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A federal appeals court reversed a $64.1 million jury award Tuesday and ruled in favor of Fireman’s Fund Insurance Co. in an asbestos coverage dispute with Utica Mutual Insurance Co.
The focus of the dispute between the insurer was seven reinsurance contracts that Fireman’s Fund had issued to Utica Mutual that reinsured umbrella policies Utica Mutual had issued to Seneca Falls, New York-based Goulds Pump Inc., a pump machinery company, according to the ruling by the 2nd U.S. Circuit Court of Appeals in New York in Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co.
In 2003, Utica and Goulds were embroiled in a dispute regarding coverage for an asbestos bodily injury claims arising from exposure to Goulds’ products, according to the ruling.
Among the disputed issues was whether Goulds’ primary policies for certain years included aggregate limits for bodily injury claims. Utica and Goulds settled in 2007 agreeing, among other things, that each of Goulds’ primary policies from 1966 to 1972, which are missing, contained such an aggregate limit.
They also agreed that Goulds’ umbrella policies, purchased as excess coverage, would cover losses that exceeded the agreed primary policies’ aggregate limit for bodily injury claims, the ruling said.
In 2008, Utica unsuccessfully sought recovery form Fireman’s Fund under the reinsurance policies it had issued to Utica, with Utica arguing that language in the reinsurance policies bound Fireman’s Fund to the Utica-Goulds settlement.
“Whether the umbrella policies specified aggregate limits for bodily injury is at the heart of this litigation,” said the ruling. “Many of the bodily injury claims Utica paid out were small and did not exceed the per person limits or the per accident occurrence limits listed in the umbrella policies.
“If the umbrella policies contained aggregate limits for bodily injury, however, then Utica could total all the claims in a policy year, and, if their total surpassed the aggregate limits, trigger the umbrella coverage and potentially the reinsurance policies.”
The case proceeded to trial in U.S. District Court and a jury awarded $64.1 million to Utica, which reflected $35 million in contract damages plus $29.1 million in pre-judgment interest.
The verdict was overturned by a unanimous three-judge appellate court panel in Monday’s ruling.
Fireman’s Fund argues “the umbrella policies provide coverage only for losses that exceed the limits stated in the Schedules of Underlying Insurance Policies” included in the umbrella policies.
It “contends that because no aggregate limits for bodily injury claims were stated in the Schedule, it had no obligation under its reinsurance policies to pay for losses that did not exceed the specific bodily injury limits that were listed in the Schedules.”
The panel agreed. “As an initial matter, it is undisputed that the limits of liability listed in the Schedules for bodily injury do not include aggregate limits,” said the ruling.
“For example, the 1966-67 umbrella policy lists a $100,000 per person and a $300,000 per accident limit for bodily injury, but no aggregate limits are listed,” it said. “On the other hand, it is undisputed that aggregate limits are listed for property damage claims.
“In the face of this contract language Utica argues that aggregate limits for property limits and bodily injury claims are not required to be stated in the Schedules because the umbrella policies ‘called for only the underlying occurrence limits to be scheduled, not underlying aggregate limits’…We disagree.”
The ruling states, “We hold that the umbrella policies unambiguously define their attachment point by reference to the underlying limits of liability ‘as stated in the Schedule(s).’
“Where the losses in question did not exceed the limits stated for bodily injury in the Schedules, Fireman’s Fund has no obligation under the reinsurance contracts to pay for those losses,” said the ruling, in reversing the lower court’s judgment and remanding the case for further proceedings.
Fireman’s Fund attorney Peter R. Chaffetz, of Chaffetz Lindsey LLP in New York, said in a statement, “We think this is an important ruling, first because it demonstrates the respect the Second Circuit gives to clear contract language.
“Second, it reinforces the teachings of the Second Circuit and New York Court of Appeals that, even though reinsurance is something of a specialized field, courts should interpret reinsurance contracts as they do any other type of contract.
“When we were brought into the appeal, we thought this was a case that should not have gone to a jury. We are gratified that the appellate court agreed with us.”
Utica Mutual’s attorney did not respond to a request for comment.
In October, a federal appeals court reversed a lower court ruling and decided in favor of a CNA Financial Corp. unit in long-running, complex asbestos litigation involving a coverage allocation method.
An Illinois appeals court has overturned a lower court ruling case and held that units of CNA Financial Corp. and Allstate Insurance Co. must view asbestos-related claims against an automobile parts manufacturer as separate, based on location, rather than as one claim for coverage purposes.