A Beacon in the Night Shed No Light
October 20, 2017

Since the Bellefonte decision (Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2nd. Cir. 1990) (”Bellefonte”) in 1990, the limits of coverage provided by facultative certificates have been pretty well defined, but cases over the last couple of years have challenged that assumption, with varying results. A recent decision adhered to the “party line.”

The Superior Court of Pennsylvania recently affirmed a lower court judgment against OneBeacon Insurance Company (”OneBeacon”) and in favor of Century Indemnity Company (“Century”). The case involved a dispute about the extent to which facultative reinsurance certificates provided cover for defense expenses. The facts of the case are as follows: Century’s predecessor issued an Excess Blanket Catastrophe Liability Policy that provided $25 million in umbrella liability. The policy included a “second obligation to provide coverage for defense costs.” Century’s predecessor obtained facultative certificates from OneBeacon’s predecessor to reinsure a certain layer of the underlying policy. The certificate provided, inter alia, that “All claims involving this reinsurance, when settled by the Company, shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlement…” The front page of the facultative certificate provides the amount of “Reinsurance Accepted”, and further states: “In consideration of the payment of the net premium and subject to the general conditions set forth on the reverse side hereof, the reinsurer does hereby reinsure [Name of the Company’s Insured].” Century paid significant claims to underlying insureds for asbestos-related claims and made reinsurance claims under the certificate with OneBeacon.  OneBeacon refused to pay over that the limit stated in the “Reinsurance Accepted” clause, arguing that that clause placed a total cap on its liability. After a non-jury trial, the lower court entered judgment in favor of Century for more than $4.7 million, plus prejudgment interest.

After carefully considering the facts and a number of precedential and informative cases from other jurisdictions, the Superior Court of Pennsylvania affirmed the judgment. Notably, the court did a significant analysis of Bellefonte and its progeny. In Bellefonte, and in most, but not all, other cases that have litigated this issue, the court held that reinsurers are not required to pay defense expenses that exceed the “Reinsurance Accepted” amount listed on the certificates. In reaching the opposite conclusion, the court in this case concluded that the lower court committed no error or abuse of discretion in concluding that the facultative certificate explicitly required OneBeacon to pay beyond the Reinsurance Accepted amount.

OneBeacon’s challenge, though not without merit, failed to convince the court, shedding no new light on an issue that is quite likely to arise again.


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