United States District Court, N.D. New York
HUNTON & WILLIAMS LLP, SYED S. AHMAD, ESQ., WALTER J. ANDREWS, ESQ., PATRICK M. McDERMOTT, ESQ., McLean, VA, Attorneys for Plaintiff.
WILLIAMS LOPATTO PLLC, JOHN B. WILLIAMS, ESQ., MARY A. LOPATTO, ESQ., Washington, DC, Attorneys for Defendant.
MEMORANDUM-DECISION and ORDER
DAVID N. HURD, District Judge.
Plaintiff Utica Mutual Insurance Company ("Utica" or "plaintiff") filed this action on July 29, 2009 against defendant Fireman's Fund Insurance Company ("FFIC" or "defendant") to enforce the terms of a reinsurance contract. In the reinsurance contract, FFIC agreed to reinsure Utica for a portion of an umbrella insurance policy Utica had issued to Goulds Pumps Inc. ("Goulds").
Plaintiff alleges: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; and (3) seeks a declaration regarding FFIC's obligation to pay Utica. Defendant answered and asserted twelve affirmative defenses and two counterclaims. Plaintiff answered defendant's counterclaims.
Following limited discovery, Utica moved for partial summary judgment disposing of two of FFIC's affirmative defenses. FFIC opposed and Utica replied, respectively. Oral argument was heard on Friday, July 25, 2014, in Utica, New York. Decision was reserved.
Utica is a New York corporation in the insurance business. FFIC is a California corporation in the insurance and reinsurance business.
Many years prior to the instant litigation, nonparty Goulds, a New York corporation, manufactured products containing asbestos. From 1966 through 1972, Goulds purchased primary and umbrella insurance policy coverage from Utica.
A. Primary Insurance Policies
Goulds acquired general liability insurance from Utica through primary insurance policies that commenced in 1966 and provided coverage through 1972.
Many of the primary policies have never been located. It is undisputed that an issue arose early as to whether the primary policies had aggregate limits that would cap the overall amount of indemnity available under the policies to pay for bodily injury claims, and thus tap into coverage provided by the umbrella policies. Utica contended that all of the primary policies had aggregate limits (of $100, 000/$300, 000), while Goulds and FFIC insisted they had no aggregate limits.
B. Umbrella Insurance Policies
Goulds also acquired umbrella insurance coverage from Utica for the same policy period as the primary policies, from 1966 until 1972. The umbrella policies provided coverage in the amount of $10 million.
C. Reinsurance Policies
Utica obtained reinsurance of the $10 million umbrella policies it issued to Goulds. Utica retained 5% of the first $1 million of the umbrella coverage; $5 million was reinsured with defendant FFIC; and the remainder reinsured with General Reinsurance Corporation ("Gen Re"). Regarding the $5 million FFIC reinsured, it issued seven certificates of reinsurance to Utica, one for each year of reinsurance coverage from 1966 until 1972. Under the facultative reinsurance certificate, FFIC's liability followed that of Utica's, and "[p]rompt notice shall by given to the Reinsurer... of any occurrence or accident which appears likely to involve this reinsurance." LoPatto Decl., July 3, 2014, Ex. 14, ECF No. 261.
D. Goulds Asbestos Claims
Pursuant to the primary policies, Utica defended and indemnified Goulds with respect to claims made against Goulds alleging asbestos-related injuries from exposure to Goulds products. The first asbestos suits naming Goulds as a defendant were in 1997, and declaratory judgment actions between Goulds and its insurers, including Utica, followed in 2003 to determine the rights of the insurers.
Goulds and Utica engaged in mediation relating to the asbestos coverage. According to FFIC, Utica made it non-negotiable that Goulds agree that all Utica primary policies had aggregate limits of coverage-even those policies which were not at issue in the coverage litigation. According to FFIC, in exchange for a settlement of $325 million from Utica, Goulds agreed to stipulate that all of the Utica primary policies had aggregate limits of $300, 000 and that all such limits had been exhausted. The Settlement Agreement, signed in February 2007 between Utica and Goulds, also provided that the $325 million settlement would come from the umbrella policies (therefore triggering Utica's reinsurance policies).
E. 1996 to 2008 FFIC Executes Commutation Agreements with Retrocessionaires
FFIC itself ceded some of the risk it had underwritten in the Utica and other policies, to its own reinsurers, known as retrocessionaires. From 1996 until 2008,  FFIC entered into thirteen commutation agreements with retrocessionaires. FFIC negotiated the commutations based on its known and existing future liabilities, engaging in a detailed and careful process to determine whether and how to commute. As FFIC did not have notice of Utica's claim until 2008, it entered into the thirteen commutations between 1996 and 2008 without knowing about Utica's $35 million claim. In other ...