Utica Mutual Insurance Company v. Clearwater Insurance Company
REDACTED MEMORANDUM-DECISION and ORDER - That Utica's #64 Motion for Summary Judgment is GRANTED. That Clearwater's #65 Motion for Partial Summary Judgment is DENIED. That Clearwater's counterclaim (Dkt. No. 17 paragraphs 66-70) is DISMISSED. That the Clerk enter judgment in favor of Utica on its billings to Clearwater under the Clearwater Certificates and TPFC Memoranda. That the parties shall confer and advise the court within fourteen (14) days about outstanding issues regarding damages. That the Clerk issue this Memorandum-Decision and Order under seal and publicly file a redacted version of the same on the docket. Signed by Senior Judge Gary L. Sharpe on 1/20/2016. (jel, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
UTICA MUTUAL INSURANCE
FOR THE PLAINTIFF:
Cooper, Erving Law Firm
39 North Pearl Street
Albany, NY 12207
Sidley, Austin Law Firm
One South Dearborn Street
Chicago, IL 60603
FOR THE DEFENDANT:
Chadbourne, Parke Law Firm
1200 New Hampshire Avenue, NW
Washington, DC 20036
1301 Avenue of the Americas
New York, NY 10019
Gary L. Sharpe
Senior District Judge
PHILIP G. STECK, ESQ.
WILLIAM M. SNEED, ESQ.
DANIEL R. THIES, ESQ.
THOMAS D. CUNNINGHAM,
DAVID M. RAIM, ESQ.
JOHN F. FINNEGAN, ESQ.
MEMORANDUM-DECISION AND ORDER
Plaintiff Utica Mutual Insurance Company commenced this diversity
action against defendant Clearwater Insurance Company, alleging breach
of contract claims and seeking declaratory relief and damages. (See
generally Compl., Dkt. No. 1.) Clearwater counterclaims for breach of
contract and seeks damages to recoup the payments already provided to
Utica. (Dkt. No. 17 ¶¶ 66-70.) Pending are Utica’s motion for summary
judgment and Clearwater’s cross-motion for partial summary judgment.
(Dkt. Nos. 64, 65.) For the reasons that follow, Utica’s motion is granted
and Clearwater’s cross-motion is denied.
Goulds Pumps, Inc. manufactures, distributes, and sells pump
products. (Dkt. No. 80, Attach. 58 at 3.) Utica, the insurer, issued primary
and umbrella general insurance policies to Goulds, the policyholder, for the
relevant years of 1978 to 1981. (Pl.’s Statement of Material Facts (SMF)
Unless otherwise noted, the facts are not in dispute.
¶¶ 1-2, Dkt. No. 64, Attach. 3, Dkt. No. 92, Attach. 1.) Clearwater, the
reinsurer, agreed to issue reinsurance certificates for all four of Utica’s
umbrella policies.2 (Id. ¶ 3.) Specifically, Clearwater directly reinsured the
umbrella policies issued for the calendar years of 1978 and 1979
(hereinafter “Clearwater Certificates”).3 (Id.) Clearwater also reinsured a
portion of Utica’s umbrella policies issued for the calendar years of 1979,
1980, and 1981 (hereinafter “TPFC Memoranda”) as a member of a pool of
reinsurers managed by Towers, Perrin, Forester & Crosby, Inc. (TPFC).
(Id.; Def.’s SMF ¶ 3, Dkt. No. 84, Attach. 2.)
Both the Clearwater Certificates and the TPFC Memoranda included
liability clauses. (Pl.’s SMF ¶¶ 18-19, 48-49.) The Clearwater Certificates
provided that Clearwater’s liability “shall follow [Utica’s] liability in
accordance with the terms and conditions of the policy reinsured
hereunder.” (Id. ¶ 18; see Dkt. No. 64, Attach. 8 at 3 ¶ 1, Attach. 9
at 3 ¶ 1.) Under its claims clause, the Clearwater Certificates stated that
“[u]pon receipt by [Clearwater] o[f] satisfactory evidence of payment of a
The court provides a brief background on reinsurance in its November 20, 2014
Memorandum-Decision and Order. (Dkt. No. 54 at 2-3.)
Clearwater was previously known as Skandia America Reinsurance Corporation.
(See generally Dkt. No. 64, Attachs. 8-9.)
loss for which reinsurance is provided [Clearwater] shall promptly
reimburse [Utica] for its share of the loss and loss expense.” (Pl.’s SMF
¶ 48.) Loss expense is defined as “all expenses incurred in the
investigation, adjustment, settlement or litigation of claims, awards or
judgments.” (Id.) The TPFC Memoranda “Loss Clause” stated that “[a]ll
claims settlements when authorized by [TPFC] shall be binding on
[Clearwater] which shall be bound to pay [its] proportion of such
settlements” and Clearwater must also pay its “proportion of expenses
. . . incurred by [Utica] in the investigation and settlement of claims or
suits.” (Id. ¶¶ 19, 49; see Dkt. No. 64, Attach. 10 at 3.)
Beginning in 1997, over 140,000 claims had been filed against
Goulds alleging asbestos-related bodily injuries attributed to Goulds’ pump
products. (Dkt. No. 80, Attach. 58 at 3, Attach. 75 at 6.) In accordance
with its primary policy, Utica defended and indemnified Goulds on these
claims. (Dkt. No. 80, Attach. 33 at 3.) Two lawsuits subsequently arose
regarding Utica’s coverage obligations. (Pl.’s SMF ¶¶ 4-5.) In the first,
commenced in California state court, Goulds impleaded Utica as a
defendant in February 2003 alleging that Utica did not fulfill its coverage
obligations under its primary policies. (Id. ¶ 4.) In the second, Utica
commenced an action in October 2003 in New York state court against
Goulds seeking a declaration of its duties under the same primary policies.
(Id. ¶ 5.)
In both cases, the parties disputed whether New York or California
law applied, how Goulds’ asbestos claims should be allocated among the
insurance policies, and whether Utica’s primary policies had aggregate
policy limits. (Id. ¶ 6.) If New York law applied, the asbestos claims would
be handled pro rata, meaning that insurance liability on the asbestos
claims would be distributed among all the years of coverage triggered by
the claims. (Id. ¶ 6 n.1.) Utica advocated for the application of New York
law. (Id. ¶ 7.) If California law applied, the claims would be handled under
an all sums allocation, allowing the policyholder to choose a trigger year,
and the policies for that year would be liable for all the losses. (Id. ¶ 6 n.1.)
Goulds advocated for the application of California law, which would have
permitted it to attribute its losses to a policy year alleged not to have an
aggregate limit. (Dkt. No. 80, Attach. 75 at 2.) Under a reservation of
rights, Utica indemnified Goulds for more than its pro rata share, however,
Utica maintained that Goulds should reimburse it for these excess
payments. (Pl.’s SMF ¶¶ 7-10; Dkt. No. 80, Attach. 33 at 3-4.)
Regarding the aggregate limit issue, Goulds asserted that the
primary policies did not contain any limit. (Def.’s SMF ¶¶ 84-86.) Thus,
Utica would be responsible for a potentially unlimited number of claims
capped only by a per occurrence limit. (Pl.’s SMF ¶ 35.) Utica, on the
other hand, maintained that each of its primary policies from 1978 to 1982
had a $500,000 aggregate limit for bodily injury from products liability. (Id.
¶¶ 22-25.) Utica cited documentary and testimonial evidence to support its
position. (Id. ¶¶ 25-32.) Utica, however, feared that the California court
would agree with Goulds, and it could be liable for an unlimited amount,
possibly rendering the company bankrupt. (Id. ¶ 36; Def.’s SMF ¶ 83.)
Based on this uncertain liability, Utica determined that settlement was the
best course of action. (Pl.’s SMF ¶ 37.)
Utica and Goulds began settlement negotiations in 2004 and arrived
at a final settlement in February 2007. (Id. ¶¶ 11-12; see generally Dkt.
No. 64, Attach. 42.) Under the terms of the settlement, the parties agreed
SMF ¶ 13.)
(Id. ¶ 14(c).)
(Id. ¶ 14(a).)
(Id. ¶ 81.)
(Id. ¶ 14(a); Def.’s SMF ¶ 71.)
¶ 14(a).) Finally, the parties stipulated that
(Pl.’s SMF ¶ 14(b); Def.’s SMF ¶ 77.) According to Utica,
(Pl.’s SMF ¶ 14(b).) Although Clearwater
reinsured Utica’s umbrella policies,
(Id. ¶¶ 42, 44.)
Richard Creedon, Utica’s General Counsel at the time of settlement,
and Kristen Martin, Utica’s associate claims attorney at the time of
settlement, testified that Utica did not consider or attempt to maximize its
reinsurance recovery during the settlement negotiations. (Pl.’s SMF ¶¶ 3839; Def.’s SMF ¶¶ 60, 62.) According to Creedon,
During and after its settlement negotiations with Utica, Goulds
continued its California coverage litigation against an additional insurer.
(Pl.’s SMF ¶ 16.) In January 2014, as part of its decision regarding the
other insurer’s coverage obligation, the California state court held that
Utica’s primary policies each contained a $500,000 aggregate limit. (Id.;
Dkt. No. 64, Attach. 14 at 5-11.)
Pursuant to the settlement agreement,
(Pl.’s SMF ¶ 40; Def.’s
SMF ¶ 40.) Starting in 2012, Utica began to bill Clearwater for indemnity
and defense costs from its umbrella policies issued to Goulds. (Compl.
¶ 23; Dkt. No. 17 ¶ 23.) These billings were not modified by
but followed the original terms of the Clearwater
Certificates and the TPFC Memoranda. (Pl.’s SMF ¶¶ 42, 44.) Clearwater
paid Utica $993,159 in November 2012, but has made no other payments.
(Dkt. No. 17 ¶ 24.) According to Utica, as of April 2015, Clearwater owes it
$5.63 million, representing the amount in unpaid billings. (Pl.’s SMF ¶ 17.)
Utica commenced this diversity action on September 20, 2013. (See
generally Compl.) Utica alleged that Clearwater breached their
reinsurance agreements pursuant to the Clearwater Certificates and the
TPFC Memoranda and sought a declaratory judgment and damages. (Id.)
Clearwater answered and asserted a counterclaim for breach of the
reinsurance agreements and sought reimbursement of $993,159, the
amount Clearwater paid for Utica’s first billing. (Dkt. No. 17 ¶¶ 66-70.)
The case was referred to mandatory mediation, but did not settle. (Dkt.
Nos. 21, 30.)
Thereafter, Clearwater filed a motion for partial summary judgment
seeking a declaration that its liability under the Clearwater Certificates was
capped at $5 million and $2.5 million. (Dkt. No. 35.) This court granted
Clearwater’s motion and ordered that Clearwater’s liability, if any, under the
Clearwater Certificates could not exceed those amounts. (Dkt. No. 54.)
Utica then filed the now-pending motion for summary judgment seeking
judgment on its claims and Clearwater’s counterclaim. (Dkt. No. 64.)
Clearwater also filed a motion for partial summary judgment seeking a
declaration that Clearwater is not liable for any of the costs that Utica
incurred to defend Goulds’ asbestos claims. (Dkt. No. 65.) For the
reasons that follow, the court grants Utica’s motion and denies
III. Standard of Review
The standard of review pursuant to Fed. R. Civ. P. 56 is well
established and will not be repeated here. For a full discussion of the
standard, the court refers the parties to its decision in Wagner v. Swarts,
827 F. Supp. 2d 85, 92 (N.D.N.Y. 2011), aff’d sub nom. Wagner v.
Sprague, 489 F. App’x 500 (2d Cir. 2012).
Utica argues that Clearwater is bound by its settlement with Goulds
under the follow-the-fortunes or follow-the-settlement doctrine. (Dkt. No.
64, Attach. 2 at 8-11.) Clearwater contends that the doctrine does not
In its November 20, 2014 Memorandum-Decision and Order, this court held that New
York law governs this dispute. (Dkt. No. 54 at 6 n.3.)
apply because Utica settled unreasonably or in bad faith.5 (Dkt. No. 80,
Attach. 1 at 33-39.) Alternatively, if the doctrine applies, Clearwater argues
that Utica billed it for unrecoverable amounts, including defense costs, for
which it seeks summary judgment. (Id. at 41-43; Dkt. No. 65, Attach. 9 at
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. N. River Ins. Co. v. Ace Am. Reins.
Co. (Ace), 361 F.3d 134, 139-40 (2d Cir. 2004) (internal quotation marks
and citations omitted); see Travelers Cas. & Sur. Co. v. Gerling Glob.
Reins. Corp. of Am. (Travelers), 419 F.3d 181, 190 (2d Cir. 2005); N. River
Ins. Co. v. CIGNA Reins. Co. (CIGNA), 52 F.3d 1194, 1205-06 (3d Cir.
At the outset, Clearwater argues that the Clearwater Certificates and the TPFC
Memoranda do not contain follow-the-fortunes clauses. (Dkt. No. 84 at 28-30.) This position
is inconsistent with nearly identical reinsurance language found to incorporate follow-thefortunes obligations. See N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134, 137 (2d Cir.
2004). Clearwater also argues that it is not obligated to reinsure the settlement because Utica
never sought authorization under the TPFC Memoranda. (Dkt. No. 84 at 30.) TPFC, however,
could not authorize Utica’s settlement with Goulds because TPFC no longer managed this
pool of reinsurers. (Pl.’s SMF ¶¶ 20-21.) Thus, Utica is excused from performing this
condition. See generally Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 902 (1987).
1995). The 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. CIGNA, 52
F.3d at 1206 (internal quotation marks and citation omitted); see Ace, 361
F.3d at 140. Provided the cedent settles “in good faith, reasonabl[y], and
within the applicable policies,” the reinsurer is bound by the settlement and
cannot relitigate the underlying coverage disputes. Travelers, 419 F.3d at
190 (internal quotation marks and citation omitted).
Clearwater argues that Utica settled in bad faith because Utica
intentionally shifted liability from its primary policies, which did not have
reinsurance coverage, to its umbrella policies, which had such coverage.
(Dkt. No. 80, Attach.1 at 35.) In doing so, Clearwater contends that Utica
put its own interests as the cedent above Clearwater’s interests as the
reinsurer. (Id. at 36.)
Generally, “the duty of good faith requires the reinsured to align its
interests with those of the reinsurer.” CIGNA, 52 F.3d at 1216. These
interests, however, need not be “‘perfectly aligned to trigger a follow-thesettlements clause.’” Travelers, 419 F.3d at 193 (quoting Am. Emp’rs Ins.
Co. v. Swiss Reins. Am. Corp., 413 F.3d 129, 136 (1st Cir. 2005)). The
reinsurer bears the burden to prove the cedent’s bad faith and must
present an “‘extraordinary showing of a disingenuous or dishonest failure.’”
Id. at 191 (quoting CIGNA, 52 F.3d at 1216) (alteration omitted). Bad faith
requires that the cedent acted, at a minimum, with gross negligence or
recklessness. See Unigard Sec. Ins. Co., Inc. v. N. River Ins. Co., 4 F.3d
1049, 1069 (2d Cir. 1993).
Here, Clearwater has not produced any evidence that Utica’s
settlement allocation was made in bad faith. Much to the contrary, Utica’s
former General Counsel and claims attorney testified that Utica did not
calculate the impact of its reinsurance recovery into its settlement
agreement with Goulds. (Pl.’s SMF ¶¶ 38-39.) Although Utica’s board was
presented with memoranda explaining the reinsurance impact of the
settlement terms, Dkt. No. 80, Attachs. 62, 67, 75, 116, consideration of
that impact alone does not amount to gross negligence or recklessness.
Rather, a cedent has no obligation to strictly align its interests with the
reinsurer. See Travelers, 419 F.3d at 193; see also U.S. Fid. & Guar. Co.
v. Am. Reins. Co., 20 N.Y.3d 407, 420 (2013) (noting that the cedent has
no duty to put the reinsurer’s interest above its own). In fact, a cedent “is
surely not required to choose the [settlement] allocation that minimizes its
reinsurance recovery to avoid a finding of bad faith.” Travelers, 419 F.3d
at 193. Utica’s conduct certainly does not rise to the level of a
“disingenuous or dishonest failure,” and Clearwater’s attempt to raise a
question of fact does not approach the requisite “extraordinary showing.”
Id. at 191 (internal quotation marks and citation omitted). Accordingly, the
court must consider whether the settlement was reasonable.
Utica asserts that its settlement with Goulds was reasonable in two
respects. (Dkt. No. 64, Attach. 2 at 11-18.) First, Utica argues that it
reasonably negotiated that
(Id. at 11-16.) Second, Utica maintains that its payment to Goulds
under the umbrella policies was reasonable because the primary policies
had been exhausted. (Id. at 17.) In opposition, Clearwater reiterates its
argument that Utica unreasonably shifted all liability from the primary
policies to the umbrella policies to maximize reinsurance recovery. (Dkt.
No. 80, Attach. 1 at 33-35, 37-38.)
Deference to the follow-the-settlement doctrine also requires that the
cedent reasonably settle. See Travelers, 419 F.3d at 194. The New York
State Court of Appeals has held that “objective reasonableness should
ordinarily determine the validity of a [settlement] allocation.” U.S. Fid. &
Guar., 20 N.Y.3d at 420. The court 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.
Here, Utica’s settlement decision to
was reasonable because
sufficient evidence supported its position. Although some primary policies
lacked an explicit aggregate limit, Utica contended that this was a
“scrivener’s error” which left the policies ambiguous. (Pl.’s SMF ¶ 31; Dkt.
No. 80, Attach. 75 at 1.) Utica then cited extrinsic evidence to support that
the primary policies had aggregate limits of $500,000.6 (Pl.’s SMF ¶¶ 2530.) This evidence included testimony from: (1) Gould’s former General
Counsel who stated that a Utica broker informed him that the primary
Utica relied on New York and California law that would have considered extrinsic
evidence to interpret the contract in light of the scrivener’s error. (Dkt. No. 80, Attach. 57 at
policies had aggregate limits; (2) the Utica broker responsible for the
Goulds account who noted that the 1980 primary policy had an aggregate
limit; and (3) two Utica underwriters and an employee responsible for rating
the Goulds policies from 1978 to 1982 who explained that it was Utica’s
practice for all insurance policies to have aggregate limits. (Id. ¶¶ 26-30.)
Additionally, Utica cited documentary evidence that supported its position
including: (1) handwritten markups on the 1980 and 1981 primary policies
noting a $500,000 aggregate limit; (2) letters from Utica’s broker to Goulds
that the 1979 and 1980 primary policies contained aggregate limits of
$500,000; and (3) certificates of insurance that listed a $500,000
aggregate limit for the 1978, 1980, and 1981 primary policies. (Id. ¶ 25.)
Accordingly, Utica’s settlement decision to
was reasonable in light of the
ambiguous contract as well as the documentary and testimonial evidence.
Furthermore, Utica was reasonable to negotiate
because it reduced Utica’s overall liability.
If the New York or California court held that the primary policies did not
contain an aggregate limit, Utica would be responsible for an unlimited
number of claims capped only by the per occurrence limit. (Id. ¶ 35.)
Utica’s in-house counsel, Bernard Turi, testified that
(Id. ¶ 36.)
Additionally, Utica’s aggregate limit position was later confirmed by
the California court. (Pl.’s SMF ¶ 16.) Although reasonableness is judged
from the time a settlement is made, see Commercial Union Ins. Co. v.
Seven Provinces Ins. Co., Ltd., 9 F. Supp. 2d 49, 66 (D. Mass. 1998), the
California court’s determination bolsters Utica’s position that its settlement
decision was legitmate.
Finally, Clearwater misconstrues the settlement and contends that
Utica was unreasonable because it did not allocate any liability to its
primary policies. (Dkt. No. 80, Attach. 1 at 37.) This is contradicted by the
evidence as Utica paid Goulds up to the stipulated aggregate limit in each
primary policy. (Pl.’s SMF ¶ 40; Def.’s SMF ¶ 40.) After the primary
policies had been exhausted, Utica then paid Goulds under its umbrella
policies. (Dkt. No. 17 ¶ 23.) Clearwater has failed to raise any triable
issue of fact that Utica acted unreasonably in its settlement decision to
stipulate that the primary policies contained an aggregate limit. Thus, the
follow-the-settlement doctrine applies.
Coverage Within Reinsurance Policy Terms
Clearwater opposes certain billings by Utica as unrecoverable costs
under the Clearwater Certificates and the TPFC Memoranda. (Dkt. No. 80,
Attach. 1 at 41-43.) Specifically, Clearwater refutes the billings of orphan
share payments,7 declaratory judgment expenses, and defense costs. (Id.)
Utica maintains that the reinsurance certificates covered all of these
billings, and under the follow-the-settlements doctrine, Clearwater must
indemnify it. (Dkt. No. 64, Attach. 2 at 17-22.)
The reinsurer is liable to indemnify the cedent for losses covered by
the reinsurance policy. See Ace, 361 F.3d at 141. As such, “the reinsurer
retains the right to question whether the reinsured’s liability stems from an
unreinsured loss.” Travelers, 419 F.3d at 193-94 (internal quotation marks
and citation omitted). “A loss is unreinsured if it was not contemplated by
the original insurance policy or if it was expressly excluded by terms of the
certificate of reinsurance.” Id. at 194 (internal quotation marks and citation
omitted). The reinsurer must indemnify the cedent “where the cedent’s
good-faith payment is at least arguably within the scope of the insurance
Utica identifies these costs as payments made in excess of its pro rata share. (Dkt.
No. 64, Attach. 2 at 18-19.)
coverage that was reinsured.” Mentor Ins. Co. (U.K.) Ltd. v. Norges
Brannkasse, 996 F.2d 506, 517 (2d Cir. 1993); Christiania Gen Ins. Corp.
v. Great Am. Ins. Co., 979 F.2d 268, 280 (2d Cir. 1992) (noting that “a
reinsurer is required to indemnify for payments reasonably within the terms
of the original policy, even if technically not covered by it”).
All of the reinsurance certificates included liability clauses which set
the indemnification terms. Under the Clearwater Certificates, Clearwater
was obligated to “promptly reimburse [Utica] for its share of the loss and
loss expense.” (Pl.’s SMF ¶ 48.) “Loss expense” was defined as “all
expenses incurred in the investigation, adjustment, settlement or litigation
of claims, awards or judgments.” (Id.) The TPFC Memoranda stated that
Clearwater was liable for its “proportion of expenses . . . incurred by [Utica]
in the investigation and settlement of claims or suits.” (Id. ¶ 49.)
Orphan Share Amounts or Payments in Excess of Pro Rata
Clearwater argues that Utica cannot recover its orphan share
payments to Goulds. (Dkt. No. 80, Attach. 1 at 41-42.) Clearwater
contends that Utica
whether Utica billed it for unrecoverable amounts, namely, expenses
relating to Goulds’ recovery from its excess insurers. (Id. at 42.)
Clearwater relies on the affidavit of Turi, Utica’s in-house counsel, which
(Id.; Dkt. No. 80, Attach. 91.) Utica
counters and argues that all of the post-settlement declaratory judgment
expenses relate to ongoing coverage disputes about Utica’s obligations
under the policies it issued to Goulds.8 (Dkt. No. 92 at 17-18.)
Clearwater’s reliance on Turi’s affidavit is insufficient to create a
material question of fact. Although Turi acknowledged that
(Pl.’s SMF ¶ 74.) As
such, there is no outstanding billing for those expenses and a reasonable
jury could not find otherwise. (Id.); see Dister v. Continental Grp., Inc., 859
F.2d 1108, 1114 (2d Cir. 1988) (explaining that for a fact to defeat
Specifically, Utica states that the post-settlement declaratory judgment expenses
include fees to defend a crossclaim by another Goulds’ insurer in the California litigation, costs
for arbitration between Utica and Goulds to interpret the terms of the settlement agreement,
fees to defend a suit against Utica as Goulds’ insurer under the Louisiana Direct Action
statute, and fees for Utica’s consultation with its coverage counsel. (Dkt. No. 92, Attach. 2
summary judgment it must “allow a reasonable jury to return a verdict for
the nonmoving party”). Clearwater does not dispute the reimbursement
and does not specifically contest the billings of any other declaratory
judgment expense. More to the point, two of Clearwater’s own claims
handlers testified that they understood Utica’s declaratory judgment
expenses to be “loss expense[s]” under the 1978 and 1979 Certificates.
(Pl.’s SMF ¶¶ 50-51.) Therefore, Clearwater’s challenge to the billings of
declaratory judgment expenses must fail. See Shannon v. N.Y.C. Transit
Auth., 332 F.3d 95, 98 (2d Cir. 2003) (noting “[c]onclusory allegations,
conjecture, and speculation . . . are insufficient to create a genuine issue of
fact”) (internal quotation marks and citation omitted).
Clearwater seeks partial summary judgment declaring that it does not
need to reimburse Utica for defense costs because, under the umbrella
policies, Utica had no obligation to pay these costs incurred by Goulds.
(Dkt. No. 65, Attach. 9 at 10-21.) Specifically, Clearwater asserts that the
umbrella policies only fill coverage gaps, and because the primary policies
covered defense costs, there was no obligation under the umbrella policies
to pay for these costs. (Id. at 12-13.) Utica, on the other hand, maintains
that it is at least arguable that the umbrella policies required Utica to pay
defense costs, and, therefore, Clearwater must defer to its position. (Dkt.
No. 79 at 6-20.)
Utica’s umbrella policies issued to Goulds contained a provision
regarding defense costs. (Def.’s Supp. SMF ¶ 6, Dkt. No. 65, Attach. 10.)
The provision provided, in part, that Utica would defend any suit “not
covered by [Utica’s primary] policies.” (Id.; Dkt. No. 65, Attach. 6 at 5.)
Utica’s position was that its primary policies had been exhausted and,
therefore, Goulds no longer had defense cost coverage, which triggered
coverage from the umbrella policies. (Dkt. No. 79 at 9-10.) Clearwater, on
the other hand, makes much about the fact that Utica’s primary policies
covered defense costs and, thus, relieved Utica from any defense cost
obligation under its umbrella policies. (Dkt. No. 65, Attach. 9 at 12-13.)
Whether the exhaustion of Utica’s primary policies satisfies the
requirement that the policyholder be “not covered” for umbrella coverage
purposes is immaterial. The standard for payment by the reinsurer is only
whether the cedent’s payment to the policyholder “is at least arguably
within the scope of the insurance coverage.” Mentor Ins. Co. (U.K.), 996
F.2d at 517. Here, Utica cites caselaw from California, New York, and
other jurisdictions that support its interpretation of its umbrella policy
coverage obligations. (Dkt. No. 79 at 11-14.) Additionally, Utica presents
testimony from a Clearwater claims handler and underwriter that agree
once a policy had been exhausted it no longer covered a claim. (Id. at 1920; Pl.’s Supp. SMF ¶¶ 20-21, Dkt. No. 79, Attach. 1.) Finally, Utica cites
testimony from its own underwriters and in-house counsel explaining that
Utica had always interpreted its umbrella policies to provide defense
coverage. (Dkt. No. 79 at 18-19; Pl.’s Supp. SMF ¶¶ 3-5.)
Clearwater solely relies on the terms of the umbrella policies and fails
to present any other evidence that defense costs are “clearly beyond the
scope of the original policy.” Christiania Gen. Ins. Corp., 979 F.2d at 280.
Accordingly, Clearwater is not entitled to summary judgment on this billing.
Furthermore, because the follow-the-settlement doctrine applies and
Utica’s billings are within the scope of coverage, Utica is also entitled to
summary judgment on Clearwater’s breach of contract counterclaim. At
present, the amount of Utica’s money judgment is uncertain, and the issue
of damages remains outstanding to be later addressed by the court.
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that Utica’s motion for summary judgment (Dkt. No. 64) is
GRANTED; and it is further
ORDERED that Clearwater’s motion for partial summary judgment
(Dkt. No. 65) is DENIED; and it is further
ORDERED that Clearwater’s counterclaim (Dkt. No. 17 ¶¶ 66-70) is
DISMISSED; and it is further
ORDERED that the Clerk enter judgment in favor of Utica on its
billings to Clearwater under the Clearwater Certificates and TPFC
Memoranda; and it is further
ORDERED that the parties shall confer and advise the court within
fourteen (14) days about outstanding issues regarding damages; and it is
ORDERED that the Clerk issue this Memorandum-Decision and
Order under seal and publicly file a redacted version of the same on the
docket; and it is further
ORDERED that the Clerk provide a copy of this MemorandumDecision and Order to the parties.
IT IS SO ORDERED.
January 20, 2016
Albany, New York
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