Fireman's Fund Ins. Co. v. OneBeacon Ins. Co.

Decision Date19 October 2020
Docket Number14 Civ. 4718 (PGG)
Citation495 F.Supp.3d 293
Parties FIREMAN'S FUND INSURANCE COMPANY, Plaintiff, v. ONEBEACON INSURANCE COMPANY as successor-in-interest to General Accident Insurance Company of America, Defendant.
CourtU.S. District Court — Southern District of New York

Karen Christine Baswell, Steven Carl Schwartz, Chaffetz Lindsey LLP, New York, NY, for Plaintiff.

Adam Robert Doherty, Sr., Mitchell King, Prince Lobel Tye LLP, Boston, MA, David A. Silva, Mound, Cotton & Wollan, Jason M. Brown, Reed Smith LLP, New York, NY, for Defendant.

ORDER

PAUL G. GARDEPHE, U.S.D.J.:

Plaintiff Fireman's Fund Insurance Company ("Fireman's") brings this action against OneBeacon Insurance Company, alleging that OneBeacon breached its obligation to make certain reinsurance payments. Fireman's issued three insurance policies to Asarco, Inc., one of which OneBeacon reinsures ("Policy 3"). Fireman's settled claims with Asarco for $35 million and allocated a portion of that settlement to Policy 3. OneBeacon denied Fireman's reinsurance claim, arguing that no portion of Fireman's settlement with Asarco should have been allocated to Policy 3.

The parties have filed cross-motions for summary judgment. For the reasons stated below, Fireman's motion will be granted and OneBeacon's motion will be denied.

BACKGROUND 1
I. REINSURANCE

This case concerns reinsurance policies. "Simply put, [r]einsurance is a contract by which one insurer insures the risks of another insurer.’ " North River Ins. Co. v. Ace Am. Reinsurance Co., 361 F.3d 134, 137 (2d Cir. 2004) (citing People ex rel. Cont'l Ins. Co. v. Miller, 177 N.Y. 515, 521, 70 N.E. 10 (1904) ). "[R]einsurance may serve at least two purposes, protecting the primary insurer from catastrophic loss, and allowing the primary insurer to sell more insurance than its own financial capacity might otherwise permit." Hartford Fire Ins. Co. v. California, 509 U.S. 764, 773, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993) (internal quotation marks omitted). "When entering into a reinsurance contract, a reinsured agrees to pay a particular premium to a reinsurer in return for the reinsurer assuming the risk of a portion of the reinsured's potential financial exposure under certain direct insurance policies it has issued to its insured." North River, 361 F.3d at 137. " ‘The scope of the risks assumed by a reinsurer depends upon the terms of the policies that are reinsured.’ " Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Am. Re-Ins. Co., 441 F. Supp. 2d 646, 650 (S.D.N.Y. 2006) (quoting BARRY R. OSTRAGER & THOMAS R. NEWMAN , HANDBOOK ON INS. COVERAGE DISPUTES § 15.01[a] (12th ed. 2004)).

II. FACTS

The material facts of this case are not in dispute. Plaintiff Fireman's issued three excess liability insurance policies2 (collectively, the "Fireman's Policies") to Asarco. (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶ 4) Fireman's Policy No. XLX 1481698 ("Policy 1") provides coverage of $20 million for losses in excess of $30 million in excess of a $3 million self-insured retention3 for the period March 15, 1982 to March 15, 1983. (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶ 5; Def. R. 56.1 Stmt. (Dkt. No. 46) ¶ 48) Fireman's Policy No. XLX 1534773 ("Policy 2") provides coverage of $20 million for losses in excess of $30 million in excess of a $3 million self-insured retention for the period March 15, 1983 to March 15, 1984. (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶ 6; Def. R. 56.1 Stmt. (Dkt. No. 41) ¶ 49) Fireman's Policy No. XLX 1534774 ("Policy 3") provides coverage of $20 million for losses in excess of $75 million in excess of a $3 million self-insured retention for the period March 15, 1983 to March 15, 1984. (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶ 7; Def. R. 56.1 Stmt. (Dkt. No. 41) ¶ 50)

The Fireman's Policies were part of an annual insurance program purchased by Asarco, which includes sequential layers of insurance referred to as a "coverage tower." (Def. R. 56.1 Stmt. (Dkt. No. 41) ¶ 47) Because the Fireman's Policies are excess liability insurance policies, they are not drawn on unless and until underlying insurance policies in the coverage tower are exhausted. (Def. R. 56.1 Stmt. (Dkt. No. 41) ¶ 52)

Policy 3 states that "[i]t is a condition of [the policy] that the insurance afforded under [the policy] shall apply only after all the underlying insurance has been exhausted." (Policy 3 (Dkt. No. 38-9) at 5) Each of the Fireman's Policies includes a "Schedule of Underlying Insurance." (Def. R. 56.1 Stmt. (Dkt. No. 41) ¶ 57) Policy 2 is the underlying insurance for Policy 3. (Id. ¶ 61)

The Fireman's Policies also contain a Limit of Liability provision, which reads as follows:

Limit of Liability
The Company shall be liable only for the limit of liability stated in Item 3 of the Declarations in excess of the limit or limits of liability of the applicable underlying insurance policy or policies all as stated in the declarations of this policy. The limit of the liability stated in the declarations as applicable to "each occurrence" shall be the total limit of the Company's liability for all damages sustained as the result of any one occurrence, provided, however, in the event of reduction o[r] exhaustion of the applicable aggregate limit or limits of liability under said underlying policy or policies solely by reason of losses paid thereunder on account of occurrences during this policy period, this policy shall in the event of reduction, apply as excess of the reduced limit of liability thereunder. Subject to the applicable limit of liability as respects each occurrence, the limit of liability stated in the declarations as "aggregate" shall be the total limit of the Company's liability for all damages sustained during each annual period of this policy because of (i) personal injury and property damage arising out of the completed operations hazard and product hazard combined; or (ii) advertising whenever occurring by whatever media, on account of all occurrences; or (iii) injury arising out of any hazard, other than as described in (i) and (ii), to which the underlying policy affords coverage subject to an aggregate limit and to which this policy also applies.

(Policy 3 (Dkt. No. 38-9) at 5 (emphasis added))

General Accident Insurance Company reinsured Policy 3 under a facultative reinsurance 4 contract – the Certificate of Facultative Reinsurance No. FC 4620 (the "Facultative Certificate") covers a 15% share of the risk assumed in Policy 3: a "$3,000,000 [part of] $20,000,000 excess of $75,000,000 excess of underlying." (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶¶ 8-9) Defendant OneBeacon5 is the successor-in-interest to General Accident. (Id. ¶ 3)

The Facultative Certificate states, inter alia, that "[t]he liability of [OneBeacon] ... shall follow that of [Fireman's] and except as otherwise specifically provided herein, shall be subject in all respects to all the terms and conditions of [the Fireman's] policy...." (Facultative Certificate (Dkt. No. 38-12) ¶ 1) The Facultative Certificate further states that "[a]ll claims involving this reinsurance, when settled by [Fireman's], shall be binding on [OneBeacon]." (Id. ¶ 3)

In May 2001, Asarco filed an action in Texas state court against Fireman's and its other insurers6 seeking coverage for claims related to asbestos exposure ("the Asarco Coverage Litigation"). (Pltf. R. 56.1 Stmt. (Dkt. No. 37) ¶ 10) Asarco identified Policies 1, 2 and 3 as the bases for its claims against Fireman's in the Asarco Coverage Litigation. (Id. ¶ 11)

On August 9, 2005, Asarco filed a Chapter 11 petition in the Bankruptcy Court for the Southern District of Texas. (Id. ¶ 17) On December 9, 2009, the Asarco Asbestos Personal Injury Settlement Trust (the "Asarco Trust") assumed some of Asarco's asbestos liabilities and insurance rights. (Id. ¶ 19)

In November 2009, Fireman's estimated its potential exposure in the Asarco Coverage Litigation at $50.3 million. (Id. ¶ 35) In June 2011, Fireman's and the Asarco Trust entered into a Settlement Agreement (the "Settlement Agreement") in which Fireman's agreed to pay Asarco $35 million. (Id. ¶¶ 39-40) Fireman's allocated the $35 million settlement among Policies 1, 2 and 3, in proportion to the allocation set forth in its November 2009 exposure analysis. (Id. ¶ 40) Fireman's allocated $8,103,919 to Policy 3. (Id. ¶ 41)

In January 2013, Fireman's billed OneBeacon under the Facultative Certificate for a total of $1,744,250.08. (Id. ¶ 42) This sum reflects: (1) 15% of the $8,103,919 indemnity allocated to Policy 3, which amounts to $1,215,587.85; (2) OneBeacon's 15% share of the claim adjustment expenses paid by Fireman's, which amounts to $119,071.11; and (3) OneBeacon's 15% share of the expenses Fireman's incurred in the Asarco Coverage Litigation, which amounts to $409,591.12. (Id. )

In April 2014, OneBeacon – through its claims manager, Resolute Management, Inc. – denied Fireman's claim. (Id. ¶ 43) On June 26, 2014, Fireman's filed the Complaint in the instant case. (Cmplt. (Dkt. No. 2))

III. PROCEDURAL BACKGROUND

The Complaint was filed on June 26, 2014. (Id. ) On July 2, 2015, the parties filed cross-motions for summary judgment. (Pltf. Mot. (Dkt. No. 34); Def. Mot. (Dkt. No. 44))

On March 31, 2016, this Court denied without prejudice the partiescross-motions for summary judgment, finding that the parties had not briefed cases that were critical to resolving their motions. (Mar. 31, 2016 Order (Dkt. No. 56) at 2)

At an April 7, 2016 conference, the Court directed the parties to provide supplemental briefing concerning North River Ins. Co. v. Ace Am. Reinsurance Co., 361 F.3d 134 (2d Cir. 2004), and Ali v. Fed. Ins. Co., 719 F.3d 83 (2d Cir. 2013). The Court also directed the parties to address the public policy implications of various potential rulings. (Apr. 7, 2016 Tr. (Dkt. No. 58) at 4-7) That same day, this Court issued a scheduling order for supplemental briefing.

Both sides submitted supplemental briefing and renewed their motions for summary judgment. (Pltf. Supp. Br. (Dkt. No....

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