Global Reinsurance Corporation of America v. Century Indemnity Co., No. 20-1476 (2d Cir. 2021)
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The Second Circuit affirmed the district court's denial of Global's request for a declaratory judgment that the policy limits of the reinsurance certificates capped Global's reinsurance obligations with respect to both losses and expenses. In this case, Global issued ten facultative reinsurance certificates to Century pursuant to which Global agreed to indemnify Century for losses and litigation expenses that Century might incur in connection with the liability policies it had issued to Caterpillar.
The court held that the certificates' policy limits are not inclusive of defense costs and, in so holding, recognized that its prior decisions in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990), and Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049 (2d Cir. 1993), which concerned matters of New York law, have been undermined by an intervening decision of the New York Court of Appeals and no longer constitute the law of the circuit. Applying ordinary rules of contract interpretation, the court agreed with the district court that the reinsurance certificates' follow-form clauses require Global to pay its proportionate share of Century's defense costs in excess of the certificates' liability limits. The court's conclusion was based on the certificates' unambiguous language as well as the testimony of Century's experts confirming that a strong presumption of concurrency prevailed in the reinsurance market at the time the certificates were issued.
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