Reinsurer Not Automatically Bound to Follow Asbestos Settlement That May Have Been Targeted at Access to Reinsurance U.S. District Court for the Northern District of New York, February 24, 2017

Utica Mutual Insurance Company had issued multiple policies of insurance to Goulds Pumps. Goulds became the subject of thousands of asbestos bodily injury claims. Eventually, Utica reached a $325 million settlement with Goulds for payment under the various insurance policies on the asbestos claims. Utica then sought indemnity for portions of the settlement from its reinsurers, including a $35 million claim against Fireman’s Fund Insurance Company (FFIC).

The court here ruled on several motions to eliminate various claims and defenses. Most notably, both parties had filed motions for summary judgment regarding the doctrine of “follow the settlement” or “follow the fortunes.” Under the “follow the fortunes” doctrine, a reinsurer is bound to accept the cedent’s good faith decisions on all things concerning the underlying insurance terms and claims against the underlying insured, including settlement and settlement allocation.

FFIC argued that Utica’s settlement with Goulds was in bad faith because it was aimed solely at increasing Utica’s access to reinsurance funds. Among other things, FFIC pointed out that several of the primary policies Utica had issued to Goulds were missing, and there was evidence to suggest that the missing policies did not have aggregate limits for bodily injury claims. Without an aggregate limit for bodily injury claims, the primary policies would have covered the entirety of Goulds’s claims, and the claims would never have reached FFIC’s reinsurance obligation. But Utica’s settlement with Goulds stipulated that there were aggregate limits for bodily injury in the primary policies and that those and other limits in Utica’s policies had been exceeded.

For its part, Utica argued that there were valid reasons for the stipulations in its settlement with Goulds that did not involve access to reinsurance. For instance, Utica needed to clearly spell out its coverage to Goulds in the settlement agreement in order to avoid future claims from Goulds. In light of its reasons for inserting the stipulations in the settlement agreement, Utica argued that FFIC was bound to “follow the settlement” and should therefore pay Utica’s claim.

The court denied both motions for summary judgment. There was sufficient evidence for a jury to side with either party. Therefore, neither party could be granted judgment as a matter of law. The court held that the case is ready for trial.

Read the full decision here.

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