Global Reinsurance Corp. of Am. v. Century Indem. Co.
| Decision Date | 14 December 2017 |
| Docket Number | No. 124,124 |
| Citation | 69 N.Y.S.3d 207,91 N.E.3d 1186,30 N.Y.3d 508 |
| Parties | GLOBAL REINSURANCE CORPORATION OF AMERICA, successor in interest to Constitution Reinsurance Corporation, Respondent, v. CENTURY INDEMNITY COMPANY, successor in interest to CCI Insurance Company, successor in interest to Insurance Company of North America, Appellant. |
| Court | New York Court of Appeals Court of Appeals |
O'Melveny & Myers LLP, Washington, D.C. (Jonathan D. Hacker, of the District of Columbia bar, admitted pro hac vice, of counsel), and New York City (Anton Metlitsky and Jennifer B. Sokoler of counsel), and White and Williams LLP, Philadelphia, Pennsylvania (Daryn E. Rush and Ellen K. Burrows, of the Pennsylvania bar, admitted pro hac vice, of counsel), for appellant.
Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, D.C. (David C. Frederick, Jeremy S. Newman and Amelia I. P. Frenkel, of the District of Columbia bar, admitted pro hac vice, of counsel, and Ariela Migdal of counsel), and Pitchford Law Group, LLC, New York City (David L. Pitchford of counsel), for respondent.
Sidley Austin LLP, New York City (James D. Arden of counsel) and Chicago, Illinois (William Sneed and Daniel R. Thies of counsel), for Continental Casualty Company and others, amici curiae.
Chaffetz Lindsey LLP, New York City (Steven C. Schwartz and Gretta L. Walters of counsel), for Aon Benfield U.S. and others, amici curiae.
The narrow issue before us pertains to the scope of our prior ruling in Excess Insurance Co. Ltd. v. Factory Mutual Insurance Co., 3 N.Y.3d 577, 789 N.Y.S.2d 461, 822 N.E.2d 768 (2004). Pursuant to Rule 500.27 of this Court, the United States Court of Appeals for the Second Circuit has certified the following question to us:
"Does the decision of the New York Court of Appeals in [ Excess ] 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?"
( Global Reinsurance Corporation of America v. Century Indemnity Company, 843 F.3d 120, 128 [2d Cir.2016] ).1 We now answer the certified question in the negative. Under New York law generally, and in Excess in particular, there is neither a rule of construction nor a presumption that a per occurrence liability limitation in a reinsurance contract caps all obligations of the reinsurer, such as payments made to reimburse the reinsured's defense costs.
Reinsurance is the insurance of one insurer by another (see Matter of Union Indem. Ins. Co. of N.Y., 89 N.Y.2d 94, 105–106, 651 N.Y.S.2d 383, 674 N.E.2d 313 [1996] ). "When entering into a reinsurance contract, an insurance company agrees to pay a particular premium to a reinsurer in return for reimbursement of a portion of its potential financial exposure under certain direct insurance policies it has issued to its customers" ( Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd's of London, 96 N.Y.2d 583, 587, 734 N.Y.S.2d 531, 760 N.E.2d 319 [2001] ). "Through this indemnity relationship, the reinsured seeks to ‘cede’ or spread its risk of loss among one or more reinsurers" ( id. ). Through this process, reinsurance permits the cedent insurer to "minimize its exposure to catastrophic loss," "reduce the amount of the legally required reserves held for the protection of policyholders," and "increase [its] ability to underwrite other policies or make other investments" ( Matter of Midland Ins. Co., 79 N.Y.2d 253, 258, 582 N.Y.S.2d 58, 590 N.E.2d 1186 [1992] ).
There are two types of reinsurance: treaty and facultative. Under a reinsurance treaty, the cedent transfers to the reinsurer its risk under an entire line of business spanning multiple insurance policies (see Travelers, 96 N.Y.2d at 587–588, 734 N.Y.S.2d 531, 760 N.E.2d 319 ; Sumitomo Marine & Fire Ins. Co., Ltd.-U.S. Branch v. Cologne Reinsurance Co. of America, 75 N.Y.2d 295, 301, 552 N.Y.S.2d 891, 552 N.E.2d 139 [1990] ). By contrast, in facultative reinsurance, the reinsurer agrees to indemnify the cedent for all or a portion of the cedent's risk under a single policy in the event of loss (see 1A Couch on Ins. § 9:3 [3d ed.2016] ; Travelers, 96 N.Y.2d at 587, 734 N.Y.S.2d 531, 760 N.E.2d 319 ). In other words, "[f]acultative reinsurance is policy-specific" ( Travelers, 96 N.Y.2d at 587, 734 N.Y.S.2d 531, 760 N.E.2d 319 ). For purposes of this certified question, we are concerned only with facultative reinsurance.2
The coverage provided under a facultative reinsurance contract is "memorialized in a certificate" (Barry R. Ostrager & May Kay Vyskocil, Modern Reinsurance Law and Practice § 1:03 [3d ed.2014]; accord William Hoffman, Facultative Reinsurance Contract Formation, Documentation and Integration, 38 Tort Trial & Ins Prac L J 763, 809 [Spring 2003] ["By a certificate, the reinsurer attests that the facultative reinsurance placement is complete and the contract in effect"] ). These certificates are usually "standard forms" ( North River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1199 [3d Cir.1995] ), "short and concise, using terms of art rather than lengthy, legalistic explications to define the obligations of the parties" (Ostrager & Vyskocil, § 2:02; see Sumitomo, 75 N.Y.2d at 302, 552 N.Y.S.2d 891, 552 N.E.2d 139 ).
Typically, the facultative reinsurer is obligated to indemnify the cedent up to a stated upper limit (see Travelers, 96 N.Y.2d at 588, 734 N.Y.S.2d 531, 760 N.E.2d 319 ). For example, one of the certificates relevant to the underlying dispute, which the parties refer to as "Certificate X," reads:
( Global Reinsurance, 843 F.3d at 123 ). Certificate X reinsures an underlying insurance policy of $1 million per occurrence, with the cedent retaining the first $500,000 of such liability, and the reinsurer assuming up to $250,000 in excess thereof.
An underlying third-party liability insurance policy will often require the insurer to either pay the insured's costs in defending covered claims, or to provide legal counsel and defend the claim itself (see e.g. Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 309–310, 486 N.Y.S.2d 873, 476 N.E.2d 272 [1984] ). These expenses are distinct from indemnity payments for actual losses (see id. at 310, 486 N.Y.S.2d 873, 476 N.E.2d 272 [], quoting International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 326, 361 N.Y.S.2d 873, 320 N.E.2d 619 [1974] ).
One recurring issue in reinsurance disputes is whether these defense costs, insofar as they are reinsured by a facultative reinsurance policy, count towards the limit in the reinsurance accepted clause ($250,000 in the example above). Here, Global averred that, as of the filing of its motion for summary judgment, Century billed it $327,149 under Certificate X, consisting of $82,627 in loss and $244,522 in expense. Global argued that, under the reinsurance accepted clause, its obligation to Century for both loss and expense payments under Certificate X is capped at $250,000 (see Global Reinsurance, 843 F.3d at 123 ). Century argued that this $250,000 limit applied only to losses and that Global must also pay all expenses, even if losses and expenses combined would exceed $250,000 ( id. ).
This brings us to the question certified by the Second Circuit: whether our 2004 decision in Excess, 3 N.Y.3d 577, 789 N.Y.S.2d 461, 822 N.E.2d 768 ) imposed "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" ( Global Reinsurance, 843 F.3d at 128 ). As the Second Circuit noted:
( id. ). We now turn to that decision.
Our opinion in Excess addressed whether a reinsurer's obligation to pay loss adjustment expenses3 arising from a "follow-the-settlements" clause was subject to the stated indemnification limit in the reinsurance policy. Factory Mutual Insurance Company (Factory) issued a property insurance policy to Bull Data Systems Inc. (Bull Data), covering the risk of loss or damage to Bull Data's personal computer inventory (see Excess, 3 N.Y.3d at 579, 789 N.Y.S.2d 461, 822 N.E.2d 768 ). Factory, in turn, reinsured the Bull Data policy with various reinsurers, including the respondents in that case (see id. at 579–80, 789 N.Y.S.2d 461, 822 N.E.2d 768 ). The respondents issued a facultative reinsurance certificates to Factory that read, in relevant part:
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