Reinsurance Coverage Victory

November 7, 2014

London Fischer, through its partner, Perry Kreidman, successfully worked with out-of-state counsel in obtaining a dismissal at the trial court level and an affirmance on appeal of a reinsurance coverage dispute involving whether or not defense costs incurred by the ceding company in amounts that exceeded the reinsurance limit of liability of our client / reinsurer were nevertheless owed to the cedant. Continental Casualty Company v. MidStates ReInsurance Corporation, Appellate Court of Illinois, First District, No. 12 CH 42911, November 4, 2014, 2014 IL. App (1st) 133090-U. Relying on the so-called Bellefonte reinsurance principle of law, we were able to obtain a dismissal of the cedant’s declaratory judgment action against the reinsurer, upholding the reinsurer’s disclaimer of coverage for the cedant’s underlying defense costs in excess of the reinsurance contracts limit. The lower and appellate courts agreed with our argument that the facultative reinsurance coverage provision on the amount of reinsurance assumed by the reinsurer governed the full liability and exposure of the reinsurer, including but not limited to any loss and defense costs of the cedant. Thus, when the reinsurer paid its contractual share up to its limits of the underlying asbestos and pollution losses incurred by the cedant, the reinsurer did not owe any further amount for the cedant’s defense costs in excess of the reinsurance assumed. The lower and appellate courts relied upon and adopted the use of the Bellefonte principle first enunciated by the Second Circuit, whereby a reinsurance certificate’s contractual limit cannot be exceeded by any amount, whether for loss or defense costs of the cedant.

Of note, while the Bellefonte principle has been upheld by numerous New York State and Federal courts, we believe that this is the first time it has been expressly adopted and applied outside of the North East and, particularly, by another state court.

As reflected by our successful participation in this case, London Fischer’s coverage team is available to assist insurers and reinsurers alike in assessing and protecting their coverage obligations.