element of the cause of action or defense. Kendall v. Hoover Co. , 751 F.2d 171, 174 (6th Cir. 1984). A dispute over material facts is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When considering a motion for summary judgment, the Court must view the facts and draw all reasonable inferences "in the light most favorable to the non-moving party." 60 Ivy St. Corp. v. Alexander , 822 F.2d 1432, 1435 (6th Cir. 1987) (citations omitted).


The Court will first discuss whether to apply Michigan or New York law to the partiessummary judgment motions. After, the Court will address Defendant's summary judgment arguments that the Court should rescind the facultative certificates. Last, the Court will interpret the certificates’ liability limits since both parties moved for summary judgment on the issue.

I. Choice of Law

A federal district court sitting in diversity applies the forum state's choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Because the Court is in Michigan and the parties’ certificates lack a choice-of-law clause, see ECF 39-7, PgID 499; ECF 39-8, PgID 503, Michigan's choice-of-law rules govern the parties’ disputes.

The parties agree that, to resolve contract law conflicts, Michigan applies the most significant relationship test under the Restatement (Second) of Conflict of Laws § 188. ECF 69, PgID 1830–31; ECF 77, PgID 3049. Indeed, the Michigan Supreme Court applies the Second Restatement's test for contract law conflicts. Chrysler Corp. v. Skyline Indus. Servs., Inc. , 448 Mich. 113, 124, 528 N.W.2d 698 (1995) ; see also Stone Surgical, LLC v. Stryker Corp. , 858 F.3d 383, 389 (6th Cir. 2017). For insurance disputes, the same test applies. Ric-Man Constr., Inc., v. Pioneer Special Risk Ins. Servs.,...

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