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Utica Mutual Insurance Company v. Clearwater Insurance Company

United States District Court, N.D. New York

November 20, 2014

UTICA MUTUAL INSURANCE COMPANY, Plaintiff,
v.
CLEARWATER INSURANCE COMPANY, Defendant.

PHILLIP G. STECK, ESQ., Cooper, Erving Law Firm, Albany, NY, for the Plaintiff.

WILLIAM M. SNEED, ESQ., Sidley, Austin Law Firm, Chicago, IL.

DAVID M. RAIM, ESQ., Chadbourne, Parke Law Firm, Washington, DC, for the Defendant.

JOHN F. FINNEGAN, ESQ.,, MELISSA K. DEPETRIS, ESQ.,, New York, NY.

MEMORANDUM-DECISION AND ORDER

GARY L. SHARPE, Chief District Judge.

I. Introduction

Plaintiff Utica Mutual Insurance Company commenced this diversity action against defendant Clearwater Insurance Company, alleging breach of contract claims and seeking declaratory relief. (Compl., Dkt. No. 1.) Pending is Clearwater's motion for partial summary judgment. (Dkt. No. 35.) For the reasons that follow, the motion is granted.

II. Background

Before delving into the relevant facts, it is useful first to provide a brief overview of the subject matter of this dispute, including definitions of industry jargon used below. This case involves reinsurance-a transaction in which "one insurer... cedes' all or part of the risk it underwrites, pursuant to a policy or group of policies, to another insurer." Unigard Sec. Ins. Co. v. N. River Ins. Co. ( Unigard II ), 4 F.3d 1049, 1053 (2d Cir. 1993) (citations omitted). In other words, reinsurance is insurance of insurance, the purpose of which "is to diversify the risk of loss." Id. The insurance company that issues a policy to a policyholder-here, Utica-is called the insurer, the ceding insurer, or the reinsured. See generally id. Logically, the insurance company that insures the insurer for a share of its liability under a policy-here, Clearwater-is called the reinsurer. Id.

As pertinent here, one type of reinsurance policy is a facultative reinsurance policy, whereby "a[n]... insurer purchases reinsurance for a part, or all, of a single insurance policy." Id. at 1054. While there are many types of insurance policies, this case concerns liability insurance policies, which typically include a duty on the insurer to both defend and indemnify its policyholder for liability claims. See generally Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 310 (1984). Below, the court refers to amounts an insurer pays to defend its policyholder as "expenses, " and amounts an insurer pays to indemnify its policyholder as "losses."

A. Facts[1]

Utica, the insurer, issued a number of primary insurance policies, including general and commercial general liability insurance policies, to Goulds Pumps Inc. (Def.'s Statement of Material Facts (SMF) ¶ 5, Dkt. No. 35, Attach. 3.) Utica also issued umbrella policies to Goulds; specifically, as relevant here, Utica issued an umbrella policy effective during the calendar year 1978 (the "1978 Umbrella") and an umbrella policy effective during the calendar year 1979 (the "1979 Umbrella"). ( Id. ¶ 6.) The umbrella policies each have an indemnity liability limit of $25 million excess of primary limits, per occurrence and in the aggregate. ( Id. ¶ 8.)

Clearwater, the reinsurer, then agreed to issue facultative reinsurance certificates (the "Certificates") to Utica, and thereby reinsure a portion of Utica's exposure under both the 1978 Umbrella and the 1979 Umbrella. ( Id. ¶¶ 9, 10.) The preamble of both of the Certificates provides that, "[Clearwater], [2] in consideration of the payment of premiums, statements contained in the declarations, and subject to the terms and General Conditions of this certificate does hereby reinsure [Utica as follows]"; the Certificates then go on to state the terms and conditions. (Dkt. No. 35, Attach 2. at 4, 8.) Notably, the Certificates contain a clause titled "Section D [Clearwater]'s Liability and Basis of Acceptance" (the "Liability Clause"), which identifies the portion of Utica's exposure that Clearwater agreed to reinsure. ( Id. ) Specifically, for the 1978 Umbrella, and pursuant to certificate N-21163 (the "1978 Certificate"), Clearwater agreed to reinsure 100 percent of the $5 million layer that exceeds $20 million of the underlying policy limit. (Def.'s SMF ¶ 9; Dkt. No. 35, Attach. 2 at 4.) For the 1979 Umbrella, and pursuant to certificate N-22001 (the "1979 Certificate"), Clearwater agreed to reinsure 16.6 percent (or $2.5 million) of the $15 million layer that exceeds $10 million of the underlying policy limit. (Def.'s SMF ¶ 10; Dkt. No. 35, Attach. 2 at 8.)

In or about March 2003, Goulds, which had been named as a defendant in asbestos claims, commenced an action against Utica, seeking a declaration as to Utica's coverage obligations. (Def.'s SMF ¶ 14.) Around February 2007, Goulds and Utica settled the declaratory judgment action, and, thereafter, Utica began making payments to Goulds, which ...


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