In the 1990 landmark decision of Bellefonte Reinsurance Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990), the Second Circuit Court of Appeals held that the reinsurer’s liability was capped at the dollar amount stated in the “Reinsurance Accepted” provision of the applicable facultative certificate.
In doing so, the court relied on the portion of the applicable certificate which provided that Bellefonte agreed to reinsure Aetna “subject to the … amount of liability set forth herein.” Id. at 914. According to the Court of Appeals, as a matter of law, all costs and expenses incurred by Aetna were “subject to” the “amount of liability” (i.e., the “Reinsurance Accepted”). Id. Although the applicable certificate provided for the payment of expenses “in addition” to the reinsurer’s “proportion of settlements,” the Court of Appeals held that any construction of the certificates that contemplated payment of an amount in excess of the dollar amount set forth as the “Reinsurance Accepted” “would negate” the “subject to” phrase. For the next two and half decades, all appellate courts and most trial courts considering the “Bellefonte” defense – some under different contract language – reached the same result as in Bellefonte.
Two recent decisions have bucked that trend. See Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc., 594 Fed. Appx. 700 (2d Cir. 2014) (“Munich Re”); Century Indem. Co. v. OneBeacon Ins. Co., No. 02928 (Mar. 27, 2015 Ct. of Common Pleas, Phila. Cnty.) (“OneBeacon”). Those courts declined to reflexively follow the Bellefonte line of cases, and instead engaged in a more focused and nuanced analysis and interpretation of both the language and structure of the certificates before them.
In Munich Re, the Second Circuit Court of Appeals – the same court that issued the Bellefonte decision – reversed a district court order granting summary judgment to the reinsurer, holding that the trial court misapplied Bellefonte (and its progeny). In doing so, the Second Circuit underscored the critical importance of contract language, stating that “in the reinsurance context as in any other, a party is bound by the terms to which it has agreed.” 594 Fed. Appx. at 704. Unlike the certificate at issue in Bellefonte (and other cases), Munich’s certificate provided for indemnification “against losses or damages which the Company is legally obligated to pay under the policy reinsured…subject to the reinsurance limits shown in the Declarations.” Id. at 703 (emphasis added).
Similarly, in OneBeacon, a Pennsylvania trial court just last month denied a reinsurer’s motion for summary judgment on the Bellefonte issue. Picking up on the Second Circuit’s “recent clarif[ication] that Bellefonte did not establish a blanket rule that all limits of liability are presumptively expense inclusive,” the court found that the certificate at issue, “while similar to Bellefonte, contains slight variations which leads to a different conclusion,” and “cannot be ignored.” OneBeacon, No. 02928 at 5-6. Specifically, unlike the certificates at issue in Bellefonte (which, as indicated above, provided that the reinsurer agreed to reinsure Aetna “subject to the … amount of liability set forth herein”), the certificates at issue in OneBeacon provided that OneBeacon reinsured Century/PEIC “subject to the general conditions set forth on the reverse side hereof.” Id. at 2. One of those general conditions, like the certificate at issue in Bellefonte, provided for the reinsurer’s payment of expenses “in addition” to its “loss payment[s].” According to the court, the difference in certificate language warranted a different conclusion than that reached by the court in Bellefonte:
For the full article, refer to page 18 in the Summer 2015 issue. https://www.airroc.org/assets/docs/matters/airroc%20matters%20summer%202015%20vol%2011%20no.%202.pdf