NAII Lauds NY Court Ruling on Settlement Reimbursements

The New York State Court of Appeals recently ruled that insurance companies must treat settlements that “are not linked by a common origin” separately, and cannot combine them in order to tap into reinsurance policies.

The National Association of Independent Insurers, which had filed an amicus curae brief with the court in support of the reinsurers, approved the decision, which found that “follow the fortunes” wording in reinsurance contracts did not override the basic policy provisions concerning “series of disasters/and of casualty clauses.”

The case arose when Travelers Casualty and Surety concluded settlements for environmental pollution claims at nearly 200 industrial sites brought against it by its insureds, E.I. DuPont de Nemours & Co, who received$ 72.5 million from 25 waste sites, and the Koppers Company, who received $139.5 million on claims from more than 160 waste sites.

Travelers sought reimbursement, $13 million for the Koppers settlement and a similar amount for DuPont, on the policies from a number of Lloyd’s underwriting syndicates, who had reinsured a portion of the risks, alleging that they were in each case interconnected. It relied on the “follow the fortunes” clause in policies, which requires reinsurers to pay for losses that are allocated reasonably and in good faith.

Lloyd’s argued that each settlement involved a separate claim, not a “series of disasters” with a common origin, and that it owed at most $2.9 million on the Koppers settlements and nothing on DuPont’s. The court upheld previous lower court rulings in support of this position.