Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc.

• Decision Date: 29 July 2021
• Docket Number: 19-4335,Nos. 19-1241,August Term 2020,s. 19-1241
• Citation: 7 F.4th 50
• Parties: UTICA MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. MUNICH REINSURANCE AMERICA, INC., Defendant-Appellee. Utica Mutual Insurance Company, Plaintiff-Counter Defendant-Appellee, v. Century Indemnity Company, Defendant-Counter Claimant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

7 F.4th 50

UTICA MUTUAL INSURANCE COMPANY, Plaintiff-Appellant,

v.MUNICH REINSURANCE AMERICA, INC., Defendant-Appellee.

Utica Mutual Insurance Company, Plaintiff-Counter Defendant-Appellee,

v.Century Indemnity Company, Defendant-Counter Claimant-Appellant.^*

Nos. 19-1241

19-4335

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: May 5, 2021

Decided: July 29, 2021

SYED S. AHMAD, Hunton Andrews Kurth LLP, Washington, D.C. (Patrick M. McDermott, Hunton Andrews Kurth LLP, Richmond, VA, on the brief) for Utica Mutual Insurance Company in 19-1241 & 19-4335.

BRUCE M. FRIEDMAN, Rubin, Fiorella, Friedman & Mercante LLP, New York, NY (Alan J. Sorkowitz, Crystal D. Monahan, Jason Eson, on the brief) for Munich Reinsurance America, Inc. in 19-1241.

JONATHAN D. HACKER, O'Melveny & Meyers LLP, Washington, D.C. (Tancred V. Schiavoni, Brad Elias, Ashley E. Robertson, on the brief) for Century Indemnity Company in 19-4335.

Before: JACOBS, RAGGI, CARNEY, Circuit Judges.

Dennis Jacobs, Circuit Judge:

These interrelated reinsurance disputes, heard in tandem, arise from the 30-year insurance program of a manufacturer of products containing asbestos. Plaintiff Utica Mutual Insurance Company, having paid asbestos losses incurred by the manufacturer, sued to recover reinsurance from Defendants Munich Reinsurance America and Century Indemnity Company in two suits before different judges of the same court, with inconsistent results. The disputes concern a two-year segment of the insurance program, 1973 and 1974, in which Utica issued primary and umbrella coverage.

The umbrella coverage--the focus of these disputes--was $25 million per annual policy. Utica ceded parts of that risk to the defendant reinsurers, in exchange for a share of the premiums, via facultative certificates, i.e., a reinsurance contract particular to that policy. As to the 1973 umbrella policy, one-fifth was ceded to Munich; and one-fifth was ceded to Insurance Company of North America ("INA"), succeeded by Century. The 1974 umbrella policy was reinsured by a 1975 certificate that likewise assumed one-fifth of the risk. It is disputed whether INA--or a different company ("INA Re")--issued the 1975 certificate, and thus whether Century is liable on it as successor to INA.

The first issue on appeal is whether Munich's and Century's 1973 certificates reinsured for defense costs in addition to the umbrella policy limits. The second issue, concerning the 1975 certificate, is whether Century is entitled to a new trial to determine if it is the successor to INA Re and therefore liable on that certificate. The third issue is whether Century is also entitled to a new trial on a counterclaim against Utica for breach of a duty of good faith based on Utica's charging Century defense costs above the 1973 umbrella policy limits.

Utica sued Munich in the Northern District of New York (Sannes, J., No. 19-1241)¹ ; and Utica sued Century in the same court (Hurd, J., No. 19-4335). With respect to whether defense costs are payable in addition to limits, the judgments in the two cases are opposite. Judge Sannes entered judgment in favor of the reinsurer, Munich, after a bench trial. Judge Hurd entered judgment in favor of the cedent, Utica, after a jury trial and denial of Century's motions for judgment as a matter of law. Judge Hurd also entered judgment in favor of Utica with respect to Century's successor status on the 1975 certificate, and with respect to Century's counterclaim.

On appeal, the cases were heard in tandem. We hold that the 1973 certificates reinsure defense costs within limits, not in addition. In that respect, we affirm Judge Sannes's judgment in No. 19-1241, and reverse Judge Hurd's judgment in No. 19-4335. As for the 1975 certificate, the overriding issue is whether Century is the successor to the company that underwrote the certificate. And on that issue, we vacate the judgment in view of trial errors, and remand for a new trial. The 1975 certificate, like the 1973 certificates and for the same reasons, pays defense within limits (as opposed to in addition)--a matter of importance here only insofar as Century is the successor to the reinsurer on the 1975 certificate. We also remand for a new trial on Century's counterclaim in view of our holding as to defense coverage.

I.

The first issue is the same in both cases. Are the reinsurers (Munich and Century) obligated to reimburse Utica for defense costs in addition to limits?

Facts discussed in this Opinion are drawn from Judge Sannes's findings of fact, see Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc., 381 F. Supp. 3d 185 (N.D.N.Y. 2019), and the undisputed portions of the parties’ pleadings and filings, see Citigroup Glob. Markets Inc. v. Abbar, 761 F.3d 268, 270 (2d Cir. 2014).

In 1973, Utica issued a $300,000 primary policy to Goulds Pumps, Inc., for defense and indemnity of personal-injury and other claims lodged against Goulds. Utica also issued an umbrella policy with an aggregate limit of $25 million. Originally, the umbrella policy paid defense costs within limits, i.e., treated investigation and litigation costs with respect to claims against Goulds as eroding stated policy limits; but the policy was endorsed in 1974 to provide defense in addition to limits for certain occurrences not covered by the primary policy. In other words, for those occurrences, only Utica's indemnity payments eroded the policy limit, whereas investigation and litigation costs were not subject to the cap. The 1973 primary and umbrella policies were two among many that Utica issued to Goulds between 1955 and 1986.

In the 1990s, Goulds faced a wave of asbestos litigation, which continued into the 2000s, and Utica began to defend and indemnify its insured under the primary policies. Coverage disputes that arose were settled in 2007, and Utica turned to its reinsurers for reimbursement on liabilities it allocated to the 1973 umbrella policy. Munich and Century each paid Utica $5 million for their undisputed one-fifth shares of the umbrella policy; but they refused to pay defense costs in addition to limits when Utica billed them an extra $2,760,534 each.

Utica presents three independent theories. A. The 1973 umbrella policy, by reason of the 1974 endorsement, covers defense costs in addition to limits--a liability that the reinsurers must indisputably follow under the terms of the facultative certificates. B. Alternatively, the 2007 settlement between Utica and Goulds requires the reinsurers to pay the billed defense costs. C. In any event, the certificates independently obligate the reinsurers to pay the costs, notwithstanding what the umbrella policy requires. We address each theory in the sections below.²

A bench trial was held in the suit against Munich, while the issue was put to a jury in the suit against Century. After a bench trial, we review conclusions of law de novo and findings of fact for clear error. Bessemer Trust Co., N.A. v. Branin, 618 F.3d 76, 85 (2d Cir. 2010). We review de novo denials of motions for judgment as a matter of law after a jury trial.

Sanders v. N.Y.C. Human Res. Admin., 361 F.3d 749, 755 (2d Cir. 2004).

We construe the umbrella policy and certificates like "any ordinary contract." Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., 957 F.3d 337, 344 (2d Cir. 2020) (quoting British Int'l Ins. Co. v. Seguros La Republica, S.A., 342 F.3d 78, 82 (2d Cir. 2003) ). A contract "that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Glob. Reinsurance Corp. of Am. v. Century Indem. Co., 30 N.Y.3d 508, 519, 69 N.Y.S.3d 207, 91 N.E.3d 1186 (2017) (quotation omitted). If the contract, read as a whole, "is reasonably susceptible of only one meaning, a court is not free to alter the contract." Id. (quotation omitted).

Whether a contract is ambiguous is a question of law, as is the meaning of an unambiguous contract. See JA Apparel Corp. v. Abboud, 568 F.3d 390, 397 (2d Cir. 2009). Ambiguous language is that which is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Revson v. Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000) (quoting Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992) ). The import of extrinsic evidence used to interpret an ambiguous contract is a question of fact. JA Apparel, 568 F.3d at 397.

A.

Does the 1973 umbrella policy, as modified by the 1974 endorsement, cover defense costs in addition to limits?

The 1973 umbrella policy, like other such policies, provides vertical and horizontal coverage. Its vertical coverage rests on top of the 1973 primary policy, insuring against the same categories of risks covered by the primary policy with additional limits if losses exceed the primary policy limits. This excess coverage is thus triggered by exhaustion of the primary limits. The horizontal, or "drop down," component affords primary coverage in the first instance for categories of risks not covered by the underlying primary policy, and does not depend upon exhaustion of the primary limits. Thus, the umbrella policy "blend[s] primary and excess coverage by providing last-resort excess coverage as well as gap-filling primary coverage on claims not otherwise insured by primary policies." Utica Mut. Ins. Co. v. Clearwater Ins. Co., 906 F.3d 12, 15 (2d Cir. 2018).

The cases here involve the excess coverage. The primary policy covered the asbestos claims. Once that coverage exhausted, the excess coverage of the umbrella policy began to provide defense and indemnity, the question being whether defense costs eroded the umbrella policy limits, or were supplemental to them. It is undisputed that the umbrella coverage paid defense in addition to limits for those risks not covered by the...