Utica Mutual Insurance Company v. Fireman's Fund Insurance Company

Filing 342

MEMORANDUM-DECISION AND ORDER denying Utica Mutual Insurance Company's 274 Motion for Partial Summary Judgment on the follow the fortunes doctrine; granting Fireman's Fund Insurance Company's 275 Motion for Partial Summary Judgme nt dismissing Count II; granting in part and denying in part Fireman's Fund Insurance Company's 276 Motion for Judgment on the Pleadings dismissing Counts II and III, Count III is dismissed; denying Fireman's Fund Insurance Company& #039;s 277 Motion for Summary Judgment on Count I; denying Fireman's Fund Insurance Company's 279 Motion for Partial Summary Judgment on Count I; denying Utica Mutual Insurance Company's 280 Motion for Partial Summary Judgmen t that notice was not due before February 1999; denying Utica Mutual Insurance Company's 283 Motion for Partial Summary Judgment that FFIC is not entitled to rescission; denying Fireman's Fund Insurance Company's 331 Motion in Limine to preclude the expert testimony of Dennis R. Connolly. Signed by Judge David N. Hurd on 2/24/17. (sfp, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
-------------------------------UTICA MUTUAL INSURANCE COMPANY,
Plaintiff-Counter Defendant,
-v-

6:09-CV-853
(DNH/TWD)

FIREMAN'S FUND INSURANCE COMPANY,
Defendant-Counter Claimant.
-------------------------------APPEARANCES:

OF COUNSEL:

HUNTON & WILLIAMS LLP
Attorneys for Plaintiff
-Counter Defendant
1751 Pinnacle Drive
Suite 1700
McLean, VA 22102

SYED S. AHMAD, ESQ.
WALTER J. ANDREWS, ESQ.
PATRICK M. MCDERMOTT, ESQ.

SIDLEY AUSTIN LLP
Attorneys for Plaintiff
-Counter Defendant
One South Dearborn Street
Chicago, IL 60603

DANIEL R. THIES, ESQ.
THOMAS D. CUNNINGHAM, ESQ.
WILLIAM M. SNEED, ESQ.

WILLIAMS LOPATTO PLLC
Attorneys for Defendant
-Counter Claimant
1707 L Street NW, Suite 550
Washington, DC 20036

MARY A. LOPATTO, ESQ.
JOHN B. WILLIAMS, ESQ.

DAVID N. HURD
United States District Judge

TABLE OF CONTENTS
I.

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II.

BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

III.

LEGAL STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A.
B.

IV.

Motion for Judgment on the Pleadings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Motion for Summary Judgment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

DISCUSSION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A.

B.

IV.

Defendant FFIC's Motions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.
Motion for Judgment on the Pleadings (to dismiss Counts II and III) . . 9
a.
Count II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
b.
Count III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.
Motion for Partial Summary Judgment on Count I (Utica's "Aggregate
Limits" Contention) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.
Motion for Partial Summary Judgment on Count II (Utica's "Bad Faith"
Contention) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.
Motion for Summary Judgment on Count I (Utica's "Follow the
Settlement" Contention) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.
Motion in Limine to Preclude Testimony of Dennis R. Connolly. . . . . . 39
Plaintiff Utica's Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
1.
Motion for Partial Summary Judgment on the Follow the Fortunes
Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.
Motion for Partial Summary Judgment That FFIC Is Not Entitled To
Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.
Motion for Partial Summary Judgment That Notice Was Not Due Before
February 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

-2-

MEMORANDUM-DECISION and ORDER
I. INTRODUCTION
Plaintiff Utica Mutual Insurance Company ("Utica" or "plaintiff") commenced this
diversity action against defendant Fireman's Fund Insurance Company ("FFIC" or
"defendant") on July 29, 2009 seeking to enforce the terms of its reinsurance contracts.
Plaintiff seeks damages in the amount of nearly $29 million for amounts billed through
August 31, 2009, interest, attorneys' fees, costs, and declaratory relief based on
defendant's alleged breach of the reinsurance contracts and breach of the duty of good
faith and fair dealing. FFIC counterclaims for rescission based on plaintiff's alleged
intentional and/or negligent rescission. The case was referred to mandatory mediation, but
did not settle.
After completing limited discovery, plaintiff moved on June 6, 2014 and June 13, 2014
for partial summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56
dismissing two of defendant's affirmative defenses. Oral argument was heard on July 25,
2014 and a Memorandum-Decision and Order was issued on February 9, 2015, denying both
motions. Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., No. 6:09–CV–853, 2015 W L
521024 (N.D.N.Y. Feb. 9, 2015). With respect to FFIC's late notice defense, it was held that
the parties may litigate lost commutations at trial, and if FFIC can establish resulting
prejudice, it would be entitled to complete relief from its duty to indemnify. As to FFIC's bad
faith defense, disputed issues of material fact remain as to whether Utica was grossly
negligent or reckless in failing to provide prompt notice to FFIC and thus whether its claim for
indemnification is barred.

-3-

Thereafter, plaintiff moved for partial summary judgment pursuant to Rule 56 on the
follow the fortunes doctrine, defendant's counterclaims for rescission, and when notice to
defendant was required. Defendant simultaneously moved for judgment on the pleadings
pursuant to Rule 12(c) to dismiss Counts II and III, and for partial summary judgment
pursuant to Rule 56 on plaintiff's aggregate limits, bad faith, and follow the settlement
contentions. Plaintiff opposed defendant's motions, and defendant opposed plaintiff's
motions. Both parties submitted replies in further support.
All seven pending motions were fully briefed and oral argument was heard on
February 13, 2015, in Utica, New York. Decision was reserved. While pending, defendant
filed a motion in limine pursuant to Federal Rule of Evidence 702 to preclude expert
testimony at trial by Dennis R. Connolly. Plaintiff opposed. That motion will be considered
on the basis of the submissions without oral argument.
II. BACKGROUND1
The parties' familiarity with the facts and history of this case is presumed, and only
those facts necessary for the disposition of the pending matters will be recited. This case
involves a dispute over $35 million which Utica claims FFIC owes it under its reinsurance
contracts.2 FFIC argues it does not owe Utica any money because Utica breached
provisions in the reinsurance contracts.

1

The following facts, which are undisputed unless otherwise noted, are drawn from the statements
of material facts filed by the parties in accordance with Local Rule 7.1(a)(3), each side's respective responses
to those statements, and the relevant declarations and attached exhibits.
2

As of July 2009 when Utica commenced this suit, it had billed FFIC for nearly $29 million in claims.
By November 2009, it had submitted further bills totaling $35 million, the sum of each $5 million reinsurance
contract for each of the seven years at issue.
-4-

Utica issued primary liability insurance policies to Goulds from 1966 through 1972.3
These seven primary policies have not been located and one of the main issues in this
case is whether those policies contained aggregate limits for bodily injury. Utica also
issued umbrella policies to Goulds for these same years providing for $10 million in
coverage each year. Utica reinsured the umbrella policies, reinsuring $5 million of each
$10 million with FFIC4 pursuant to facultative reinsurance contracts. Each of the
facultative reinsurance contracts contain the following provision: "All claims involving this
reinsurance, when settled by the Company [Utica], shall be binding on the Reinsurer
[FFIC] . . . ." See LoPatto Decl., Ex. 2, ECF. No. 285 (the "Certificates"). This provision
is known as a follow the settlements clause.5 See Travelers Cas. & Sur. Co. v. Gerling
Global Reins. Corp., 419 F.3d 181, 184 (2d Cir. 2005) "(Gerling").
Goulds became the subject of thousands of asbestos bodily injury claims, with the
first suits naming Goulds in 1997. Pursuant to the primary policies between Goulds and
Utica, Utica defended and indemnified Goulds for these claims. In mid-2001, Utica
provided notice of the Goulds losses to reinsurers of its umbrella policies, including
reinsurers at the $5 million excess of the $5 million umbrella layer. Utica contends this
was an initial and precautionary notice. FFIC disputes this and suggests the reinsurers
actually received earlier notice, but Utica has no record of such. According to Utica, FFIC
3

Goulds purchased primary and umbrella coverage from Utica for decades before and after this, but
only this time period is at issue in this case.
4

Utica retained 5% of the first $1 million; $5 million was reinsured with FFIC; and the remainder
reinsured with General Reinsurance Corporation ("Gen Re").
5
The follow the settlement doctrine is sometimes referred to as the follow the fortunes doctrine and
practitioners use the terms interchangeably. Follow the settlement "essentially describes the
follow-the-fortunes doctrine in the settlement context." N. River Ins. Co. v. ACE Am. Reins. Co., 361 F.3d
134, 137 n.2 (2d Cir. 2004).

-5-

did not receive the precautionary notice at this time because Utica was unaware of the
FFIC reinsurance and did not learn about it until 2008, when another reinsurer notified
Utica about it. According to Utica, it had not retained all of its policy records from
decades earlier, consistent with its document retention policies.
FFIC disputes this and contends that when Utica notified these reinsurers—those
reinsuring umbrella policies post-1972—is irrelevant to when Utica determined or should
have determined there was a reasonable possibility that the 1966-72 umbrella policies
would be involved. FFIC maintains that Utica's sharing information on the Goulds claims
in 1996 with Gen Re indicated that Utica recognized then that the claims could penetrate
the 1996-72 umbrella policies. However, Utica contends that Gen Re only learned of the
Goulds claims in the 1990s through its routine review of Utica's asbestos and
environmental files. Utica asserts that it provided precautionary notice of the claims to
the other reinsurers of its umbrella policies in June 2001, and that it would have included
a notice to FFIC if Utica had known about FFIC's reinsurance at the time.
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 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 Goulds' receipt of a $325 million settlement from Utica, Goulds agreed to
stipulate that all of the Utica primary policies had aggregate limits for bodily injury of
$300,000 and that all such limits had been exhausted. The agreement, signed in
February 2007 by Utica and Goulds, also provided that the $325 million settlement would
-6-

come from the umbrella policies (therefore triggering Utica's reinsurance policies). See
LoPatto Decl., Ex. 6, ECF. No. 285 (the "Settlement Agreement").
According to Utica, by 2007, payments on Goulds claims had reached FFIC's layer
on the umbrella policies at issue and after learning about FFIC's reinsurance in 2008,
Utica notified FFIC in July 2008. FFIC asserts that Utica provided no rationale for
reporting its reinsurance claim more than a year after its February 2007 settlement with
Goulds. According to the Certificates, "[p]rompt notice shall by given to the Reinsurer . . .
of any occurrence or accident which appears likely to involve this reinsurance." See
generally Certificates. Utica submitted reinsurance claims in August, September,
October, and November 2009, totaling $35 million. Under the Certificates, Utica was
required to "make available for inspection and place at the disposal of [FFIC] at
reasonable times any of its records relating to this reinsurance or claims in connection
therewith." Id.
Following Utica's requests for payment, FFIC initiated a claims investigation. FFIC
sought numerous pieces of information from Utica, inspected its files, and sent a team to
Utica's offices for inspection. While its claims investigation was ongoing, Utica filed this
suit contending that FFIC was taking too long to pay and was, inter alia, in breach of the
Certificates.
III. LEGAL STANDARDS
A. Motion for Judgment on the Pleadings
The standard for granting a Rule 12(c) judgment on the pleadings is identical to that of
a Rule 12(b)(6) motion to dismiss. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d
123, 126 (2d Cir. 2001). To survive a Rule 12(b)(6) motion to dismiss, the "[f]actual
-7-

allegations must be enough to raise a right to relief above the speculative level." Bell Atl.
Corp. v. Twombly, 550 U .S. 544, 555 (2007). Although a complaint need only contain "a
short and plain statement of the claim showing that the pleader is entitled to relief," FED. R.
CIV. P. 8(a)(2), more than mere conclusions are required. Indeed, "[w]hile legal conclusions
can provide the framework of a complaint, they must be supported by factual allegations."
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Dismissal is appropriate only where plaintiff has
failed to provide some basis for the allegations that support the elements of its claims. See
Twombly, 550 U.S. at 570 (requiring "only enough facts to state a claim to relief that is
plausible on its face"). When considering a motion to dismiss, the complaint is to be
construed liberally, and all reasonable inferences must be drawn in the plaintiff's favor.
Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
B. Motion for Summary Judgment
The entry of summary judgment is warranted when "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing FED.
R. CIV. P. 56(c)); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A fact
is "material" for purposes of this inquiry if it "might affect the outcome of the suit under the
governing law." Anderson, 477 U.S. at 248; see also Jef freys v. City of N.Y., 426 F.3d 549,
553 (2d Cir. 2005). A material fact is genuinely in dispute "if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.
When summary judgment is sought, the moving party bears the initial burden of
demonstrating that there is no genuine issue of material fact to be decided with respect to
-8-

any essential element of the claim. Id. at 250 n.4. The failure to meet this burden warrants
denial of the motion. See id. In the event this initial burden is met, the opposing party must
show, through affidavits or otherwise, that there is a material issue of fact for trial. Id.
When deciding a summary judgment motion, a court must resolve any ambiguities
and draw all inferences from the facts in a light most favorable to the non-moving party.
Jeffreys, 426 F.3d at 553. Summary judgment is inappropriate where "a review of the record
reveals sufficient evidence for a rational trier of fact to find in the [non-movant's] favor."
Treglia v. Town of Manlius, 313 F.3d 713, 719 (2d Cir. 2002); see also Anderson, 477 U.S. at
250 (summary judgment is appropriate only when "there can be but one reasonable
conclusion as to the verdict").
IV. DISCUSSION
A. Defendant FFIC's Motions
1. Motion for Judgment on the Pleadings (to dismiss Counts II and III) (ECF No.
276)
FFIC moves for judgment on the pleadings to dismiss Counts II and III as duplicative
of Count I. In Count I, Utica complains that FFIC breached the Certificates by not paying
its claims and seeks damages in the form of the sums due under the Certificates through
August 31, 2009. In Count II, Utica alleges that FFIC asked for irrelevant information and
ignored its billings, inquiries, and repeated requests for payment, thereby violating FFIC's
duty to deal with Utica in utmost good faith. For damages under Count II, Utica seeks
attorneys' fees and other costs in connection with this lawsuit. In Count III, Utica seeks a
declaration that FFIC is obligated to pay for bills after August 31, 2009, pursuant to the
Certificates.
-9-

Defendant contends Counts II and III are duplicative of Count I and are not
independent causes of action. It argues Counts II and III are premised on the same
alleged breach of its duties under the Certificates—its failure to pay—and seek relief for
that breach.
Utica responds that Count II is not duplicative as nowhere in Count I is it alleged
that FFIC ignored information in its claim investigation, requested additional improper
information, and ignored Utica's inquiries. Further, Count II seeks attorneys' fees and
other costs in connection with this lawsuit, a different remedy than Count I. Similarly,
Utica argues Count III is different than Count I as the declaratory judgment cause of
action recognizes that future obligations may arise under the Certificates, in addition to
the amounts already billed and unpaid. Specifically, that the Certificates continue to
apply to Utica's umbrella coverage to Goulds, and the parties continue to dispute how
those Certificates apply.
a. Count II
The test for duplication respecting a breach of contract claim and a bad faith claim is
whether "the [alleged] wrongful conduct was 'also the predicate for a claim for breach of
covenant of an express provision of the underlying contract.'" Haym Salomon Home for the
Aged, LLC v. HSB Group, Inc., No. 06–CV–3266, 2010 W L 301991, at *6 (E.D.N.Y. Jan. 20,
2010).
Count I seeks relief for FFIC's failure to pay amounts billed under the Certificates.
Count II seeks relief for FFIC's alleged improper claims handling; that cause of action
includes allegations that FFIC ignored information provided by Utica, asked for additional
irrelevant information not needed to process Utica's billings, and improperly ignored Utica's
- 10 -

numerous inquiries regarding its review of Utica's billings and payment status. Utica alleges
FFIC's bad faith in its claims processing caused it damages beyond the recovery of amounts
owed under the Certificates, the relief sought in Count I. Thus Count II seeks attorneys' fees
and other costs in connection with this lawsuit and all resulting damages from the breach of
the duty of utmost good faith and fair dealing.
Because these causes of actions are predicated on different wrongful conduct and
seek different relief, they may stand as separate causes of action. See e.g., Ret. Bd. of
Policemen's Annuity & Benefit Fund v. Bank of N.Y. Mellon, No. 11 Civ. 5459, 2014 WL
3858469, at *3 (S.D.N.Y. July 30, 2014) (finding breach of good faith claim was not
duplicative of breach of contract claim because they rested upon different facts); Friedman v.
Maspeth Fed. Loan & Sav. Ass'n, No. 13-CV-6295, 2014 W L 3473407, at *9 (E.D.N.Y. July
14, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim
where the facts supporting each claim were not identical); O.K. Petroleum Distrib. Corp. v.
Travelers Indem. Co., No. 09 Civ. 10273, 2010 WL 2813804, at *4 (S.D.N.Y. July 15, 2010)
(finding bad faith allegations that insurer inadequately investigated and inordinately delayed
were not duplicative because they extended beyond a breach of insurance contract claim);
JJM Sunrise Auto., LLC v. Volkswagen Grp. of Am., Inc., No. 601658-14, 2014 W L 5800301,
at *13 (N.Y. Sup. Ct. Nov. 6, 2014) (finding breach of good faith claim was not duplicative of
breach of contract claim because breach of good faith claim contained allegations of
wrongful conduct that were not alleged in breach of contact claim).
b. Count III
The Declaratory Judgment Act, 28 U.S.C. § 2201(a), vests district courts with "broad
discretion" to decline jurisdiction over requests for declaratory relief, Dow Jones & Co., Inc. v.
- 11 -

Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003) (identif ying factors relevant to exercise of
such discretion, including, inter alia, "whether the judgment will serve a useful purpose in
clarifying or settling the legal issues involved"; "whether a judgment would finalize the
controversy and offer relief from uncertainty"; and "whether the proposed remedy is being
used merely for procedural fencing, or a race to res judicata'" (internal quotation marks
omitted)). Fort v. Am. Fed. of State, Cnty. and Mun. Emps., 375 F. App'x 109, 112 (2d Cir.
Apr. 29, 2010) (summary order).
In Count III, Utica seeks a declaration of the same rights that will be determined under
Count I for breach of contract. Count I alleges that as a result of the breach of the
Certificates, FFIC owes Utica for billings through August 31, 2009, totaling nearly $29 million
and that such damages are continuing. The parties do not dispute that future obligations
may arise under the Certificates at issue, in addition to the amounts billed and unpaid as of
the filing of the Amended Complaint. Count III seeks payment for billings subsequent to
August 31, 2009. The declaratory judgment sought in Count III will not clarify or settle the
legal issues involved in this case. The declaration sought, that FFIC breached the
Certificates and that FFIC is obligated to make payment to Utica for subsequent billings, will
be addressed in Count I, the breach of contract claim. Nor will a declaratory judgment offer
relief from uncertainty because resolution of the breach of contract claim will offer that relief.
Therefore, Count III is duplicative of Count I and it is proper to decline jurisdiction over
plaintiff's request for declaratory relief in Count III.
FFIC's motion for judgment on the pleadings dismissing Counts II and III as
duplicative of Count I will be granted in part and denied in part and Count III w ill be
dismissed.
- 12 -

2. Motion for Partial Summary Judgment on Count I (Utica's "Aggregate Limits"
Contention) (ECF No. 279)
FFIC moves for partial summary judgment on Count I, arguing it was not obligated to
provide reinsurance coverage to Utica with respect to the five years 1966, 1968, 1969, 1970,
and 1971. 6 It contends that because it was not obligated to provide reinsurance coverage for
those years, it could not breach the Certificates for those years as a matter of law.
As explained in the previous Memorandum-Decision and Order, one of the main
issues in this case involves the existence of aggregate limits for bodily injury in the primary
policies between Goulds and Utica. Aggregate limits for bodily injury in the primary policies
would allow Utica to combine asbestos injuries arising from multiple accidents, occurrences,
or individuals into a loss that would exceed the primary policy limits, penetrate the umbrella
policy, and access FFIC's reinsurance. Utica claims that these policies did in fact have
aggregate limits, while FFIC contends they did not. If these missing primary policies had said
aggregate limits, the umbrella policies between Goulds and Utica could and would have been
accessed, thereby triggering the reinsurance policies between Utica and FFIC. Alternatively,
if the primary policies did not contain aggregate limits, the umbrella policies would never
have been triggered, and FFIC's reinsurance coverage would not have been reached. It
follows that FFIC would have no liability to Utica for the five years in question. As the primary
policies in question are missing, much of the discovery in this case has focused on whether
those policies had aggregate limits for bodily injury.
The instant motion for partial summary judgment is about different aggregate
limits—those listed in the umbrella policies. According to FFIC, the contractual reinsurance

6

Again, Utica could not locate the primary policies for these years.
- 13 -

relationship between Utica and FFIC is governed by (1) the annual (reinsurance) Certificate,
and (2) the corresponding umbrella policy. It is undisputed that the Certificates contain a
follow form provision, providing that FFIC's liability is subject to the terms and conditions of
Utica's contract with Goulds (the umbrella policy). FFIC agreed to provide reinsurance only
in accordance with the terms and conditions of the umbrella policies and therefore what
those policies said about the limits of the underlying primary policies. While the primary
policies between Goulds and Utica for the years at issue are missing, the parties are in
possession of the umbrella policies between Goulds and Utica for those years.
FFIC argues the umbrella policies are clear and unambiguous, and none contain
aggregate limits for bodily injury for the underlying primary policies. FFIC has submitted the
declarations page of each umbrella policy. LoPatto Decl., Ex. 2, ECF. No. 279-5 (the
"Umbrella Declarations pages").7 Each Umbrella Declarations page includes a "Schedule of
Underlying Insurance Policies." According to FFIC, these pages provide the bodily injury and
property damage claim limits for the corresponding underlying primary policies. Each
Umbrella Declarations page submitted by FFIC includes an aggregate limit for property
damage, but no aggregate limit is listed for bodily injury. FFIC asserts this shows Utica knew
how to provide for an aggregate limit when it wanted to—if the primary policies had
aggregate limits for bodily injury, they would have appeared on the Umbrella Declarations
page of the corresponding umbrella policy.
According to FFIC, because the Umbrella Declarations pages (which the Certificates
follow form to) list no aggregate limits for bodily injury and because the contracts are clear

7

No policy parts other than these pages have been found for the 1966 and 1968-71 umbrella
policies Utica issued to Goulds.
- 14 -

and unambiguous, they may not be altered by extrinsic evidence. Therefore, FFIC contends
that without aggregate limits for bodily injury in the primary policies, the Goulds claims never
moved out of the primary policies, the umbrella policies never triggered, and Utica never
should have paid under the umbrella policies. It follows that FFIC's reinsurance should never
have been triggered and it cannot be obligated to provide reinsurance coverage for these five
years and thus could not breach the Certificates as a matter of law.
Utica argues partial summary judgment should be denied because FFIC cannot prove
by way of the umbrella policies that the missing primary policies lack aggregate limits for
bodily injury. Further, even if it could, the umbrella policies as presented do not actually
establish that the underlying primary policies lack aggregate limits for bodily injury. Utica
takes issue with FFIC's theory about how the umbrella coverage applies over the primary
policies because FFIC does not discuss nor attach any triggering language from the umbrella
policies. Instead, FFIC's entire argument is based on how the umbrella policies might apply
in light of the Umbrella Declarations pages, but fails to provide any supporting umbrella policy
contract language such as the insuring agreements, exclusions, definitions, endorsements,
or terms and conditions. According to Utica, there is not a complete contract to be
interpreted: application of the Certificates requires an understanding of both the primary and
umbrella policies and the umbrella policies include terms and conditions explaining how the
Umbrella Declarations pages apply but FFIC has not provided these.8 Each umbrella policy

8

Utica has included language from what it claims are the Insuring Agreements from the 1966 and
1968-71 umbrella policies. It asserts that the language explains how an occurrence can trigger coverage
under the umbrella policy, and that nothing in the language requires that the aggregate limit be set forth in the
Schedule of Underlying Insurance (Umbrella Declarations page) as FFIC argues. See Pl.'s Mem. of Law in
Opp'n to Def.'s Mot. for Part. Summ. J. on Count I, ECF No. 309, at 4-5. FFIC contends there is no proof that
the submitted forms were actually part of the umbrella policies at issue.
- 15 -

generally includes a declarations page, pre-printed policy terms and conditions called the
"policy jacket," and any endorsements. See Pl.'s Stmt. Addt'l Mat. Facts & Resp. to Def.'s
Stmt. of Mat. Facts in Supp. of Mot. for Part. Summ. J. on Count I, ECF No. 303, ¶ 1 ("Pl.'s
Resp. SMF Count I").
Utica also argues that the Umbrella Declarations pages FFIC relies upon lack clarity;
for example the 1971 page which, according to FFIC, shows no aggregate limit for bodily
injury products coverage. See Umbrella Declarations pages. However, Utica alleges such a
reading ignores the headings "Each Person" and "Aggregate" which appear to be applicable
to the products coverage entry only, with "300 agg" appearing in the aggregate column.
Utica insists that FFIC reads in additional language to assume that the aggregate column
applies only to property damage coverage. Because the contracts as presented are
incomplete, unclear, and ambiguous on their face, Utica urges extrinsic evidence should be
permitted. According to Utica, the current missing parts of the Certificates and the umbrella
policies contradict FFIC's assumption that the primary policies lack aggregate limits for bodily
injury.
FFIC's motion for partial summary judgment is based on incomplete contracts. While
FFIC argues that extrinsic evidence should not be permitted, this presupposes a complete
contract, which is not at hand. The rules governing contract interpretation, including the legal
determination of ambiguity and the consideration of extrinsic evidence, presuppose a
complete contract. See e.g., Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002).
When determining whether a contract is ambiguous, a court reviews the contract "as a whole
to determine its purpose and intent." W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162-63
(1990); see also Sayers v. Rochester Tele. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d
- 16 -

1091, 1095 (2d Cir. 1993) (explaining court must examine the entire contract, in order to
"safeguard against adopting an interpretation that would render any individual provision
superfluous").
The contracts forming the basis of this motion are incomplete for two reasons; the
Certificates are not integrated agreements and the umbrella policies have not been
submitted in full. The Certificates are not integrated agreements because their application
requires an understanding of the umbrella policies and primary policies. See, e.g., Travelers
Cas. & Sur. Co. v. ACE Am. Reins. Co., 392 F. Supp. 2d 659, 664 (S.D.N.Y. 2005), aff'd, 201
F. App'x 40 (2d Cir. 2006) (summary order). The umbrella policies are similarly incomplete
because only the Umbrella Declarations pages have been submitted; the policies include
terms and conditions which explain how the Umbrella Declarations pages apply, but those
terms and conditions have not been provided by FFIC. To consider the declarations page of
an insurance policy in isolation from the remainder of the contract would be to consider an
incomplete contract.
Finally, FFIC's assumption, without authority, that the absence alone of an aggregate
limit in the declarations pages means that the primary policies lack aggregate limits is
unpersuasive. As a California trial court in a related coverage action found in an analogous
argument regarding the absence or presence of aggregate limits in the subject primary
policies, "leaving a space blank is not clearly and unambiguously the same as typing '0' or
'No Aggregate Limit' in the space." See Pl.'s Resp. SMF Count I, ¶ 3. Because the contracts
required to resolve this issue are incomplete and not fully provided, a determination as a
matter of law cannot be made at this time and FFIC is not entitled to partial summary
judgment on this issue.
- 17 -

Accordingly, FFIC's motion for partial summary judgment on Count I of the Amended
Complaint as to its obligation to provide reinsurance coverage to Utica with respect to the five
years 1966, and 1968-71 will be denied.
3. Motion for Partial Summary Judgment on Count II (Utica's "Bad Faith"
Contention) (ECF No. 275) (286 sealed)
FFIC moves for partial summary judgment dismissing Count II alleging a breach of the
duty of utmost good faith for which Utica seeks attorneys' fees and other costs in connection
with this lawsuit, including lost internal resources and lost investment income. Count II
alleges FFIC acted in bad faith by failing to pay Utica's reinsurance claim. FFIC argues this
count must be dismissed because the fact that it did not pay Utica's belatedly filed claim
does not come close to the standard for establishing bad faith; it had a sufficient basis to
question Utica's claims and other reasonable carriers would have, and did do the same.
Utica opposes and argues the motion should be denied because FFIC's compliance
with its duty of utmost good faith is in dispute and should go to a jury. Utica also contends
that in addition to payment delay or refusal, misconduct in a claims investigation can lead to
bad faith liability in New York and there is evidence FFIC mishandled the claims
investigation.
"As in all contracts, implicit in contracts of insurance is a covenant of good faith and
fair dealing, such that 'a reasonable insured would understand that the insurer promises to
investigate in good faith and pay covered claims.'" Bi-Economy Mkt., Inc. v. Harleysville Ins.
Co. of N.Y., 10 N.Y.3d 187, 194 (2008); (quoting N.Y. Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308,
318 (1995)). However, "an insurer is not liable in excess of the policy limits for the breach of
an insurance contract absent bad faith." In re AXIS Reins. Co. REFCO Related Ins. Litig.,

- 18 -

No. 07-CV-07924, 2010 WL 1375712, at *5 (S.D.N.Y. Mar. 7, 2010). Moreover, New York
generally does not recognize a separate cause of action for damages based on the denial of
insurance coverage when a breach of contract claim is also asserted. See e.g., Haym
Salomon Home for the Aged, LLC, 2010 WL 301991, at *5.
However, the New York Court of Appeals in Sukup v. State, 19 N.Y.2d 519 (1967)
established that there is a cause of action for extra-contractual damages where an insurer
refuses, in bad faith, to pay a claim of its own insured. To prevail on such a claim and
"impose an extra-contractual liability for legal expenses," "more than an arguable difference
of opinion between carrier and insured over coverage" is required. Id. at 522. "It would
require a showing of such bad faith in denying coverage that no reasonable carrier would,
under the given facts, be able to assert it." Id. In Sukup, the Court found the plaintiff did not
demonstrate that the insurer denied his worker's compensation coverage in bad faith.
Several courts since Sukup have acknowledged a cause of action for extra-contractual
damages for a bad faith denial of coverage, but have generally found that the plaintiff was
unable to meet the high standard to prevail on such a claim. See Ebrahimian v. Nationwide
Mut. Fire Ins. Co., 960 F. Supp. 2d 405, 416 (E.D.N.Y. 2013) (collecting cases). In Liberty
Surplus Ins. Corp. v. The Segal Co., 420 F.3d 65, 70 (2nd Cir. 2005) (per curiam), the United
States Court of Appeals for the Second Circuit acknowledged that an insured could recover
the costs of litigation, including attorneys' fees. It proceeded to affirm dismissal of the
defendant's counterclaim because the defendant did not allege that its claim was denied in
bad faith and furthermore, "the dispute reflect[ed] an arguable difference of opinion rather
than bad faith by the insurer." Id. (internal quotation marks omitted).

- 19 -

In Greenburgh Eleven Union Free School District v. National Union Fire Ins. Co. of
Pittsburgh, 304 A.D.2d 334 (N.Y. App. Div. 1st Dep't 2003), the New York Appellate Division
First Department relied on Sukup in affirming the lower court's decision that the plaintiff was
not entitled to extra-contractual damages of attorneys' fees since both parties "had an
arguable basis for their respective disclaimers." Id. at 336-37. A few months later in Wurm
v. Commercial Ins. Co. of Newark, 308 A.D.2d 324 (N.Y. App. Div. 1st Dep't 2003), the First
Department again cited Sukup in declining to award attorneys' fees to a plaintiff. Even
viewing the facts in the light most favorable to that plaintiff, that Court could not conclude that
the insurer "had no arguable basis for discontinuing plaintiff's benefits." Id. at 329. It
affirmed the jury's finding that the insurer breached the policy, but found the plaintiff failed to
make the required "'showing of such bad faith in denying coverage that no reasonable carrier
would, under the given facts, be expected to assert it.'" Id. at 330 (quoting Sukup, 19 N.Y.2d
at 522).
The New York Court of Appeals again spoke on the issue in Bi–Economy Market, 10
N.Y.3d at 187. The Court held that "in light of the nature and purpose of the insurance
contract at issue, as well as Bi-Economy's allegations that Harleysville breached its duty to
act in good faith," the plaintiff was permitted to pursue a claim for extra-contractual
consequential damages—specifically, the damages for ongoing business interruption as they
were reasonably contemplated by the parties prior to contracting. Id. at 196. More recently,
the Eastern District of New York in Ebrahimianhe relied on Sukup to find that the plaintiffs did
not sufficiently allege they suffered any damages as a result of the "[d]efendant's alleged bad
faith refusal to pay their claims other than the damages associated with the alleged breach of

- 20 -

the Policy," concluding that general disapproval is insufficient to state a claim for bad faith
disclaimer of insurance coverage. Ebrahimianhe, 960 F. Supp. 2d at 416-17.
For Utica to recover attorneys' fees and other costs, including lost internal resources
and lost investment income, it must show that FFIC had no arguable basis to challenge its
claim and further show that no reasonable carrier would, under the given facts, challenge the
claim—in other words that the challenge was more than a difference of opinion. The
undisputed facts are that FFIC received notice of Utica's reinsurance claim in July 2008, well
over a year after Utica settled with Goulds in February 2007.9 Utica's first bill to FFIC for $5
million was received on September 22, 2008 and included a two-page claim summary and
chart of the number of claims by state. Utica was required to provide proof of loss to FFIC
per the Certificates, and even construing the two-page claim summary as such, FFIC was
permitted to conduct its own investigation and evaluate a possible late notice defense among
its other coverage positions. During its investigation, FFIC learned that the primary policies
for the years at issue were missing and that there was a question as to whether those
policies contained aggregate limits.
Between September 22, 2008, and January 9, 2009, Utica and its broker followed up
with FFIC in an attempt to prompt it to take action on the pending claims. Pl.'s Resp. to
Def.'s Stmt. of Mat. Facts in Supp. of Mot. for Partial Summ. J. on Count II, ECF No. 309-9,
¶ 3 ("Pl.'s Resp. SMF Count II"). On December 1, 2008, the broker wrote to Utica that "I
have called [FFIC's representative] numerous times and either have gotten his voicemail,
with no return call, or spoke to an individual in his office who informed me he was in a

9

The parties dispute when notice was actually due, hence Utica's separate motion for partial
summary judgment on the issue.
- 21 -

meeting." Id. During this time, the only information transmitted from Utica to FFIC had been
the two-page claim summary and a chart of the number of claims by state. According to
FFIC, this was insufficient information on which to pay the claim.
FFIC did not provide a substantive response or formally acknowledge Utica's bill until
January 9, 2009.10 On that date, FFIC requested an extensive list of information from Utica
and an opportunity to review Utica's files in person. Utica responded on February 9, 2009,
and provided all of the information FFIC requested that was available to it, including copies of
previous notices that Utica sent to reinsurers.
FFIC sent an inspection team to three of Utica's offices in April 2009. Utica made
available for FFIC's review its California and New York litigation files, the Goulds claim
database, documents relating to the Settlement Agreement between Utica and Goulds, and
communications between Utica and its counsel, including analyses as to coverage for claims
under Utica's policies. FFIC contends that some of the documents it discovered during its
investigation were inconsistent with Utica's assertions and stipulations in the Settlement
Agreement that all of the primary policies had aggregate limits for bodily injury. According to
FFIC, this raised serious questions as to its obligation to pay under the Certificates. Utica
disputes that any documents were inconsistent.
Following the inspection, Utica provided additional information to FFIC on May 4, 2009
and July 24, 2009. FFIC continued to request evidence of the aggregate limits for bodily
injury in the missing policies as well as other information, including asking on July 30, 2009
for copies of Utica policies issued to insured other than Goulds which allegedly showed that
10

Utica also claims that at some point between when Utica submitted its billing to FFIC and when it
sued, a FFIC representative told Utica that it would get its money faster if it sued. FFIC denies this allegation.

- 22 -

Utica had issued general liability policies without bodily injury aggregate limits. On July 29,
2009, Utica filed the Complaint in this action contending FFIC was taking too long to pay.11
Even drawing inferences from the facts in a light most favorable to Utica, the nonmovant—that FFIC's belated or even non-responses to Utica's inquires, FFIC's repeated
requests for documents which Utica contends it did not need because it had been prev iously
provided the information, and FFIC's on site inspection, over the time period of September
22, 2008 to July 29, 2009 while conducting an investigation into a potential $35 million plus
claim involving missing primary liability policies for which there was at minimum a possibility
those policies lacked aggregate limits for bodily injury, constituted delay tactics—this
evidence does not come close to satisfying the high standard for sustaining a bad faith claim.
Instead, the undisputed evidence demonstrates that FFIC had legitimate grounds for
investigating and not yet paying Utica's claim by July 2009. Given when FFIC was notified by
Utica compared to other similarly situated reinsurers, how long Utica waited to notify FFIC
after settling with Goulds (over a year), and the missing primary policies for which there was
at least a question regarding aggregate limits for bodily injury, it was reasonable for FFIC to
conduct a thorough investigation. That Utica did not receive payment under the Certificates
as quickly as it would have preferred does not render FFIC dilatory in its investigation.
Notably, Utica is responsibly for a greater delay in this process: more time elapsed between
when it settled with Goulds (February 2007) and provided notice to FFIC of its reinsurance
claim (July 2008) than between when it provided notice to FFIC (July 2008) and when,
according to Utica, FFIC should have been prepared to render a resolution on its claim s but

11

Service was not made on FFIC until September 23, 2009.
- 23 -

had not yet done so and thus commenced this suit (July 2009). Thus, even drawing all
inferences in favor of Utica, there are no material facts in dispute that would preclude
summary judgment. Utica cannot sustain its burden in opposition to sum mary judgment
because it cannot show that FFIC had no arguable basis to challenge its claim nor can it
prove that no reasonable carrier would, under the given facts, challenge the claim.
Therefore, FFIC's motion for partial summary judgment dismissing Utica's bad faith
damages claim will be granted and Count II of the Amended Complaint will be dismissed.
4. Motion for Summary Judgment on Count I (Utica's "Follow the Settlement"
Contention) (ECF No. 277) (285 sealed)
FFIC moves for summary judgment declaring that the settlement between Utica and
Goulds was unreasonable and improperly designed to access and maximize Utica's
reinsurance with FFIC and Utica is therefore not entitled to the protections of the follow the
settlement, or follow the fortunes doctrine. Specifically, FFIC contends that Utica inserted
two provisions in the Settlement Agreement with Goulds that rendered the settlement in bad
faith and unreasonable: (1) that there were aggregate limits in the primary policies, and
(2) that Utica's payment of the settlement amount was to be borne by the umbrella policies
between Utica and Goulds, which were reinsured. In doing so, FFIC contends that Utica put
its own interests as the cedent above FFIC's interests as the reinsurer. According to FFIC, it
should therefore be relieved of its duty to indemnify Utica and as such, it did not breach the
Certificates by failing to pay and Count I of the Amended Complaint should be dismissed.
Utica opposes and seeks a favorable summary disposition of its own on the follow the
settlement contention, arguing that FFIC misstates the law, and any alleged motivation to
increase reinsurance recoveries is irrelevant. It contends its settlement with Goulds was

- 24 -

reasonable and justified by multiple non-reinsurance related reasons and FFIC has put f orth
no evidence to demonstrate the settlement was unreasonable.
Count I is based on the assertion that FFIC is required to follow the settlement Utica
entered into with its insured, Goulds. "Under the follow-the-settlements doctrine, a reinsurer
must 'accept the cedent's good faith decisions on all things concerning the underlying
insurance terms and claims against the underlying insured: coverage, tactics, lawsuits,
compromise, resistance or capitulation,' as well as settlements and settlement allocation."
Utica Mut. Ins. Co. v. Clearwater Ins. Co., No. 613-CV-1178, 2016 W L 254770, *at 4
(N.D.N.Y. Jan. 20, 2016) (Sharpe, S.J.) ("Clearwater"), app. dismissed, July 13, 2016
(quoting N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134, 139-40 (2d Cir. 2004)). T he
follow the settlement doctrine serves to promote the "long established" goals of "maximum
coverage and settlement" and to avoid "a proliferation of litigation" between the cedent and
the reinsurer. Clearwater, 2016 WL 254770, at *4 (quoting N. River Ins. Co. v. CIGNA Reins.
Co., 52 F.3d 1194, 1205-06 (3d Cir. 1995) ("CIGNA")). As long as the cedent settles in good
faith, reasonably, and within the applicable policies, the reinsurer is bound by the settlement
and cannot relitigate the underlying coverage issues. Clearwater, 2016 WL 254770, at *4.
Generally, "good faith requires the reinsured to align its interests with those of the
reinsurer." CIGNA, 52 F.3d at 1216. However, these interests need not be "perfectly aligned
to trigger a follow-the-settlements clause." Gerling, 419 F.3d at 190 (internal quotation marks
omitted). "'The reinsurer bears the burden to prove the cedent's bad faith and must present
an extraordinary showing of a disingenuous or dishonest failure.'" Clearwater, 2016 WL
254770, at *4 (quoting Gerling, 419 F.3d at 191) (internal quotation marks omitted). To prove

- 25 -

bad faith, the reinsurer must demonstrate that the cedent acted, at a m inimum, with gross
negligence or recklessness. Id.
Deference to the follow the settlement doctrine also requires that the cedent
reasonably settle. See Gerling, 419 F.3d at 194. "[O]bjective reasonableness should
ordinarily determine the validity of a [settlement] allocation." U.S. Fidelity & Guar. Co. v. Am.
Re-Ins. Co., 20 N.Y.3d 407, 420 (2013) ("USF&G"). In USF&G, the New York Court of
Appeals recognized that "[r]easonableness does not imply disregard of a cedent's own
interests" as "[c]edents are not the fiduciaries of reinsurers, and are not required to put the
interests of reinsurers ahead of their own." Id. Accordingly, a settlement allocation is
reasonable if the cedent and the insured could have arrived at the allocation without the
possibility of reinsurance recovery. See id.
First, the parties dispute the applicability of two relatively recent decisions: the
Clearwater decision decided at the beginning of 2016 in this District, and Goulds Pumps, Inc.
v. Travelers Casualty and Surety Co., B255439, 2016 W L 3564244, at *1 (Cal. Ct. App. June
22, 2016) (unpublished decision) ("Travelers") decided by a California appellate court. Utica
has submitted supplemental briefing urging that both decisions bolster its position and
undermine FFIC's, while FFIC submitting briefing contending the decisions are factually
distinguishable and should not affect this case. While the decisions illuminate disputes
similar to those in this case, as well as present helpful background information and standards
of law, neither case is ultimately persuasive because the evidentiary records are not even
remotely the same as the instant matter.
In Clearwater, cedent Utica pursued similar breach of contract litigation against its
reinsurer Clearwater stemming from the same Utica-Goulds settlement involved here. Senior
- 26 -

United States District Judge Gary Sharpe held that Clearwater was bound by the follow the
settlement doctrine because it did not produce any evidence that Utica's settlement with
Goulds was made in bad faith, and failed to raise any triable issue of fact that Utica acted
unreasonably in its settlement decision to stipulate that the primary policies involved
contained an aggregate limit. Clearwater, 2016 WL 254770, at *4-5. While the Clearwater
decision is certainly persuasive, it is factually distinguishable. That case involved the policy
years 1978-81, the primary policies were a part of that record, and some of those primary
policies lacked an explicit aggregate limit. Judge Sharpe found that the lack of explicit
aggregate limits rendered the policies ambiguous, and in light of the ample extrinsic evidence
(submitted only by Utica) suggesting that all policies were intended to have aggregate limits,
found Utica's resolution of that ambiguity to be reasonable. By contrast, this case involves
the policy years 1966-72 and the primary policies are missing. The entire dispute in this case
surrounding whether those primary policies contained aggregate limits for bodily injury is
because they are missing—not because the section is blank, contains a zero, or is
ambiguous.
In addition to the factual differences already noted, the Clearwater Court's finding that
it was reasonable for Utica to conclude that the primary policies had aggregate limits of
$500,000 was based on a different evidentiary record and different extrinsic evidence than
that presented here. Significantly, the defendant in that case elected to submit absolutely no
extrinsic evidence. FFIC also contends that discovery was limited in that case, and urges
that the record contained none of the significant admissions, concessions, and witness
credibility issues that have been developed in this case.

- 27 -

In Travelers, a California appellate court recently affirmed the judgment of the
Superior Court of Los Angeles County finding that the primary policies Utica issued to Goulds
in the years 1977-82 had aggregate limits. 2016 WL 3564244, at *16. In that case, Goulds
contracted with Utica and Aetna, Traveler's predecessor, for primary, umbrella, and excess
policies. The parties agreed that the aggregate limit sections of the 1977-81 Utica primary
policies contained blank spaces. The Court described that "next to the language 'Bodily
Injury Liability and Property Damage Liability' the policies identify the aggregate limit thusly:
'$,000.'" Id. at *15. However, the 1982 Utica primary policy listed a $500,000 product liability
aggregate limit. The Court applied California law and found through the use of secondary
evidence that the aggregate limit sections of the 1979 through 1982 policies were left blank
by mistake. It was noted that the result would be the same under New York law, as New
York permits the use of extrinsic evidence to determine the parties' intended meanings if
there are multiple meanings that can be derived from a contract term. The Court went on to
explain that the Utica primary policies included a form endorsement which created an internal
ambiguity sufficient to permit the admission of extrinsic evidence.
Again, the factual differences between the cases renders Travelers unhelpful for much
guidance. Like the Clearwater decision, Travelers: involved different policy years; had
primary policies available for the Court to examine and then find an ambiguity, permitting the
admissibility of extrinsic evidence (if the issue was analyzed under New York law which it was
only considered in dicta); and was supported by a different evidentiary record regarding the
presence of aggregate limits including a complete lack of extrinsic evidence presented by the
defendant whom took the position that the primary policies were unambiguous. By contrast,

- 28 -

as explained below, here there is evidence demonstrating the primary policies did not contain
aggregate limits for bodily injury.
Finally, FFIC misinterprets the New York Court of Appeals' holding in USF&G. Relying
on USF&G, FFIC urges that "a reinsurer will not be bound by provisions in a settlement
agreement if those provisions were inserted by the reinsured in order to maximize potential
recoveries from it reinsurers." Def.'s Mem. of Law in Supp. of Mot. for Summ. J. on Count I,
ECF No. 285, at 1. However, that is not the standard of law articulated in USF&G. Instead,
the Court held that a reinsurer is bound only by a reinsured's good faith decisions. USF&G,
20 N.Y.3d at 420. It noted: "While that expression might seem to suggest that the cedent's
subjective intentions are critical, most decisions also consider reasonableness or some other
objective element." Id. (internal citations omitted). As explained above, "[r]easonableness
does not imply disregard of a cedent's own interests. Cedents are not the fiduciaries of
reinsurers, and are not required to put the interests of reinsurers ahead of their own." Id.
The Court further elaborated:
As the Third Circuit put it in Travelers v INA: "[T]o establish a
breach of the duty of good faith, it is not sufficient simply to
demonstrate that a particular allocation decision increased the
insurer's access to reinsurance, at least not where the insurer is
able to point to some legitimate (i.e., non-reinsurance-related)
reason for the challenged decision" (609 F3d at 158-159). We
mean by "reasonable" essentially what we take the Third Circuit to
mean by "legitimate": The reinsured's allocation must be one that
the parties to the settlement of the underlying insurance claims
might reasonably have arrived at in arm's length negotiations if
the reinsurance did not exist.
USF&G, 20 N.Y.3d at 420-21.
The USF&G Court went on to reject the Third Circuit's conclusion in Travelers
Casualty and Surety Co. v. Ins. Co. of North America, 609 F.3d 143, 159 (3d Cir. 2010) that
- 29 -

a cedent's allocation could be rejected if the cedent was motivated primarily by reinsurance
considerations. USF&G, 20 N.Y.3d at 421. In doing so, the New York Court of Appeals held:
We conclude, however, that the cedent's motive should generally
be unimportant. When several reasonable allocations are
possible, the law . . . permits a cedent to choose the one most
favorable to itself (see id.; Gerling, 419 F.3d at 193 [an "allocation
that increases reinsurance recovery . . . would rarely demonstrate
bad faith in and of itself"]). We think it unrealistic to expect that
the cedent will not be guided by its own interests in making the
choice.
Id. In sum, a cedent's motive to reach reinsurance, while singularly unimportant, may
invalidate the follow the settlement protection if it causes the cedent to make an
unreasonable settlement allocation.
With these principles in mind, Utica's factual allegations,12 liberally construed, raise the
reasonable possibility that its settlement with Goulds was reasonable, in good faith, and
justified by legitimate business reasons, thus requiring FFIC to follow the settlement. For
instance, FFIC asserts Utica insisted the Settlement Agreement include stipulations that all of
the primary policies contained aggregate limits and that those limits had been exhausted;
however, the stipulations applied to over 30 years of policies, even though the Goulds
coverage litigation focused on only five of those years. Namely, the 1966-72 primary policies
underlying the umbrella policies reinsured by FFIC and swept into the stipulation were not
litigated between Utica and Goulds. FFIC contends the stipulations were admittedly
unnecessary to reaching the deal; specifically the stipulations were labeled "gratuitous" by

12

In submitting its evidence, plaintiff incorporated its Statement of Material Facts submitted in
support of its Motion for Partial Summary Judgment on the Follow the Fortunes Doctrine as its permitted
Statement of Additional Material Facts in Response to FFIC's Motion for Summary Judgment on Count I of
Utica's Amended Complaint. See Pl.'s Stmt. of Mat. Facts in Supp. of Partial Mot. for Summ. J. on the Follow
the Fortunes Doctrine, ECF No. 287-2 ("Pl.'s SMF FTF").
- 30 -

Utica's General Counsel, Bernard Turi ("Turi"). Def.'s Stmt. of Mat. Facts in Supp. of Mot. for
Summ. J. on Count I, ECF No. 285-1, ¶ 6 ("Def.'s SMF Count I"). A draft settlement
agreement with Turi's handwritten comments includes the notation under the section entitled
"Exhaust of Goulds Primary Policies for Product Liability Claims" directing "Need gratuitous
language on aggregate limits." LoPatto Decl., Ex. 8, ECF No. 285. According to FFIC, the
insertion of gratuitous stipulations concerning aggregate limits merely underscores Utica's
top concern, which was to push the $325 million settlement payment on its reinsurers
whether or not credible evidence existed for doing so.
Utica however disputes that the term "gratuitous" meant unnecessary. Instead, Turi
testified that he wrote this note because he wanted to include "[p]roactive language" that
designated that Utica had aggregate limits in that particular section of the Settlement
Agreement. He indicated that he wanted a second, gratuitous statement that the primary
policies had aggregate limits, which was redundant with the Settlement Agreement's initial
listing of the aggregate limits in the primary policies. Pl.'s Resp. to Def.'s SMF Count I, ECF
No. 309-1, ¶ 6. He testified that "gratuitous" did not mean that the aggregate limit provisions
were unnecessary.
Next, Turi conceded in his deposition that Utica insisted the Settlement Agreement
include the aggregate limit and exhaustion stipulations in order to foreclose the issue with
reinsurers, because Utica "didn't want to have this whole fight with Goulds and then this
whole fight with reinsurers" but wanted it "resolved once and for all [on] the aggregate issue."
Def.'s SMF Count I, ¶ 7; LoPatto Decl., Ex. 7, ECF No. 285, 99:9-100:15, 100:24-101:5 (" Turi
Dep."). However, Turi testified that "it wasn't a consequence of that we had reinsurance, that
we agreed that we had aggregate limits." Turi Dep. at 85:15-17. He also testified that
- 31 -

avoiding a fight with reinsurers was one of "several reasons" for including the aggregate limit
and exhaustion provisions, not "the purpose." Id. at 99:9-100:15.
Another reason was to cap Utica's liability under the primary policies, which was
important regardless of whether Utica had reinsurance. Id. at 84:18-86:5. T uri testified that
the need to cap Utica's liability under the primary policies was the "primary reason" for the
settlement.
A.

Again, if there was no aggregates, Goulds, under California
Law . . . could select a policy year and have each individual
claim go over and over and over again on an unaggregated
basis. . . . They would pick a year and each claim would be
subject to that limit and there'd be no cap. So that was the
biggest reason. I mean, that far outweighed any
reinsurance claim. So that was the primary reason.

Pl.'s Resp. SMF Count I, Ex. A, 51:24-52:10; see also id. at 51:13-53:4;53:17-54:8; Pl.'s
Resp. SMF Count I, Ex. C, 84:18-86:5; 93:24-94:14. Another reason f or the settlement's
terms was that Utica believed it had a strong case that the primary policies did in fact have
aggregate limits. Exhibit C, 84:18-86:5. A third reason was to avoid fights with Utica's other
umbrella carriers. Id. at 99:16-100:6. Turi testified that "the issue of aggregate limits went
well beyond the question of reinsurance." Id. at 85:21-22.
Utica's Executive Vice President and attorney Kristin Martin ("Martin") testified in
agreement with Turi, stating that "[t]he primary purpose for putting the aggregate limits in the
agreement was that it was a contested issue between Goulds and Utica, so that's why it was
in the agreement." Pl.'s Resp. SMF Count I, Ex. B, 151:4-7 ("Martin Dep."). Specifically,
even though Goulds was not pushing its argument with respect to years outside of 1978-82
at the time of the settlement, "[t]here was no way [Utica was] going to sign a settlement

- 32 -

agreement that didn't clearly articulate what our coverage was, because otherwise they'd be
back." Id. at 155:4-7.
According to FFIC, Martin confirmed that Utica wanted to make sure that there was
nothing in the Settlement Agreement that would jeopardize Utica's ability to collect
reinsurance. Def.'s SMF Count I ¶ 8; LoPatto Decl., Ex. 9, ECF No. 285, at 160-62. Martin
testified that "we didn't want to do anything [in the Settlement Agreement] that would impact
[reinsurers] or give them a right not to pay." Id. Utica contends that the cited excerpts do not
discuss the reasons why Utica included the aggregate limit provision in the settlement.
In further support of the argument that Utica was improperly focused on reinsurance,
FFIC submits an email dated February 6, 2006 from Martin to Richard Creedon, Utica's then
General Counsel and Senior Claim Officer, which refers to the "reinsurance impact" of Utica's
allocation of the Goulds' costs. Def.'s SMF Count I, ¶ 9. According to FFIC, Goulds' attorney
Jay Konkel ("Konkel") also testified that Utica demanded aggregate and exhaustion
provisions in the Settlement Agreement for reinsurance purposes. Id. ¶ 10.
Utica points out that Konkel does not comment on the reasons why Utica sought
aggregate and exhaustion provisions in the Settlement Agreement. Instead, he speculates
about the reasons why Utica sought a judicial determination (from the judges who conducted
the mediation) finding that the parties negotiated and consummated the settlement in good
faith. Utica submitted the following testimony from Konkel:
Q.

And again, you do not know why [Utica] wanted a good
faith settlement determination?

A.

I, I don't know why. I might have intuited it.

Q.

What do you mean "intuited"?

- 33 -

A.

It was a guess. I don't know.

Q.

What was your guess?

A.

It might have been pertinent for reinsurance-related issues.

Id. at 93:20-94:6. Utica urges the court to find Konkel's testimony speculative and contends
it has no bearing on the reasons Utica sought aggregate and exhaustion provisions in the
Settlement Agreement; Konkel himself admitted that his testimony was only "a guess" and
that he had no direct knowledge of Utica's motivations.
Next, Utica's privilege log includes multiple entries noting redactions for "legal advice
regarding reinsurance" throughout the time that Utica and Goulds were negotiating the
settlement. Def.'s SMF Count I, ¶ 11. For example, Utica redacted portions of emails
reflecting reinsurance advice in December 2005. Id. Utica also redacted internal
memoranda drafted in February 2007 based on "legal advice regarding reinsurance and in
connection with anticipation of litigation." Id. According to FFIC, this is dispositive as to
Utica's ill motives.
Utica does not dispute the privilege log entries. However, courts will not make
adverse inferences based on a party's assertion of the attorney-client privilege.
Galderma Labs. v. Paddock Labs., No. 09-cv-002, 2011 WL 1119700, at *4 (N.D. Tex. Mar.
28, 2011); see also Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208, 226 (2d Cir. 1999),
abrogated on other grounds by Moseley v. V Secret Catalogue, Inc., 537 U.S. 418
(2003) (holding that it is improper to draw an adverse inference from the invocation of the
attorney-client privilege). Moreover, any inferences FFIC could draw from the privilege log,
even if permissible, are merely speculative.

- 34 -

Next, a Memorandum dated May 1, 2006 from Turi to judges and mediators,
acknowledges that Utica's "reinsurance concerns" had been explained "at great lengths"
during prior mediation sessions. Def.'s SMF Count I, ¶ 12. Again, Utica does not dispute the
existence of the document but contends "reinsurance concerns" were not the reason it and
Goulds agreed that the primary policies had aggregate limits. Rather, it referenced those
concerns as a reason why Utica could not provide more than $350 million for the asbestos
claims and $260 million for all other claims, as Goulds proposed. Pl.'s Mem. of Law in Opp'n
to Def.'s Mot. for Part. Summ. J. on Count I, at 18. Also submitted by FFIC, an email dated
February 1, 2007 in which Utica's California counsel, Joseph Hegedus ("Hegedus"), asked
Turi to discuss Utica's "reinsurance." Def.'s SMF Count I, ¶ 13. According to Utica, Hegedus
asked to discuss "reinsurance generally" and there is no evidence regarding which
reinsurance Hegedus was referring to; there is no indication that this email even pertains to
Utica's reinsurance for the Goulds policies. Even if it were about the Goulds reinsurance, an
insurer does not lose its reinsurance because it is aware of its reinsurance.
Next, FFIC contends that a PowerPoint presentation to Utica's Board of Directors
prepared in connection with approval of the Settlement Agreement warned that without
aggregate limits, "[t]he [Goulds asbestos] claims would not reach the umbrella or the
reinsurance recoveries in those layers" and "[t]he convergence of the lack of aggregate
limits, along with control of the defense (and settlement) would be catastrophic for the
company." Def.'s SMF Count I, ¶ 14. Utica includes the entire context of the presentation
and argues this amounts to nothing. According to Utica, stating that it could continue to
collect reinsurance on its umbrella policies after the settlement was simply a fact; it does not
show that Utica dishonestly agreed to aggregate limit provisions. Utica's position throughout
- 35 -

its dispute with Goulds was that the primary policies had aggregate limits, and once these
limits were exhausted, any Utica payments would be under the umbrella policies. Those
aggregate limits exhausted years before the settlement and Utica was collecting reinsurance
on the umbrella policies for years prior to the settlement. Before the Settlement Agreement,
Goulds' position was that the Utica primary policies should respond to the asbestos loss.
FFIC next points to an email chain in February 2007 between Utica and its New York
coverage counsel which attached a summary of the proposed settlement, and noted that "of
all of GP's [Goulds'] allegations, the lack of aggregate limits of liability for asbestos claims
presented the most significant downside to UMICO [Utica]." Def.'s SMF Count I, ¶ 15. The
summary further noted that without aggregate limits, the primary policy would never exhaust,
and this "would prevent claims from going into the umbrella layer and the reinsurance
recovery that would follow." Id. The summary warned that this result would be "disastrous"
for Utica. Id. It also noted that "[c]ombining the lack of aggregates with the defense control
in the hands of our former policyholder, with no reinsurance recovery possible and our very
existence is threatened." Id. The "Conclusion" of the summary provides: "Based upon all of
the factors (litigation risk, terms of the settlement, REDACTION REDACTION) it is
recommended that the settlement of this litigation be consummated . . . ." Id. The entry on
Utica's privilege log for this redaction notes that it is for a "communication related to legal
advice regarding reinsurance and in connection with anticipation of litigation." Id. Again,
courts will not make adverse inferences based on a party's assertion of the attorney-client
privilege.
Finally, FFIC relies on an email dated April 17, 2007, from Goulds' counsel to Utica
counsel which indicated that Utica was focused on ensuring that the court would include a
- 36 -

"good faith settlement" determination in its order to help Utica thwart later challenges from
reinsurers. Def.'s SMF Count I, ¶ 16. In the email, Konkel describes Utica's actions as
follows: "I tried to get an understanding of the proposed additional 'findings' that you wanted
to put in front of Judge Lichtman but my limited understanding is that you appear to be
insisting still on trying to get the 'good faith settlement' determination that we explained to you
several weeks ago would not be achievable . . . ." Id.
Utica disputes that the email indicates that Utica was "focused on ensuring that the
court would include a 'good faith settlement' determination in its order to help Utica thwart
potential challenges from reinsurers." Turi denied that Utica was "insisting" or "pushing" for
such a determination. Pl.'s Resp. SMF Count I, Ex. A, 123:5-15. Instead, he testified as
follows:
I don't know that I was insisting or pushing. I was told that you
can get good faith orders in California. This case seemed to be
ripe for one. I was not familiar with the process before hearing it
from counsel, and it made sense to me once I heard about it.
And I said, yeah, I wanted it at that point because it made sense
to do it.
Id. at 123:9-15. Utica argues that FFIC's Exhibit 17 does not reference reinsurance, much
less even suggest that Utica sought a good faith order to thwart challenges from reinsurers.
Instead, Turi testified that Utica sought a good faith order to assist in litigation involving
Goulds' other direct insurers. Id. at 127:2-14. Utica contends that this em ail has nothing to
do with the reasons why Utica included an aggregate limit provision in the Settlement
Agreement nor does it say anything about reinsurance. See Pl.'s Resp. SMF Count I, ¶ 16.
On the basis of all of the evidence in question, Utica's counsel advised during the
coverage litigation that "there is no viable dispute but that Utica's primary policies issued from

- 37 -

1955 to the early 1970s had aggregate limits." Pl.'s SMF FTF, ¶ 11. This advice, coupled
with the above evidence, rendered Utica confident that all of the primary policies (including
those from 1966 to 1972) had aggregate limits. It maintains that it had every reason to
ensure that the Settlement Agreement established this fact, and as Turi testified, leaving
anything on the table for Goulds to raise again later would not have been "prudent." Pl.'s
SMF FTF, ¶30. Although Utica's Board was presented with memoranda explaining the
reinsurance impact of the settlement terms, consideration of that impact alone does not
amount to gross negligence or recklessness.
According to Utica, the common flaw in all of FFIC's evidence is the assumption that it
somehow acted improperly in taking the steps any prudent insurer would have taken with
respect to the Goulds asbestos loss. Those steps were: (1) getting agreement from the
policyholder that the primary policies had aggregate limits, which was Utica's position from
the beginning; (2) getting agreement from the policyholder that the primary policies were
exhausted for the asbestos loss, such that any future payments for the loss must come from
the umbrella policies; and (3) seeking a "good faith" settlement determination from a court, in
order to protect against third-party challenges (i.e., coinsurers) to the settlement. In other
words, these were all reasonable steps, and the fact that the endpoint was Utica's payment
of the asbestos loss from umbrella policies does not excuse FFIC from its duty to follow the
settlement.
FFIC has presented insufficient evidence on its motion for summary judgment to
establish as a matter of law, that Utica lacked a reasonable basis for the settlement. Utica
has put forth facts from which a reasonable fact finder could conclude that the settlement
decision to insert the provision regarding the presence of aggregate limits was reasonable
- 38 -

because sufficient evidence supported its position. Defendant's motion for summary
judgment on the follow the settlement contention will be denied because disagreements over
what inferences may be drawn from the facts, even undisputed ones, preclude summary
judgment. Credibility determinations, the drawing of legitimate inferences from facts, and the
weighing of evidence are matters left to the jury. Non-movant Utica has put forth facts from
which a reasonable trier of fact could conclude that FFIC must follow the settlement.
Therefore, FFIC's motion for summary judgment on Count I of the Amended
Complaint regarding Utica's follow the settlement contention will be denied.
5. Motion in Limine to Preclude Expert Testimony of Dennis R. Connolly (ECF
No. 331) (332 sealed)
FFIC moves in limine to preclude the expert testimony of Utica witness Dennis R.
Connolly ("Connolly"). Connolly is expected to testify that it is irrelevant that the Umbrella
Declarations pages fail to state that there were aggregate limits for bodily injury. According
to Connolly, it is implicit in every policy covering products liability that there would be
aggregate limits for bodily injury and property damage arising from those products. FFIC
moves to exclude his testimony on the basis that his opinions regarding the inclusion of
aggregate limits are unreliable and speculative, he cannot provide any support for his
theories, his theory is contradicted by the evidence, and his theory is inadmissible as custom
and practice. Further, FFIC urges that his opinion impermissibly seeks to resolve a critical
issue in the case, his historical discourse is irrelevant and inadmissible, and his opinions
have been repeatedly challenged and rejected.
Utica opposes and contends Connolly, who has fifty years of experience in the
industry and has examined thousands of policies offering products liability coverage during

- 39 -

that time, has based his corroborated opinion on training and experience. Utica urges that
numerous secondary sources support Connolly's opinions and a court has already admitted
his same expert opinion in other litigation involving primary policies that Utica issued to
Goulds. Utica disputes that his opinions are inadmissible just because they embrace an
ultimate issue for the jury; instead, his opinions provide context to evaluate FFIC claims
about the meaning of documents in its files.
Federal Rule of Evidence 702 permits a witness "who is qualified as an expert by
knowledge, skill, experience, training, or education" to "testify in the form of an opinion or
otherwise" provided that: (a) the expert's scientific, technical, or other specialized knowledge
will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the
testimony is based on sufficient facts or data; (c) the testimony is the product of reliable
principles and methods; and (d) the expert has reliably applied those principles and methods
to the facts of the case. FED. R. EVID. 702.
"The law assigns district courts a 'gatekeeping' role in ensuring that expert testimony
satisfies the requirements of Rule 702." United States v. Farhane, 634 F.3d 127, 158 (2d
Cir. 2011), cert. denied, 132 S. Ct. 833 (2011). T his role as gatekeeper requires a court to
make three, related findings before permitting a person to testify as an expert: "(1) the
witness is qualified to be an expert; (2) the opinion is based upon reliable data and
methodology; and (3) the expert's testimony on a particular issue will 'assist the trier of fact."'
Valente v. Textron, Inc., 931 F. Supp. 2d 409, 415 (E.D.N.Y. 2013) (quoting Nimely v. City of
N.Y., 414 F.3d 381, 396-97 (2d Cir. 2005)). In Daubert v. Merrell Dow Pharmaceuticals.,
Inc., 509 U.S. 579 (1993), the Supreme Court set forth a non-exhaustive list of factors that
bear on the reliability aspect of this inquiry:
- 40 -

(1) whether a theory or technique has been or can be tested;
(2) whether the theory or technique has been subjected to peer
review and publication; (3) the technique's known or potential rate
of error and the existence and maintenance of standards
controlling the technique's operation; and (4) whether a particular
technique or theory has gained general acceptance in the relevant
scientific community.
United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007). "These factors do not
constitute, however, a definitive checklist or test. Rather, [t]he inquiry envisioned by Rule
702 is . . . a flexible one." Davis v. Carroll, 937 F. Supp. 2d 390, 412 (S.D.N.Y. 2013)
(citation omitted).13
The flexibility contemplated by Rule of Evidence 702 is particularly helpful when an
expert's testimony does not rest on traditional scientific methods. "In such cases, where a
proposed expert witness bases her testimony on practical experience rather than scientific
analysis, courts recognize that '[e]xperts of all kinds tie observations to conclusion through
the use of what Judge Learned Hand called 'general truths derived from . . . specialized
experience.'" Davis, 937 F. Supp. 2d at 412 (quoting Kumho Tire Co., Ltd. v. Carmichael,
526 U.S. 137, 149-50 (1999)). "Thus, the Daubert factors do not necessarily apply even in
every instance in which reliability of scientific testimony is challenged, and in many cases, the
reliability inquiry may instead focus upon personal knowledge and experience of the expert."
Id. (citation and internal quotation marks omitted).
Whether based on traditional science or specialized experience, Rule of Evidence 702
further mandates that an expert "stay within the reasonable confines of [their] subject area,
and [thus] cannot render expert opinion on an entirely different field or discipline." Lappe v.

13

Of course, "[e]xpert testimony must also be relevant under Rule 401 and must not be unfairly
prejudicial under Rule 403." Davis, 937 F. Supp. 2d at 412.
- 41 -

Am. Honda Motor Co., Inc., 857 F. Supp. 222, 227 (N.D.N.Y . 1994), aff'd sub nom., Lappe v.
Honda Motor Co. Ltd. of Japan, 101 F.3d 682 (2d Cir. 1996). In other words, "where an
expert is admitted under Rule 702 and then purports to of fer opinions beyond the scope of
their expertise, courts strike the extraneous testimony, as the admission of an expert does
not provide that individual with carte blanche to opine on every issue in the case." Davis, 937
F. Supp. 2d at 413.
As always, "[t]he proponent of the expert testimony bears the burden of 'establishing
by a preponderance of the evidence that the admissibility requirements of Rule 702 are
satisfied."' Valente, 931 F. Supp. 2d at 415 (quoting Williams, 506 F.3d at 160). Importantly,
however, "[t]he Second Circuit has held that under the Federal Rules of Evidence, there is a
general presumption of admissibility of evidence." Hilaire v. DeWalt Indus. Tool Co., 54 F.
Supp. 3d 223, 235 (E.D.N.Y. 2014) (citation and internal quotation marks omitted).
Accordingly, "the rejection of expert testimony is the exception rather than the rule." FED. R.
EVID. 702 advisory committee's note.
Ultimately, "a trial judge should exclude expert testimony if it is speculative or
conjectural or based on assumptions that are so unrealistic and contradictory as to suggest
bad faith' or to be in essence an apples and oranges comparison." Zerega Ave. Realty Corp.
v. Hornbeck Offshore Transp., LLC, 571 F.3d 206, 213-14 (2d Cir. 2009) (internal q uotation
marks omitted). However, "[t]o the extent that a party questions the weight of the evidence
upon which the other party's expert relied or the conclusions generated from the expert's
assessment of that evidence, it may present those challenges through cross-examination of
the expert." R.F.M.A.S., Inc. v. Mimi SO, 748 F. Supp. 2d 244, 252 (S.D.N.Y. 2010). Simply
put, "our adversary system provides the necessary tools for challenging reliable, albeit
- 42 -

debatable, expert testimony." Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 267
(2d Cir. 2002).
Keeping the court's gatekeeping role in mind, Utica has established that Connolly's
experience qualifies him to opine on insurance industry custom and practice respecting the
use of aggregate limits in products liability policies. His experience since 1965 includes
working as "captive counsel" for 11 years for two insurance companies litigating coverage
disputes and working for the American Insurance Association ("AIA"), the leading trade
association for casualty and property insurers, for another 11 years. While at the AIA he
worked on proposals for product liability reform and drafted a report providing underwriters
information about how to underwrite products liability coverage. He has also served as
Chairman of two task forces appointed by the National Association of Insurance
Commissioners to address issues related to the underwriting of liability insurance. For
another 11 years Connolly managed the Claims Department and the Casualty Department of
one of the largest insurance brokers in the world. In that capacity he managed underwriters
responsible for writing product liability policies and negotiated terms of that coverage. For
the next seven years he was a Managing Director of another large insurance broker, where
he advised clients regarding insurance policy language. Since 2004, he has worked as an
expert witness and consultant on mass tort and insurance issues, and has testified more
than 60 times on topics related to the insurance industry. These experiences, and others
listed in his expert report, no doubt qualify Connolly to offer his expert opinion. His personal
knowledge and experience of the subject matter permit him to tie observations to conclusions
through general truths derived from specialized experience.

- 43 -

Next, Connolly's opinion is based upon reliable data and m ethodology; his opinion is
based on his experience and corroborating third party sources. He has explained the
connection between his experience and his opinion, and corroborated the explanation with
outside sources. He testified that out of the thousands of primary policies that he has
reviewed, only two policies provided coverage without aggregate limits. That experience
provides a reliable basis for his opinion. He also bases his opinion on his experience with
the process of pricing insurance policies. Finally, numerous third party sources support his
statement that since the 1940s, aggregate limits were routinely included in the standard
commercial general liability form and his statement that the ratings manuals assumed the
inclusion of an aggregate limit, such that rating a products liability policy without an aggregate
limit was impossible.
Finally, Connolly's testimony on the custom and usage of aggregate limits will assist
the trier of fact. Connolly's opinion addresses whether the 1966-72 policies were issued
consistent with industry practice, and thus whether they contained aggregate limits for bodily
injury. This testimony will assist the fact finders resolve the ultimate issue, whether FFIC
breached the Certificates and is liable to Utica for $35 million.
Utica has met its burden to establish by a preponderance of the evidence that the
admissibility requirements of Federal Rule of Evidence 702 have been satisfied. Connolly's
testimony is not speculative nor conjectural nor based on unrealistic assumptions. Utica has
established he is qualified, his opinion is reliably based, and his testimony will assist the trier
of fact. All of FFIC's criticisms go to the weight of the evidence and it is free to present those
challenges through cross-examination and introduction of its own expert witness.

- 44 -

Accordingly, FFIC's motion in limine to preclude the expert testimony of Dennis R.
Connolly will be denied.
B. Plaintiff Utica's Motions
1. Motion for Partial Summary Judgment on the Follow the Fortunes Doctrine
(ECF No. 274) (287 sealed)
Utica moves for partial summary judgment on FFIC's defense that FFIC does not have
to follow the fortunes because Utica's settlement with Goulds was unreasonable and made in
bad faith. It would follow that, pursuant to the follow the fortunes doctrine, the Utica-Goulds
settlement is binding on and cannot be second guessed by FFIC. Utica contends it had
multiple claims related reasons for settling the Goulds claims on the basis that all of its
primary policies had aggregate limits. Utica also argues the settlement would have occurred
in the absence of reinsurance, because Utica was unaware of FFIC's reinsurance at the time
it settled.
FFIC opposes and argues the doctrine does not bind it to a fraudulent and objectively
unreasonable settlement. It argues the settlement was not reasonable because the
stipulations agreeing to the aggregate limits and exhaustion were unsupported and
dishonest. Specifically, it was not necessary for Utica to insert those stipulations in the
Settlement Agreement in order for Utica to cap liability at $325 million, contrary to what Utica
contends. Further, FFIC contends there is a factual dispute as to whether there was a threat
that Goulds would contest the presence of aggregate limits as Utica claims. Finally, FFIC
argues the Certificates show there were no aggregate limits in the primary policies, but if
extrinsic evidence is admitted, summary judgment must be denied because there is a factual
dispute as to the existence of those limits.

- 45 -

Keeping in mind the above legal standards regarding the follow the fortunes doctrine,
FFIC's factual allegations, liberally construed, raise the reasonable possibility that the UticaGoulds settlement was unreasonable and in bad faith, relieving FFIC from having to follow
the fortunes of its reinsured. First, Utica maintains that the main driver of the settlement was
the need to cap Utica's liability under the primary policies. Pl.'s Resp. SMF ¶ 7. The
presentation to Utica's Board of Directors before approval of the settlement emphasized this
point, noting that "[t]he limit would not exhaust if there was no aggregate" and thus "[e]ach of
the 80,000 plus asbestos claims would have a fresh limit of $500,000 for each claim." Id.
¶ 14. Using these numbers, the Goulds asbestos liability could have been a multi-billion
dollar affair. The presentation to the Board noted that ev en a single year without an
aggregate limit could lead to excessive liability under the "All sums" approach. Id. ¶ 7, 14.
This is because "California law allows the policyholder to select a year in which all claims are
handled." Id. ¶ 7. Because of this, Utica contends it was basic common sense for it to
confirm in the Settlement Agreement that all of its primary policies had aggregate limits which
were exhausted. Utica asserts that the insertion of the stipulations was also to protect
against claims (that Utica's primary policies lacked aggregate limits) by Goulds' other
insurers. Id.
FFIC contends the stipulations were not necessary to limit Utica's liability. Instead,
Utica could have accomplished the same result in other ways; it could have agreed upon
$325 million in coverage without including the stipulations about the 1966-1972 years for
which FFIC provided coverage and which had not been litigated by the parties. Nor were the
stipulations necessary for Utica to avoid financial ruin under the "all sums" rule. Moreover,
Goulds had no interest in how Utica allocated the settlement funds to its policies; the only
- 46 -

issue that mattered to Goulds was whether Utica could come up with the $325 million and
since Goulds knew that Utica depended on its reinsurance to do t hat, Goulds had an
incentive to agree to the stipulations.
According to Utica, in light of the extensive evidence—well before the settlement with
Goulds—that all of the primary policies had aggregate limits, it was more than reasonable to
conclude the policies had aggregate limits and to include those limits in the Settlement
Agreement. First, the 1960 to 1961 primary policy had a $300,000 aggregate products limit
applicable to bodily injury. Pl.'s SMF FTF, ¶ 31(a). According to FFIC this is irrelevant
because for one, it was issued six or more years before the policies at issue. Def.'s Resp. to
Pl.'s SMF FTF, ECF No. 311, ¶ 31(a) ("Def.'s Resp. SMF FTF").
Next, a set of documents from the 1971 primary policy, as marked up to show
revisions for the 1972 primary policy, lists a $300,000 aggregate limit for bodily injury. Pl.'s
SMF FTF ¶ 31(b). FFIC points out that the pages reflecting an aggregate limit are not dated,
and therefore, it is not clear where, if anywhere, these pages fall within the years that are
actually at issue. Def.'s Resp. to Pl.'s SMF FTF ¶ 31(b). Further, two declarations pages of
the 1972 primary policy, as marked up to show revisions for the 1973 primary policy, lists
$300,000 aggregate limits for bodily injury. Pl.'s SMF FTF ¶ 31(c). FFIC points out that one
of the pages does not include a property damage aggregate, thus the terms on the two
pages are in conflict. Def.'s Resp. to Pl.'s SMF FTF ¶ 31(c). FFIC disputes that any of the
aforementioned evidence supports the imposition of a $300,000 aggregate limit for bodily
injury in each of the 1966-1972 primary policies.
Utica also submits two declarations pages for the 1973 primary policy which include a
$300,000 aggregate limit for bodily injury. Pl.'s SMF FTF ¶ 31(d). Again, FFIC argues these
- 47 -

pages are irrelevant to whether the 1966 to 1972 policies have aggregate limits. Def.'s Resp.
to Pl.'s SMF FTF ¶ 31(c). Next, the CGL form that Utica used to issue the 1966 to 1972
policies includes a term stating that "the total liability of the company for all damages
because of 1) all bodily injury included within the completed operations hazard and 2) all
bodily injury included within the products hazard shall not exceed the limit of bodily injury
liability stated in the schedule as ‘aggregate.'" Pl.'s SMF FTF ¶ 31(e). According to Utica,
the use of this form suggests that it always contemplated having aggregate limits for products
liability. Id. According to FFIC, this language simply instructs that any limit, as stated, will be
enforced. Def.'s Resp. SMF FTF ¶ 31(e). Further, Utica has not and cannot subm it proof
that this form was used because the primary policies in question have never been found. Id.
Utica next points to a November 15, 1967, certification by the Secretary of Goulds
Pumps, Inc. that Goulds Pumps' Comprehensive Liability Coverage had an aggregate
products limit. Pl.'s SMF FTF ¶ 31(f). FFIC disputes that this evidence supports the
imposition of a $300,000 aggregate limit for bodily injury in each of the 1966 to 1972 primary
policies. Def.'s Resp. SMF FTF ¶ 31(f). In fact, other Certificates evidence a property
damage aggregate, but not a bodily injury aggregate. FFIC submits that since the
Certificates are in conflict, they are not a reliable indication of coverage limits. Id.
Further, Utica relies on the following Certificates of Insurance identifying Goulds
Pumps, Inc., Vertical Pump Division as the named insured: three for the 1970 policy period
including a $300,000 aggregate products limit for bodily injury; one for the 1970 policy period
marked up for the 1971 policy period including a $300,000 aggregate products limit for bodily
injury; one for the 1971 policy period marked up for the 1972 policy period including a
$300,000 aggregate products limit for bodily injury; six for the 1972 primary policy showing
- 48 -

that the policy had a $300,000 aggregate products limit for bodily injury; and another for the
1972 primary policy showing that the policy had a $300,000 aggregate limit for bodily injury.
See Pl.'s SMF FTF ¶¶ 31(g)-(k). Again, FFIC disputes the relevancy of these Certificates;
other Certificates evidence a property damage aggregate, but not a bodily injury aggregate.
Again, as the evidence presented by the Certificates is in conflict, they are not a reliable
indication of coverage limits. Def.'s Resp. SMF FTF ¶ 31(g)-(k).
Next, two documents from Goulds' file titled Insurance Program Goulds Pumps,
Incorporated and dated November 21, 1966 and November 15, 1971 list limits for
Comprehensive Liability and include a $300,000 aggregate products limit for bodily injury.
Pl.'s SMF FTF ¶¶ 31(l), (m). FFIC explains that the face of these documents do not reflect
who drafted them or what source documents were used to do so. Def.'s Resp. SMF FTF
¶¶ 31(l),(m).
Plaintiff points to Goulds Pumps' application for the umbrella policy with a policy
period from July 1, 1969 to July 1, 1970, which includes a schedule of underlying insurance
that identifies the underlying public liability primary policy as including products-completed
operations coverage and lists the bodily injury limits for that policy as 100/300/300. Pl.'s SMF
FTF ¶ 31(n). Defendant contends that the Schedule in the application is in direct conf lict with
the Schedule of Underlying Insurance in the Umbrella Liability Policy No. 1930 GLU, which
shows that for the 1969 Primary Policy No. 8256LC for Public Liability, there are bodily injury
limits of $100,000 each person and $300,000 each occurrence, but no aggregate limit.
Def.'s Resp. SMF FTF ¶ 31(n).
Further, testimony from multiple Utica employees to attempt to show that its custom
and practice was to "always require aggregate limits for products hazard coverage" in every
- 49 -

policy that Utica issued. Pl.'s SMF FTF ¶ 31(o). Defendant disputes the implication of that
testimony. Instead, the testimony is contradicted by several documents including a letter
from Goulds' counsel identifying and attaching Utica policies without aggregate limits, and
according to FFIC, the Utica's California coverage counsel's admonition that he didn't believe
it was possible to make the blanket characterization that all the primary policies are subject to
aggregate limits. Def.'s Resp. SMF ¶ 31(o).
Barry Bradshaw ("Bradshaw"), Goulds' in-house counsel responsible for its insurance
program in the 1970s, testified that he understood that all of Utica's primary policies he was
involved with had limits. Pl.'s SMF FTF ¶ 33. FFIC contends Bradshaw lacks the personal
knowledge to make a reliable assertion about the aggregate limits for bodily injury in the
1966 to 1972 primary policies because he admitted he was not involved before 1970 and
thus did not participate in negotiating the terms of the 1966 to 1970 primary or umbrella
policies. He was also completely unaware that Goulds had previously argued there were no
aggregate limits in the 1978 to 1982 primary policies before settling with Utica. Def.'s Resp.
SMF FTF ¶ 33.
Utica has presented insufficient evidence on its motion for summary judgment to
establish as a matter of law, that it had a reasonable basis for the settlement. Plaintiff's
motion for summary judgment on the follow the fortunes doctrine will be denied because,
similar to FFIC's motion on this issue, disagreements over what inferences may be drawn
from the facts, even undisputed ones, preclude summary judgment. Credibility
determinations, the drawing of legitimate inferences from facts, and the weighing of evidence
are matters left to the jury. Non-movant FFIC has put forth facts from which a reasonable

- 50 -

trier of fact could conclude that Utica is not entitled to the protections of the follow the
fortunes doctrine.
FFIC has submitted ample evidence, when viewed in a light most favorable to it, of
Utica's extreme efforts to ensure an allocation of the settlement to its umbrella policy
reinsurers, proving it was impermissible and in bad faith. Drawing all inferences in its favor, a
rational trier of fact could conclude that Utica included the stipulations in the Settlem ent
Agreement regarding aggregate limits and exhaustion and payment by the umbrella policies
solely to ensure access to its reinsurance because in the absence of reinsurance Utica would
have had no incentive to make these stipulations. Under this version of the facts, Utica's
allocation was improper and in bad faith and would not have resulted from arm's length
negotiations if reinsurance did not exist, and FFIC would therefore not be required to follow
the terms of the Settlement Agreement.
Accordingly, Utica's motion for partial summary judgment on the follow the fortunes
doctrine will be denied.
2. Motion for Partial Summary Judgment That FFIC Is Not Entitled To
Rescission (ECF No. 283) (289 sealed)
Utica moves for partial summary judgment dismissing FFIC's counterclaims seeking
rescission. The counterclaims seek rescission of the Certificates issued to Utica on the basis
of its misrepresentation of the terms of the underlying insurance—FFIC claims that if the
policies did in fact have $300,000 aggregate limits for bodily injury as Utica now claims, Utica
made misrepresentations to, or concealed facts from FFIC, concerning the absence of
aggregate limits at the time the certificates were executed. Due to the passage of time,
neither party has complete underwriting files respecting the underwriting and issuance of the

- 51 -

Certificates in the 1966-72 period, nor were any witnesses deposed who had firsthand
involvement in the specific reinsurance transaction.
Utica contends FFIC cannot support its burden of proof on its counterclaims because
it cannot rely on the testimony of witness Garrett Redmond, the 85 year old chief underwriter
for the FFIC department that wrote this reinsurance, because, among other reasons, he was
not the actual underwriter. Utica also contends aggregate limits in the underlying policies
were a standard term in liability policies in the 1960s and 1970s and Utica had no oblig ation
to disclose this term to FFIC. Further, Utica takes issue that on one hand, FFIC arg ues there
were no aggregate limits and the stipulation to those limits between Utica and Goulds in the
Settlement Agreement was fraudulent, yet its rescission claim is based on the premise that
the policies did contain those aggregate limits but they were not disclosed. Finally, Utica
argues the rescission claims are time-barred and waived.
FFIC opposes and argues that whether or not Utica failed to tell FFIC about the
aggregate limits at the time of underwriting, whether the limits were material to FFIC
underwriters in evaluating Utica's risk, and whether FFIC would have charged the same
premium are all factual disputes and the counterclaims cannot be resolved on summary
judgment. FFIC attempts to demonstrate with evidence that Utica failed to disclose the limits
when it was obligated to, and contends Redmond's credibility and personal knowledge of
FFIC's underwriting of Utica reinsurance from 1966-73 are issues for a jury. Further, it
argues aggregate limits are not implicit nor standard in the industry and Utica had a duty to
disclose this information. If Utica had disclosed, FFIC would not have reinsured it. Finally,
FFIC disputes that the rescission claims are time-barred or waived.

- 52 -

The duty of utmost good faith between a reinsurer and a reinsured requires "the
reinsured to disclose to the reinsurer all facts that materially affect the risk of which it is
aware and of which the reinsurer itself has no reason to be aware." Christiania, 979 F.2d at
278 (citing Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 510 (1883); Sum itomo Marine
& Fire Ins. Co.-U.S. Branch v. Cologne Reinsurance Co. of Am., 75 N.Y.2d 295, 303 (1990)).
An insured may violate this relationship if it so imprecisely discloses or fails to disclose
certain facts such that the reinsurer was not adequately apprised of the risk. Christiania, 979
F.2d at 278. Accordingly, rescission of the contract may be warranted. "A fact is material so
as to void ab initio an insurance contract if, had it been revealed, the insurer or reinsurer
would either not have issued the policy or would have only at a higher premium." Id. The
question of materiality is generally a question of fact. Id. Materiality turns on "whether a
reasonable insured should have believed the fact was something the insurer would consider
material." Id. at 278-79. Whether the fact(s) were material must be assessed as of the time
the contract was entered into. Id. at 279. The issues here are: (1) whether Utica failed to
tell FFIC that the underlying primary policies contained $300,000 aggregate limits for bodily
injury; (2) whether the limits were material to FFIC underwriters in evaluating the risk; and (3)
whether FFIC would have charged a different premium for the reinsurance, or issued the
reinsurance at all, had the aggregate limits been disclosed.
First, FFIC is permitted to make alternative pleadings and inconsistent claims and
defenses pursuant to Rule 8(d). Therefore, FFIC is permitted to plead in the alternative, so it
can seek both rescission on the basis that there were undisclosed limits, and it can argue the
policies did not have limits and thus the umbrella policy should never have been reached.

- 53 -

As to whether Utica failed to tell FFIC about the aggregate limits, FFIC submits
testimony from the chief of the underwriting department at the time, Garrett Redmond. While
Utica attacks Redmond's lack of personal involvement in the instant underwriting, such
criticisms are properly reserved for cross-examination and are issues for the fact finder and
not for summary judgment. That the actual FFIC individuals who underwrote the Certificates
for Utica from 1966-72 are unavailable to testify does not automatically render FFIC's
rescission claim a failure.
FFIC also submits descriptions of the underlying policy limits and documents provided
by a Utica risk manager, the handwritten notes and correspondence of Utica's reinsurance
broker, the notes and correspondence of FFIC's underwriters, and the umbrella policy
schedules (the Umbrella Declarations pages) which fail to indicate aggregate limits for bodily
injury in the space where, had they existed, would have been recorded. For example, there
are records of telephone communications between Utica and Herbert Clough, Inc., who
served as the broker-intermediary for placing Utica's reinsurance with both Gen Re and
FFIC. FFIC contends these documents show that Utica communicated with FFIC through
Herbert Clough, Inc. the limits of the primary policies. That these records show
communications regarding aggregate limits for property damage, but make no mention of
aggregates for bodily injury, certainly suggests that aggregate limits for bodily injury were not
disclosed to FFIC. Additional evidence proffered by FFIC implies the same conclusion.
Whether these documents are strong enough circumstantial evidence to infer Utica's failure
to disclose those limits are determinations for the fact finder.
As to whether the presence of aggregate limits for bodily injury were material, it is
undisputed that if there was a $300,000 aggregate limit for bodily injury in each of the primary
- 54 -

policies, the chances of the umbrella policies being reached and resulting in paying claims
was higher than if there were no such limits. Without aggregation, the only claims to reach
the umbrella policies would be those that exceed the $100,000 per person limit or the
$300,000 per accident/occurrence limit. The chances of individual claims exceeding the per
person or per accident/occurrence limit in the 1966-72 policy years would be significantly less
than the chances of claims from multiple individuals or multiple accidents/occurrences
exhausting the primary policy limits and piercing the umbrella layer were the claims
aggregated. Redmond testified that whether or not there were aggregate limits in the primary
policies was "sure as hell" a critical piece of information to underwriters considering the risk.
He explained that an aggregate means "you're closer to the danger zone," while no
aggregate means "you're further away from the risk." Thus, the presence of absence of
aggregates absolutely changes the risk and Redmond testified that had underwriters been
told here were $300,000 aggregates in the primary policies, it would have made a difference.
They could decided against reinsuring Utica, or they could have increased the premium to
compensate for the increased risk. FFIC also submits evidence of its underwriting practices,
guidelines, and company records to prove the materiality of aggregate limits.
FFIC disputes that Utica was not required to disclose the presence of aggregate limits
because they were standard in the industry and thus FFIC should have been aware that the
primary policies contained these limits, despite no mention of them in the Umbrella
Declarations pages where the limits of the primary policies were declared. It is undisputed
that an insurer has no duty to disclose to its reinsurers "standard" terms generally found in
underlying policies, in contrast to "unusual" terms. See Sumitomo Marine & Fire Ins. Co., 75
N.Y.2d at 303.
- 55 -

Utica has not carried its burden on summary judgment to show the absence of
disputed material facts and its entitlement to judgment as a matter of law. All of the issues
which compromise a rescission claim are factual and in dispute. The evidence, viewed in the
light most favorable to FFIC, could cause a reasonable fact finder to conclude that Utica
failed to tell FFIC that the underlying primary policies contained $300,000 aggregate limits for
bodily injury, that the limits were material to FFIC underwriters, and that FFIC would have
taken a different course of action with respect to accepting the risk and reinsuring Utica had
the limits been disclosed. It cannot be said on sum mary judgment that there is no set of
facts on which Utica's rescission counterclaim could prevail.
Finally, FFIC's rescission claim is not time-barred. Generally, under New York law,
actions seeking the equitable remedy of rescission of a contract are usually governed by the
six-year statute of limitations of New York Civil Practice Law and Rules section 213. The
statutory period for claims seeking rescission of a contract begins to run when the cause of
action accrues. N.Y. C.P.L.R. § 203(a). A cause of action does not accrue until its
enforcement becomes possible; enforcement becomes possible when a claimant is able to
state the elements of that cause of action and thus assert a right to relief. See Roldan v.
Allstate Ins. Co., 544 N.Y.S.2d 359, 362-63 (N.Y. App. Div. 2d Dep't 1989). Therefore the
limitations period did not start to run until Septem ber 2008, when Utica first demanded
payment from FFIC under the Certificates because that is when FFIC could first assert a
valid right to relief from a claim against it by Utica under the Certificates. That was also the
first time FFIC could conduct a claims investigation to determine if Utica misrepresented or
failed to disclose the aggregate limits. Accordingly, FFIC's counterclaims for rescission,
pleaded on November 2, 2009, are timely.
- 56 -

Nor has FFIC waived its ability to assert a rescission claim. Utica contends FFIC
waived the rescission claim by affirmatively relying on the Certificates after it knew of Utica's
position on aggregate limits. To the contrary, FFIC did not have the facts on which its
rescission claim is based until it conducted its investigation, after Utica submitted its first
claim in September 2008.
Accordingly, Utica's motion for partial summary judgment dismissing FFIC's
counterclaims for rescission will be denied.
3. Motion for Partial Summary Judgment That Notice Was Not Due Before
February 1999 (ECF No. 280) (288 sealed)
Utica moves for partial summary judgment on FFIC's late notice defense. FFIC claims
Utica should have notified it of the Goulds asbestos claims in 1996, when it notified Gen
Re,14 and that Utica's late notice caused it to lose approximately $15.3 million in connection
with a February 1999 commutation between FFIC and Lloyd's of London/Equitas. Utica
maintains it did not know of FFIC's reinsurance until 2008; FFIC contends that had Utica kept
better files and had applicable written notice procedures, FFIC would have received notice in
1996. Utica now seeks a declaration that it did not owe notice to FFIC before February 1999.
Utica's motivation in pursuing such a ruling would be to presumably reduce the amount of
economic prejudice that FFIC could claim as a result of Utica's alleged breach of the notice
provisions of the Certificates.
Utica argues there was no reasonable possibility that the FFIC reinsurance would
have been involved before February 1999. Utica issued 32 years of coverage to Goulds,
totaling $12 million in primary policies; the $10 million umbrella coverage would kick in after

14

Gen Re was the only reinsurer of Utica other than FFIC in 1966-72.
- 57 -

the $12 million in primaries was exhausted. The first $5 million15 of the umbrella then had to
be exhausted before FFIC's $5 million in reinsurance would be reached. In 1996, the dollar
amounts of payments Utica had made to Goulds for Goulds to pay its asbestos claim
settlements were nowhere near FFIC's reinsurance layer, as spread across years of policies.
Therefore there was no reasonable possibility that the FFIC reinsurance would be reached at
that time. Utica maintains that Gen Re only learned about the claims earlier, in the 1990s,
through its routine review of Utica's asbestos and environmental files. Moreover, Utica
contends its reserves for future Goulds indemnity payments and the timing of when it notified
other reinsurers (at the same reinsurance layer as FFIC) further support that there was no
reasonable possibility that the FFIC coverage would be reached at that time. According to
Utica, based on its practices at the time, it would have notified FFIC in 2001 when it notified
other reinsurers had it known about FFIC's reinsurance. 16 However, Utica maintains that
notice would not actually have been required until 2003, as it was only then that there was a
reasonable possibility that FFIC's reinsurance would be involved.
FFIC opposes and contends the lateness of Utica's notice is a question of fact for the
jury—which Utica acknowledges but maintains courts have found notice to be timely as a
matter of law where the reinsurer fails to meet its evidentiary burden. FFIC argues that
contrary to Utica's contentions, timely notice is not determined by when Utica paid Goulds,
Utica's reserves, or when Utica notified other reinsurers who reinsured post-1972 policies
(which are irrelevant). Instead, because Utica told Gen Re about the claim s in 1996, this
15
Out of the first $5 million in umbrella coverage, Gen Re reinsured all but 5% of the first million; it
insured 100% of the next $4 million.
16

FFIC disputes that other reinsurers first learned about the claims in 2001, as letters to reinsurers
stated "as previously notified."
- 58 -

means Utica recognized then that the asbestos claims could penetrate the 1966-72 umbrella
policies for which Gen Re was almost 100 percent responsible for the first $5 million. It
would follow that a prudent insured (Utica) would have an obligation to notify the layer
immediately above the umbrella policies (FFIC) that it was reasonably possible that such
reinsurance might be reached. In other words, if it was reasonable to notify Gen Re in 1996
that those umbrella policies had potential exposure for the Goulds claims, notice to FFIC as a
reinsurer of those same umbrella policies would not be far behind. At least two Utica
representatives involved in reinsurance reporting testified that Utica's practice would have
been to notify FFIC and Gen Re at the same time. One Utica attorney testified that it was
Utica's policy to provide notice to all reinsurers of the same insurance policies at the same
time, as long as the reinsurers had the same trigger for reporting. As both Gen Re and FFIC
were represented by Herbert Clough, Inc., it is likely that the reinsurance certificates all
contained the same trigger language. Utica executive Martin testified that had she known
about FFIC in 1996 and that FFIC and Gen Re were placed by the same broker, she would
have provided notice to FFIC in 1996. FFIC also disputes Utica's assessm ent of its exposure
for the Goulds asbestos claims and its resulting determination of whether its reinsurance
would be implicated.
Under New York law, "an insurer has the right to demand that it be notified of any loss
or accident that is covered under the terms of the insurance policy." Am. Transit Ins. Co. v.
Sartor, 3 N.Y.3d 71, 75 (2004). A notice requirement affords an insurer the opportunity to
protect itself by investigating claims shortly after the occurrences that caused them, to set
proper reserves to cover anticipated losses, to decide whether it wishes to associate in the
defense of a claim, and to establish premiums that accurately reflect past loss. Travelers
- 59 -

Indem. Co. v. Northrop Grumman Corp., No. 15-3117-CV, 2017 W L 391926, at *2, __ F.
App'x ___ (2d Cir. Jan. 27, 2017) (summary order) (citing Christiania Gen. Ins. v. Great Am.
Ins., 979 F.2d 268, 274 (2d Cir. 1992)) ("Christiania")).
The instant Certificates require prompt notice of any accident of occurrence "which
appears likely to involve this reinsurance." See Certificates. Such clauses are generally
construed to require notice within a reasonable time after the duty to give notice has arisen.
Christiania, 979 F.2d at 275. Determining when that duty arises requires an objective
evaluation of the facts known to the insured. Id. The objective standard contemplates when
there is a reasonable possibility of involvement of the subject reinsurance contract. Id.
"[M]ere speculation, rumor or remote contingencies" are not sufficient to trigger the notice
obligation, however, "when an insured complying with its duty to use due diligence in
investigating potential claims against it would believe from the information available that its
policy would be involved, the notice obligation arises." Id. at 275-76. The Second Circuit
explained in Christiania:
A provision requiring notice when it "appears likely" that a claim
will or "may" involve a policy does not require a probability—much
less a certainty—that the policy at issue will be involved. All that
is required is a "reasonable possibility" of such happening, based
on an objective assessment of the information available. Such a
possibility may exist even though there are some factors that tend
to suggest the opposite. . . . A "theoretical possibility" that a policy
will not be involved is not an objectively reasonable basis upon
which to conclude a claim does not "appear likely" to involve the
policy.
Id. at 275 (emphasis added).
The evidence, viewed in the light most favorable to FFIC, demonstrates a reasonable
insured in Utica's position could have believed it "appeared likely" the claims that it was being

- 60 -

told about from Goulds would involve FFIC's reinsurance. This is not to say that Utica was
required to give notice to FFIC before February 1999, but merely that it cannot carry its
burden on summary judgement to show that the undisputed facts could only render a fact
finder to conclude that notice was not due until after February 1999. In sum, when the
obligation to provide notice arose in this case cannot be determ ined on the face of the
Certificates without resort to extrinsic evidence, and the record, viewed in the light most
favorable to FFIC, would permit a rational jury to find a reasonably diligent insurance
company in Utica's position would have thought itself required under the Certificates and
industry practice to provide notice prior to February 1999. When notice is due is a uniquely
factual issue and while Utica's motivations for making the instant motion can be appreciated,
the determination is simply not one that can be made at this time, on these disputed facts. It
is one more appropriately left for the fact finders to weigh the evidence and make credibility
determinations.
Accordingly, Utica's motion for partial summary judgment that notice was not due
before February 1999 will be denied.
IV. CONCLUSION
This case is trial ready. Only Count I and defendant's counterclaims will move
forward. Counts I and II are predicated on dif ferent wrongful conduct and seek different
relief, and thus they may stand as separate causes of action. However, Count III is
unnecessary as a stand alone cause of action as the declaratory relief sought can be
awarded in accordance with Count I. The missing subject primary policies and the
incomplete umbrella policies, coupled with the proposed expert and fact witnesses,
voluminous exhibits, depositions, affidavits, and depositions, raise the reasonable possibility
- 61 -

that the primary policies did not have aggregate limits for bodily injury, in turn voiding FFIC's
obligation to provide reinsurance coverage for the years 1966-72. However, FFIC has shown
through the undisputed material facts that Utica's bad faith damages claim cannot be
sustained and Count II will be dismissed. As to whether FFIC is constrained by Utica's
settlement with Goulds by the follow the settlement, or follow the fortune doctrine, remains to
be seen. Whether Utica's settlement with Goulds was in good faith and reasonable, or
unreasonable and improperly designed to access coverage under the Certificates, turn on
factual determinations to be made at trial. The triers of fact may find answers to the above
factual disputes through the testimony of proposed witnesses, including Utica witness Dennis
R. Connolly, whose expert testimony will not be precluded at this time. The aforementioned
evidence may also prove helpful to the fact finders in deciding whether FFIC may rescind the
Certificates. Finally, when notice from Utica to FFIC was due under the Certificates is a
uniquely fact centered determination which is inappropriate for summary judgment.
Therefore, it is
ORDERED that
1. Fireman's Fund Insurance Company's motion for judgment on the pleadings
dismissing Counts II and III , ECF No. 276, is GRANTED in part and DENIED in part, and
Count III is DISMISSED;
2. Fireman's Fund Insurance Company's motion for partial summary judgment on
Count I, ECF No. 279, is DENIED;

- 62 -

3. Fireman's Fund Insurance Company's motion for partial summary judgment
dismissing Count II, ECF No. 275/286 sealed, is GRANTED and Count II is DISMISSED;
4. Fireman's Fund Insurance Company's motion for summary judgment on Count I,
ECF No. 277/285 sealed, is DENIED;
5. Fireman's Fund Insurance Company's motion in limine to preclude the expert
testimony of Dennis R. Connolly, ECF No. 331, is DENIED;
6. Utica Mutual Insurance Company's motion for partial summary judgment on the
follow the fortunes doctrine, ECF No. 274/287 sealed, is DENIED;
7. Utica Mutual Insurance Company's motion for partial summary judgment that
FFIC is not entitled to rescission, ECF No. 283/289 sealed, is DENIED; and
8. Utica Mutual Insurance Company's motion for partial summary judgment that
notice was not due before February 1999, ECF No. 280/288 sealed, is DENIED.
IT IS SO ORDERED.

Dated: February 24, 2017
Utica, New York.

- 63 -