Underwriters at Lloyd’s of London and London Market insurance companies won an important reinsurance case recently when the New York Court of Appeals ruled that Travelers Casualty & Surety Company could not accumulate numerous pollution-related losses as a single “disaster and/or casualty” under certain excess of loss reinsurance treaties. Travelers Casualty & Surety Co. v. Certain Underwriters at Lloyd’s of London, et al, Case No.123 (“Koppers”) and Travelers Casualty & Surety Co. v. Certain Underwriters at Lloyd’s of London, et al,. Case No. 124 (“DuPont”).
In an extensive opinion, the Court concluded as a matter of law that Travelers’ presentations to London Reinsurers of its settlements with Koppers and DuPont for pollution occurring over decades at geographically diverse locations and involving dozens of different manufacturing processes and pollutants as a single loss were “beyond the scope of the applicable treaties.” Rejecting Travelers’ argument that the individual sites were linked by a “common origin” and thereby constituted one loss under the treaties, the Court affirmed dismissals of Travelers’ claims against the London Reinsurers.
The Court also rejected Travelers’ argument that the “follow the fortunes” clause in the treaties required London Reinsurers to blindly accept Travelers’ allocation as a single loss. Rather, the Court determined that the more specific definition of “disaster and/or casualty” governed.
In its submissions to the London Reinsurers for reinsurance recoveries under the excess of loss reinsurance agreements, Travelers presented the settlements in each case as a single “disaster and/or casualty” with a “common origin,” identified as “a company-wide waste disposal practice” and a corporate failure to implement and enforce environmental policies.
The Court began its analysis by recognizing that the dispute centered on “whether Travelers’ single allocations of its losses are encompassed by the term ‘disaster and/or casualty,’ which includes ‘all loss resulting from a series of accidents, occurrences and/or causative incidents having a common origin and/or being traceable to the same act, omission, error and/or mistake.'”
Rejecting Travelers’ argument that it should conduct the “widest possible search for a unifying factor among the underlying claims,” the Court instead found that it must incorporate the “inherent spatial or temporal boundaries of the phrase ‘series of’ in interpreting the treaties.”
Applying this analysis to the facts, the Court found no evidence that the contaminated sites bore a “spatial or temporal relationship to each other.” Rather, the facts indicated that the underlying claims involved acts of pollution occurring over decades at diverse locations and involving dozens of different manufacturing processes and pollutants. Accordingly, the Court concluded as a matter of law that Travelers’ single allocation did not fall within the definition of “disaster and/or casualty” in the reinsurance treaties and affirmed the dismissal of Travelers’ claims against the London Reinsurers for payments under the treaties.
In a final point, the Court addressed Travelers’ argument that the “follow the fortunes” clause in the reinsurance treaties mandated that the Reinsurers reimburse Travelers for losses it allocates to them reasonably and in good faith. The Court concluded that neither the clause nor the “follow the fortunes” doctrine in general, could alter the terms or override other language in the treaty, specifically the definition of “disaster and/or casualty.”
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