New York State Court Denies Late Notice Defense


New Hampshire Ins. Co. v. Clearwater Ins. Co., No. 653547/2011, 2013 N.Y. Misc. LEXIS 5117 (N.Y. Sup. Ct. Oct. 31, 2013).

A New York State motion court granted part of a cedent’s motion for summary judgment in a case involving the cession of asbestos losses after a substantial group settlement of an asbestos coverage action.  The reinsurer did not pay the billings for its share of the cedent’s portion of the group settlement.  The cedent brought suit and moved for summary judgment.  The reinsurer claimed that the motion was premature and alternatively argued that the cedent failed to give timely notice of the loss and that there were triable issues of fact concerning the settlement allocation and as to whether the cedent retained the proper amount of loss.

The facultative certificate provided that the cedent will promptly notify the reinsurer of any event or development that it “reasonably believes might result in a claim against” the reinsurer.  The reinsurer claimed that although the cedent knew about the loss in 1991, the cedent did not provide notice until 1997 and then, later in 1997, advised the reinsurer that it did not think its policy would be impacted.  Thus, the reinsurer claimed, it did not receive actual notice until 2010.

In rejecting the reinsurer’s late notice defense and granting partial summary judgment to the cedent, the court noted that the reinsurer must show economic injury to sustain a claim of prejudice because of late notice.  The reinsurer claimed that it had commuted with its retrocessionaires.  The court rejected the reinsurer’s claim because of a lack of any detailed facts to support its claim of prejudice.  The court also rejected the reinsurer’s claim that it did not need to show prejudice when the cedent had failed to implement routine practices and controls to ensure prompt and timely notice.  The court held that New York law did not support that proposition.  The court also rejected the reinsurer’s claim that the cedent had not met its retention because of a lack of any facts.

The reinsurer also argued that the facultative certificate had following form language and not follow-the-settlements language.  The court rejected this argument and referred to a Massachusetts case where the reinsurer made the same argument against an affiliate of the cedent and where the court held that the provision was a follow-the-settlements provision.  But the court refused to grant summary judgment to the cedent because issues concerning the allocation of the settlement raised triable issues of fact sufficient to warrant a denial of the motion.  As the court noted, while a cedent’s allocation decision is entitled to deference, it is not immune from scrutiny and must be objectively reasonable.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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