New York Federal Court Holds Facultative Certificate Cost-inclusive Under New York Law Where Cost-exclusiveness Not Expressly Stated

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Utica Mut. Ins. v. Munich Reinsurance Am., Inc., No. 6:12-CV-0196 (LEK/ATB), 2013 U.S. Dist. LEXIS 141212, 2103 WL 5493704 (S.D.N.Y. Sept. 30, 2013).

A New York federal court granted summary judgment to a reinsurer in a dispute over whether the liability limits of a facultative reinsurance certificate were cost-inclusive.  The reinsurer issued a certificate indemnifying the insurer for a percentage of an umbrella liability policy up to a set dollar limit, which was issued to a policyholder who incurred significant covered claims relating to asbestos exposure.  The reinsurer reimbursed the insurer for the entire limit under the certificate. 

The umbrella policy, however, was cost-exclusive.  The cedent filed suit against the reinsurer claiming that the limitation under the certificate was also cost-exclusive, and therefore, the reinsurer was liable for a percentage of the additional costs that the insurer incurred above the limits stated in the certificate. 

The reinsurer sought summary judgment, arguing that the declarations and conditions of the certificate did not expressly state that its limits were cost-exclusive and, therefore, under New York law, they had to be deemed unambiguously cost-inclusive.  The cedent argued that the language of the certificate indicated that it was cost-exclusive. 

In granting the motion for summary judgment, the court first pointed out that the certificate was silent as to inclusion or exclusion of costs on the liability limit, and that under several prior New York cases, limit-of-liability provisions that were silent on whether they were cost-inclusive or exclusive were deemed to be unambiguously expense-inclusive.  The court reasoned that, unless cost-exclusion is expressly stated, reinsurers are entitled to rely on the liability limit as setting the maximum risk exposure.  Second, court found that the absence of a follow-the-form clause was indicative that there was no basis to conclude that, just because the insurance policy was cost-exclusive, the certificate should be deemed cost-exclusive.  Accordingly, the court held that the cedent failed to raise an issue of material fact.