Court Upholds Travelers vs. Reinsurers in Big Asbestos Award

By | January 25, 2012

A New York appellate court affirmed a $420.4 million ruling in favor of insurer The Travelers Companies, handing it a victory in one of the longest-running and most complex asbestos-related litigations in history.

The dispute has to do with the obligations of certain reinsurers to Travelers, which joined in payments of nearly $1 billion to cover asbestos claims against the company Western MacArthur. Travelers subsequently sought to recover some of its payments from its reinsurance companies.

Among those reinsurers is the U.S. unit of industry leader Munich Re and units of the insurer and reinsurer ACE Ltd. A spokeswoman for Munich Re Americas declined to comment. An ACE spokesman could not immediately be reached for a comment.

In October 2010 a lower New York court ruled that the reinsurers were obliged to help cover Travelers. That ruling was affirmed on appeal on Tuesday.

The first department of the appellate division of New York Supreme Court ruled 4-1 that the reinsurance companies were bound by a concept known as the “follow the fortunes doctrine,” which holds that reinsurers share the burdens taken on by the insurance companies with which they do business.

The appellate court found that the lower court “correctly determined that the follow-the-fortunes doctrine required defendants to accept the reinsurance presentation made by (Travelers unit) USF&G.”

A Travelers spokesman could not immediately comment on the ruling.

The facts behind the case date to 1948, when USF&G first wrote a liability insurance policy for Western Asbestos Co. By the late 1970s, people harmed by asbestos began to sue Western Asbestos’ successor company, Western MacArthur, which in 1993 sued USF&G and two other insurers seeking indemnification.

In 2002, the sides reached a settlement, which resulted in Western MacArthur going into bankruptcy. USF&G then sought indemnification from its reinsurers.

The one dissenter in Tuesday’s ruling was Justice Sheila Abdus-Salaam, who said there was a genuine dispute as to whether some of the settlement USF&G reached with Western MacArthur was subject to the reinsurance treaties.

Besides the length of the litigation, the case is notable because of the high-profile law firms involved. Travelers was represented on the appeal by Simpson Thacher & Bartlett, while Wachtell, Lipton, Rosen & Katz represented Munich Re and Boies, Schiller & Flexner represented ACE.

The case is United States Fidelity & Guaranty Company vs. American Re-Insurance Co, New York Supreme Court, Appellate Division, First Department, No. 604517

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