A federal appeals court on Thursday affirmed a ruling in favor of an Allianz unit in a dispute with OneBeacon Insurance Co. over an asbestos-related reinsurance contract.

OneBeacon reinsured one of three excess insurance policies issued by Allianz unit Fireman’s Fund Insurance Co. to Tucson, Arizona-based Asarco Inc., according to the ruling by the 2nd U.S. Circuit Court of Appeals in New York in Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., as successor-in-interest to General Accident Insurance Co. of America.

After developing significant potential liability on asbestos claims, Asarco sought coverage from Fireman’s Fund under all three excess policies, the ruling said.

Two of Fireman’s Fund’s policies provided Asarco with $20 million in coverage for losses in excess of $30 million in one of two years, while OneBeacon’s reinsurance policy provided $10 million in coverage for losses of more than $75 million for one year, with all coverage limits in excess of a $3 million self-insured retention.

Fireman’s Fund agreed to pay Asarco $35 million to settle its claims under all three of the excess policies. It then sought partial reimbursement from OneBeacon under its reinsurance policy. 

OneBeacon denied the claim on the basis that Fireman’s Fund should have allocated the entire settlement amount to the other two excess policies. Fireman’s Fund then filed suit against OneBeacon in U.S. District Court in New York, charging breach of contract.

The district court ruled in Fireman’s Fund’s favor, which a three-judge appeals court panel affirmed. The panel agreed with Fireman’s Fund that the other two policies did not have to be exhausted before Fireman’s Fund could seek a share of the settlement from OneBeacon.

“Because ASARCO’s losses exceeded the third policy’s attachment point, Fireman’s Fund could reasonably allocate a portion of the settlement to that policy,” it said, in affirming the lower court.

Attorneys in the case had no comment or did not respond to a request for comment.