Primary Insurer Wins Reinsurance Dispute Over Large Asbestos Settlement

Yesterday, the U.S. District Court for the Northern District of New York granted summary judgment to the primary insurer of a pump manufacturer in a dispute with the primary insurer’s reinsurer.  Beginning in 1997, more than 140,000 claims were filed against the pump manufacturer alleging asbestos-related bodily injuries.  In two separate cases, one in California and one in New York, the pump manufacturer disputed the amount of coverage available to it from the primary insurer.  The primary insurer eventually reached a settlement with the pump manufacturer.

The reinsurance certificates provided that the reinsurer’s liability “shall follow [the primary insurer’s] liability in accordance with the terms and conditions of the policy reinsured hereunder.”  The reinsurer paid the primary insurer $993,159 but the primary insurer filed suit alleging that the reinsurer owed it $5.63 million.  The court agreed with the primary insurer and concluded that the reinsurer is bound by the primary insurer’s settlement with the pump manufacturer under the follow-the-fortunes or follow-the-settlement doctrine, where a reinsurer must “accept the cedent’s good faith decisions on all things concerning the underlying insurance terms and claims against the underlying insured: coverage, tactics, lawsuits, compromise, resistance or capitulation,” as well as settlement.  The court found no evidence that the primary insurer’s settlement allocation was made in bad faith and concluded that the settlement was reasonable.

The case is before Judge Sharpe and is number 6:13-cv-1178.