N.H. Ins. Co. v. Clearwater Ins. Co., 653547/11, 12779

• Decision Date: 24 March 2015
• Docket Number: 653547/11, 12779
• Citation: 2015 N.Y. Slip Op. 02438,129 A.D.3d 99,7 N.Y.S.3d 38
• Parties: NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff–Appellant–Respondent, v. CLEARWATER INSURANCE COMPANY, Defendant–Respondent–Appellant.
• Court: New York Supreme Court — Appellate Division

129 A.D.3d 99

7 N.Y.S.3d 38

2015 N.Y. Slip Op. 02438

NEW HAMPSHIRE INSURANCE COMPANY, Plaintiff–Appellant–Respondent

v.CLEARWATER INSURANCE COMPANY, Defendant–Respondent–Appellant.

653547/11, 12779

Supreme Court, Appellate Division, First Department, New York.

March 24, 2015.

Sidley Austin LLP, New York (William M. Sneed of the bar of the State of Illinois, admitted pro hac vice, and Alan J. Sorkowitz of counsel), for appellant-respondent.

Crowell & Moring LLP, New York (Harry P. Cohen and Brian J. O'Sullivan of counsel), for respondent-appellant.

ANGELA M. MAZZARELLI, J.P., DAVID FRIEDMAN, DAVID B. SAXE, and PAUL G. FEINMAN, JJ.

Opinion

FRIEDMAN, J.

Plaintiff New Hampshire Insurance Company (New Hampshire) has settled, along with several affiliated liability insurers under common corporate control (collectively, AIG), hundreds of millions of dollars of claims—most but not all of which are asbestos-related personal injury claims—with nonparty Kaiser Aluminum & Chemical Corporation (Kaiser), a common insured of the settling carriers. AIG's settlement agreement with Kaiser does not address the allocation of losses to particular claims, policies or carriers beyond providing that AIG may effect such an allocation “for its own purposes, in its own books and records,” which AIG has done. That allocation ascribes 100% of the settlement amount to asbestos product liability claims within the coverage of Kaiser's New Hampshire excess policy (issued for the period from June 1973 to June 1976) and none of the amount to other settled claims—for bad faith, defense costs in addition to policy limits, and premises liability—that Kaiser had asserted against certain other AIG carriers, but not against New Hampshire.

New Hampshire has brought this action against defendant Clearwater Insurance Company (Clearwater), a reinsurer of the excess policy New Hampshire issued to Kaiser, seeking to require Clearwater to indemnify New Hampshire for the share prescribed by its reinsurance certificate of the portion of the Kaiser settlement payments (which are being made over a 10–year period) that AIG has allocated to the New Hampshire policy. In its defense, Clearwater challenges AIG's allocation of 100% of the settled losses to asbestos products liability claims, contending that this allocation unreasonably results in the reinsured New Hampshire policy bearing part of the cost of settling the premises, bad faith and defense cost claims that Kaiser had not asserted against New Hampshire or that were not covered by the New Hampshire policy. Clearwater also asserts, as additional affirmative defenses, that New Hampshire (known as the ceding company, or “cedent,” in reinsurance nomenclature; see United States Fid. & Guar. Co. v. American Re–Ins. Co., 20 N.Y.3d 407, 418, 962 N.Y.S.2d 566, 985 N.E.2d 876 [2013] [hereinafter, USF & G ] ) has breached its contractual notice, reporting and risk retention obligations under the terms of the reinsurance certificate.

While discovery was in its early stages, and before any witnesses had been deposed, New Hampshire moved for summary judgment in its favor. Concerning the allocation issue, New Hampshire argued that Clearwater, as a reinsurer, was bound, as a matter of law, by New Hampshire's allocation of settled claims to the reinsured policy under general principles of the law of reinsurance. We agree with Supreme Court that this argument is unavailing. As more fully discussed below, even if the subject reinsurance certificate, in spite of its lack of a clause expressly so providing, generally obligates Clearwater to “follow the settlements” made by New Hampshire with its insured—a question that we need not, and do not, decide on this appeal—the cedent's allocation decisions are not “immune from scrutiny” (USF & G, 20 N.Y.3d at 420, 962 N.Y.S.2d 566, 985 N.E.2d 876 ). In particular, even where the “follow the settlements” doctrine applies, the reasonableness of a cedent's decision not to attribute any portion of a settlement to settled claims that were not covered by the reinsured policy may, on a proper record, present an issue of fact (see id. at 414, 422–425, 962 N.Y.S.2d 566, 985 N.E.2d 876 [finding that the reasonableness of the cedent's attribution of none of the settlement amount to the insured's bad faith claims, which were not covered by reinsurance, presented a triable issue] ). Accordingly, given the undeveloped factual record of this case, Supreme Court properly denied New Hampshire summary judgment on the allocation issue. However, also in view of the undeveloped state of the record, the court erred in granting New Hampshire summary judgment dismissing Clearwater's affirmative defenses alleging that New Hampshire breached its notice, reporting and risk retention obligations under the reinsurance certificate. We therefore modify the order under review to deny New Hampshire's summary judgment motion in its entirety.

Factual and Procedural Background

The Subject Insurance Policy

The underlying insurance policy at issue in this dispute was issued by New Hampshire to Kaiser in 1973 and covered the three-year period from June 6, 1973 to June 6, 1976. The policy, designated as policy number 5173–0230 (hereinafter, the NH–Kaiser policy), afforded Kaiser high-level excess liability coverage, with an annual per-occurrence limit of $50 million and an annual aggregate limit of liability of $50 million for products liability losses. The NH–Kaiser policy attached in excess of specified underlying umbrella policies with an annual per-occurrence limit of $50 million and an aggregate annual limit of $50 million for products liability losses.

Thus, the NH–Kaiser policy was not implicated until Kaiser's covered losses for a given year during the policy period exceeded $50 million.

Although the NH–Kaiser policy apparently was the only one that New Hampshire issued to Kaiser, the record reflects that six other AIG–affiliated carriers issued Kaiser a total of 48 excess liability policies, at various levels of coverage, during the period from 1970 to 1985. The aggregate limits of Kaiser's 49 AIG policies (including the NH–Kaiser policy) totaled approximately $575 million.

The Subject Reinsurance Contract

New Hampshire ceded a portion of its risk under the NH–Kaiser policy to Clearwater (which was then known as Skandia) pursuant to a contract entitled “Casualty Facultative Reinsurance Certificate No. 0567,” dated July 10, 1973 (hereinafter, the Clearwater–NH certificate).¹ The Clearwater–NH certificate originally provided that Clearwater would indemnify New Hampshire for a 4% pro rata share (up to $2 million per year) of any liability under the NH–Kaiser policy. In 1974, an amendment to the Clearwater–NH certificate increased Clearwater's pro rata share of New Hampshire's liability under the NH–Kaiser policy to 8%, or up to $4 million per year.

The Clearwater–NH certificate provides that Clearwater's “liability ... shall follow [New Hampshire'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 this Certificate.” It also contains a provision under which New Hampshire “warrants that it shall retain for its own account, subject to treaty reinsurance only, if any, the amount specified on the face of this Certificate.” New Hampshire further agreed that it would “notify [Clearwater] promptly of any event or development which [New Hampshire] reasonably believes might result in a claim against [Clearwater]” and would “forward to [Clearwater] copies of such pleadings and reports of investigations as are pertinent to the claim” under the certificate. The Clearwater–NH certificate also gives Clearwater the right to associate with New Hampshire in the defense of any claim made against the reinsured policy.

The Claims Against Kaiser and Ensuing Coverage Litigation

Kaiser was first named as a defendant in asbestos-related personal injury actions in the late 1970s. Eventually, the asbestos-related claims against Kaiser numbered in the hundreds of thousands. The asbestos claims arose from Kaiser's sale of asbestos-containing products or from alleged asbestos exposure at Kaiser's manufacturing premises. Also relevant to this action are personal injury claims against Kaiser arising from alleged exposure to substances and conditions other than asbestos (including benzene, volatile coal tar pitch, and excessive noise) at Kaiser's manufacturing premises. The accumulation of these claims forced Kaiser into Chapter 11 bankruptcy proceedings in 2002.

In 2000, Kaiser commenced a declaratory judgment action in California state court (the asbestos products action) against certain of its insurers to resolve disputes over coverage for the asbestos products liability claims against it (asbestos products claims). Although New Hampshire was not originally named as a defendant in this action, it was impleaded by other insurers, and Kaiser amended its complaint in 2001 to name all of its insurers, including New Hampshire, as defendants. In the asbestos products action, Kaiser asserted, in addition to its claims for declaratory relief and breach of contract, claims for bad faith against certain insurers, including two AIG carriers, Lexington Insurance Company (Lexington) and Insurance Company of the State of Pennsylvania (ICOP), but not New Hampshire. Also, the court in the asbestos products action ruled that Kaiser's ICOP policy obligated the insurer to pay Kaiser's defense costs in addition to the limits of its policy (defense costs claims).

In 2001, Kaiser commenced a separate declaratory judgment action in California state court (the premises action) against certain of its insurers concerning coverage for personal injury claims based on exposure to substances or conditions at Kaiser's manufacturing premises (premises claims), including claims for workplace exposure to asbestos, silica, coal tar pitch volatiles, and benzene, and...