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New Hampshire Ins. Co. v. Clearwater Ins. Co.

Supreme Court of New York, Appellate Division, First Department

March 24, 2015, Decided; March 24, 2015, Entered

653547/11, 12779

Opinion

 [**40]  [*101]  Friedman, J.

Plaintiff New Hampshire Insurance Company (New Hampshire) has settled, along with several affiliated liability insurers under common corporate control (collectively, AIG), hundreds of millions of dollars of claims—most but not all of which are asbestos-related personal injury [****2]  claims—with nonparty Kaiser Aluminum & Chemical Corporation (Kaiser), a common insured of the settling carriers. AIG's settlement agreement with Kaiser does not address the allocation of losses to particular claims, policies or carriers beyond [***2]  providing that AIG may effect such an allocation "for its own purposes, in its own books and records," which AIG has done. That allocation ascribes 100% of the settlement amount to asbestos product liability claims within the coverage of Kaiser's New Hampshire excess policy (issued for the period from June 1973 to June 1976) and none of the amount to other settled claims—for bad faith, defense costs in addition to policy limits, and premises liability—that Kaiser had asserted against certain other AIG carriers, but not against New Hampshire.

New Hampshire has brought this action against defendant Clearwater Insurance Company (Clearwater), a reinsurer of  [*102]  the excess policy New Hampshire issued to Kaiser, seeking to require Clearwater to indemnify New Hampshire for the share [**41]  prescribed by its reinsurance certificate of the portion of the Kaiser settlement payments (which are being made over a 10-year period) that AIG has allocated to the New Hampshire policy. In its defense, Clearwater challenges AIG's allocation of 100% of the settled losses to asbestos products liability claims, contending that this allocation unreasonably results in the reinsured New Hampshire policy bearing part [***3]  of the cost of settling the premises, bad faith and defense cost claims that Kaiser had not asserted against New Hampshire or that were not covered by the New Hampshire policy. Clearwater also asserts, as additional affirmative defenses, that New Hampshire (known as the ceding company, or "cedent," in reinsurance nomenclature; see United States Fid. & Guar. Co. v American Re-Ins. Co., 20 NY3d 407, 418, 985 NE2d 876, 962 NYS2d 566 [2013] [hereinafter USF&G]) has breached its contractual notice, reporting and risk retention obligations under the terms of the reinsurance certificate.

 While discovery was in its early stages, and before any witnesses had been deposed, New Hampshire moved for summary judgment in its favor. Concerning the allocation issue, New Hampshire argued that Clearwater, as a reinsurer, was bound, as a matter of law, by New Hampshire's allocation of settled claims to the reinsured policy under general principles of the law of reinsurance. We agree with Supreme Court that this argument is unavailing. As more fully discussed below, even if the subject reinsurance certificate, in spite of its lack of a clause expressly so providing, generally obligates Clearwater to "follow the settlements" made by New Hampshire with its insured—a question that we need not, and do not, [***4]  decide on this appeal—the cedent's allocation decisions are not "immune from scrutiny" (USF&G, 20 NY3d at 420). In particular, ] even where the "follow the settlements" doctrine applies, the reasonableness of a cedent's decision not to attribute any portion of a settlement to settled claims that were not covered by the reinsured policy may, on a proper record, present an issue of fact (see id. at 414, 422-425 [finding that the reasonableness of the cedent's attribution of none of the settlement amount to the insured's bad faith claims, which were not covered by reinsurance, presented a triable issue]). Accordingly, given the undeveloped factual record of this case, Supreme Court properly denied New Hampshire summary judgment on the allocation issue (2013 NY Slip Op 32812[U] [2013]). However,  [*103]  also in view of the undeveloped state of the record, the court erred in granting New Hampshire summary judgment dismissing Clearwater's affirmative defenses alleging that New Hampshire breached its notice, reporting and risk retention obligations under the reinsurance certificate. We therefore [****3]  modify the order under review to deny New Hampshire's summary judgment motion in its entirety.

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129 A.D.3d 99 *; 7 N.Y.S.3d 38 **; 2015 N.Y. App. Div. LEXIS 2452 ***; 2015 NY Slip Op 02438 ****

 [****1]  New Hampshire Insurance Company, Appellant-Respondent, v Clearwater Insurance Company, Respondent-Appellant.

Prior History: Cross appeals from an order of the Supreme Court, New York County (Ellen M. Coin, J.), entered November 1, 2013. The order granted plaintiff's motion for summary judgment to the extent of dismissing defendant's second, third, and seventh affirmative defenses, and otherwise denied the motion.

New Hampshire Ins. Co. v Clearwater Ins. Co., 2013 NY Misc LEXIS 5117, 2013 NY Slip Op 32812(U) (N.Y. Sup. Ct., Oct. 31, 2013), modified.

CORE TERMS

reinsurance, settlement, certificate, cedent's, coverage, summary judgment, carriers, policies, allocate, insured, premises, losses, notice, affirmative defense, asbestos product, defense costs, retention, terms, Facultative, summary judgment motion, discovery, bathtub, settlement payment, bad faith claim, bad faith, obligations, decisions, indemnify, reporting, asbestos

Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Genuine Disputes, Insurance Law, Types of Insurance, Reinsurance, Following the Settlements, Settlements, Facultative & Treaty Reinsurance, Claim, Contract & Practice Issues, Policy Interpretation, Judicial Review, Preclusion of Judgments, Estoppel, Collateral Estoppel, Contracts Law, Contract Interpretation, Ambiguities & Contra Proferentem, General Overview, Trials, Jury Trials, Province of Court & Jury, Excess Insurance, Following Form Policies, Notice Obligations