Fireman's Fund Ins. Co. v. OneBeacon Ins. Co.

49 F.4th 105

FIREMAN'S FUND INSURANCE COMPANY, Plaintiff-Appellee,

v.ONEBEACON INSURANCE COMPANY, as successor-in-interest to General Accident Insurance Company of America, Defendant-Appellant.

Docket No. 20-4282

August Term 2021

United States Court of Appeals, Second Circuit.

Argued: May 20, 2022

Decided: September 15, 2022

Steven C. Schwartz, Chaffetz Lindsey LLP, New York, NY, for Plaintiff-Appellee Fireman's Fund Insurance Company.

Adam R. Doherty (Mitchell S. King, Thomas M. Elcock, on the brief), Prince Lobel Tye LLP, Boston, MA, for Defendant-Appellant OneBeacon Insurance Company.

Before: Livingston, Chief Judge, and Raggi and Carney, Circuit Judges.

Carney, Circuit Judge:

This dispute arises from a reinsurance policy that Defendant-Appellant OneBeacon Insurance Company's predecessor-in-interest issued to Plaintiff-Appellee Fireman's Fund Insurance Company. The policy reinsured one of three excess insurance policies that Fireman's Fund issued to ASARCO, Inc., for two policy years in the early 1980s. Two of Fireman's Fund's policies each provided ASARCO with $20 million in coverage for losses in excess of $30 million in one of the two years, whereas its third policy—the policy reinsured by OneBeacon—provided $20 million in coverage for losses in excess of $75 million in the latter year. All coverage limits were in excess of a $3 million self-insured retention. By 2001, ASARCO was facing hundreds of millions of dollars in potential liability arising from its subsidiaries’ involvement in the asbestos industry, and sought coverage from Fireman's Fund and its other insurers. After ten years of litigation, Fireman's Fund ultimately agreed to pay ASARCO $35 million in settlement of ASARCO's claims under all three of the excess policies.

To pursue reinsurance on the settled claims, Fireman's Fund then allocated the settlement amount among the three excess policies in proportion to its calculation of the policies’ likely respective exposures. This resulted in an allocation of $8.1 million (in round figures) to the OneBeacon policy.¹ In 2013, Fireman's Fund sought reinsurance coverage from OneBeacon for a percentage of that amount. OneBeacon denied the claim based on its position that Fireman's Fund should have allocated the entire settlement amount to the other two excess policies. Fireman's Fund then initiated the present breach-of-contract action.

On review of the parties’ cross-motions for summary judgment, the district court rejected OneBeacon's argument that Fireman's Fund's allocation of a portion of the settlement to the third policy was contrary to the policy's exhaustion requirement. Instead, the district court concluded, the exhaustion requirement could be met through a below-limits settlement of the underlying policy, and OneBeacon therefore had no basis for challenging Fireman's Fund's allocation of a portion of the settlement amount to the third policy. See generally Fireman's Fund Ins. Co. v. OneBeacon Ins. Co. , 495 F. Supp. 3d 293 (S.D.N.Y. 2020) (Gardephe, J. ).

On review, we agree with the district court that the third policy's terms did not unambiguously require exhaustion of the underlying insurance policies through actual payment of the policy limits by the underlying insurers. Accordingly, under the applicable caselaw, the underlying policies could be exhausted by a below-limits settlement and the third policy would cover so long as the policyholder's total covered losses exceeded the policy's attachment point. 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.

As did the district court, we also reject OneBeacon's contention that the reinsurance policy itself required payment of policy limits in full by the underlying primary and excess insurers before reinsurance coverage would attach. Because Fireman's Fund's allocation was not contrary to the terms of any of the applicable policies, the reinsurance policy's follow-the-settlements clause binds OneBeacon to honor the allocation. We therefore AFFIRM the judgment of the district court.

BACKGROUND²

I. The Excess Insurance and Reinsurance Policies

ASARCO—a mining, smelting, and refining company—obtained three excess insurance policies from Fireman's Fund in the early 1980s. These and other excess insurance policies issued by various insurers to ASARCO in those years provided ASARCO with coverage for a set amount beyond the upper limit of each year's underlying primary liability policy, which it obtained from yet other insurers. See Ali v. Fed. Ins. Co. , 719 F.3d 83, 86 (2d Cir. 2013) (discussing principles of excess liability insurance).

Each of the three excess policies that Fireman's Fund issued to ASARCO in that period provided coverage for $20 million in losses. They had similar coverage terms but applied to varying policy years and had different attachment points (that is, points at which excess coverage was triggered):

• Policy 1 covered $20 million in losses in excess of $30 million for the year from March 15, 1982, to March 15, 1983;

• Policy 2 covered $20 million in losses in excess of $30 million for the year from March 15, 1983, to March 15, 1984; and

• Policy 3 covered $20 million in losses in excess of $75 million, also for the year from March 15, 1983, to March 15, 1984.³

Coverage provided by each of these policies was in excess also of a $3 million self-insured retention (sometimes, "SIR")—an uninsured portion that ASARCO undertook to pay itself before it was entitled to call on policy coverage.

ASARCO's layers of insurance for the years March 1982 to March 1983, and March 1983 to March 1984, can be visualized as "coverage towers," as diagrammed by OneBeacon and reproduced below.⁴

?

See Appellant's Br. at 8; see also App'x at 1279.

Pivotal here are two clauses in Fireman's Fund's three excess policies: "Payment of Loss" and "Limit of Liability." In relevant part, they provide:

Payment of Loss. It is a condition of this policy that the insurance afforded under this policy shall apply only after all underlying insurance has been exhausted. Upon final determination by settlement, award or verdict of the liability of the Insured, [Fireman's Fund] shall promptly pay the Insured as the Insured shall pay, or be required to pay, the amounts of any losses falling within the terms or limits of this insurance. ...

Limit of Liability. [Fireman's Fund] shall be liable only for the limit of liability stated in Item 3 of the Declarations in excess of the limit or limits of liability of the applicable underlying insurance policy or policies all as stated in the declarations of this policy. The limit of the liability stated in the declarations as applicable to "each occurrence" shall be the total limit of [Fireman's Fund's] liability for all damages sustained as the result of any one occurrence, provided, however, in the event of reduction or exhaustion of the applicable aggregate limit or limits of liability under said underlying policy or policies solely by reason of losses paid thereunder on account of occurrences during this policy period, this policy shall in the event of reduction, apply as excess of the reduced limit of liability thereunder. Subject to the applicable limit of liability as respects each occurrence, the limit of liability stated in the declarations as "aggregate" shall be the total limit of [Fireman's Fund's] liability for all damages sustained during each annual period of this policy ....

App'x at 186, 188.

Fireman's Fund obtained reinsurance for Policies 1, 2, and 3.⁵ For Policy 3, General Accident Insurance Company issued a reinsurance policy (or "Facultative Certificate") pursuant to which General Accident assumed "$3,000,000 [part of] $20,000,000 excess of $75,000,000 excess of underlying" self-insured retention. Id. at 198. This meant that General Accident covered a 15% share of the risk Fireman's Fund assumed under Policy 3: $3 million of the $20 million that Fireman's Fund had undertaken to cover as excess insurer.

The reinsurance contract for Policy 3 included a "follow-form" clause. It provided that "the liability of the Reinsurer [General Accident] ... shall follow that of [Fireman's Fund] and except as otherwise specifically provided herein, shall be subject in all respects to all the terms and conditions of [Fireman's Fund's] policy" with ASARCO. Id. at 199. It also included a "follow-the-settlements" clause. That clause specified that "[a]ll claims involving this reinsurance, when settled by [Fireman's Fund], shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlements."⁶ Id. OneBeacon is the successor-in-interest to General Accident.⁷

II. The ASARCO Litigation and Settlement

In the 1980s, ASARCO began to face significant liability for asbestos-related personal injury claims. In 2001, ASARCO filed suit in Texas courts seeking coverage on those claims from Fireman's Fund and its other insurers. By 2005, a still-worsening onslaught of lawsuits left it unable to continue operating, and so ASARCO sought bankruptcy protection under Chapter 11, while its coverage suit was still pending.

Four years later, in late 2009, the district court confirmed ASARCO's plan of reorganization, upon the bankruptcy court's favorable report and recommendation. See In re ASARCO LLC , 420 B.R. 314, 317–18, 357–58 (S.D. Tex. 2009). The plan included the establishment, pursuant to section 524(g) of the Bankruptcy Code, of the "ASARCO Asbestos Personal Injury Settlement Trust" (the "Trust").⁸ App'x at 1150. The Trust assumed some of ASARCO's asbestos-related liabilities and its corresponding insurance rights.

Meanwhile, Fireman's Fund and ASARCO continued to litigate their excess coverage insurance dispute. Fireman's Fund maintained that its excess policies’ asbestosis exclusions, as well as the proper distribution of ASARCO's liabilities among policy years and its primary insurers, would largely free Fireman's Fund...