(Article from Insurance Law Alert, May 2024)
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Holding
A Michigan district court granted a reinsurer’s summary judgment motion, ruling that a cedent was collaterally estopped from arguing that its umbrella policies required payment of defense costs in addition to policy limits. Amerisure Mutual Ins. Co. v. Swiss Reinsurance America Corp., 2024 U.S. Dist. LEXIS 56554 (E.D. Mich. Mar. 28, 2024).
Background
Amerisure issued primary and umbrella policies to Armstrong, a company named as a defendant in asbestos-related bodily injury suits. Amerisure paid Armstrong’s defense costs under the primary policies, and when the limits of those policies were exhausted, Amerisure began paying Armstrong’s defense costs under the umbrella policies. Amerisure made such payments in addition to umbrella policy limits. Thereafter, Amerisure sought reinsurance coverage from Swiss Re under facultative policies. Swiss Re refused to pay for the defense costs, arguing that those payments were outside the scope of Amerisure’s umbrella policies.
Amerisure sued, seeking a declaration of coverage under the reinsurance policies—echoing an argument Amerisure previously raised, and lost, in a separate arbitration involving a different reinsurer. The court dismissed the suit, ruling that Amerisure was collaterally estopped from arguing that defense costs payments that exceeded policy limits were subject to reinsurance coverage.
Decision
In 2019, Amerisure arbitrated a similar dispute with Allstate, another one of its reinsurers, involving the same policy language. In that case, an Illinois district court affirmed an arbitration award which held that the umbrella policies did not provide for the payment of defense costs in addition to policy limits when umbrella coverage was triggered by the exhaustion of underlying primary policies. The Illinois court explained that the arbitration panel found that the policies provided for the payment of defense costs in addition to policy limits only when primary coverage was uncollectible due to a lack of coverage for the risks at issue. Because the panel found that Amerisure’s payment of defense costs was not required under its umbrella policies, it concluded that Allstate was not required to reimburse Amerisure for defense costs above policy limits.
In the present case, the court concluded that Amerisure was collaterally estopped from raising the same issue against Swiss Re based on the 2019 arbitration. The court held that the arbitration resulted in a “final determination” on the question of whether the umbrella policies required Amerisure to pay defense costs in addition to policy limits. Amerisure argued that a final determination was not made as to all of the arguments it asserted in the Allstate case because the arbitration panel only addressed one of its legal theories in reaching a determination. Rejecting this assertion, the court stated: “Amerisure is wrong to read [the final determination] requirement to mean that the earlier action must have decided each argument relevant to the issue for those argument to be precluded in later litigation.”
Further, the court ruled that Amerisure had a “full and fair opportunity” to litigate the issue of coverage for above-policy limits defense costs. Amerisure argued that it did not have such an opportunity, citing several factors, including the limited scope of judicial review for an arbitration award, the different procedural rules that apply to an arbitration as opposed to a judicial proceeding, and the inclusion of an “honorable engagement” provision in the Allstate facultative certificates (but not in the Swiss Re certificates). The court deemed all of these contentions to be without merit.
Finally, the court rejected Amerisure’s assertion that collateral estoppel did not apply based on the absence of mutuality of estoppel (i.e., it was undisputed that Swiss Re could not be bound by the Allstate decision because it was not a party to that case). The court held that mutuality was not required in this case because Swiss Re’s assertion of collateral estoppel was defensive—meaning it sought to use collateral estoppel to avoid Amerisure’s claim of liability against it rather than to impose liability.
Comments
Because the court dismissed the suit on procedural grounds, it did not address the substantive question of whether a reinsurer must reimburse a cedent for defense costs it paid above and beyond its underlying policy limits. Courts that have addressed that issue have focused on applicable policy language, including in particular a “Limit of Liability” provision, as well as industry custom and practice relating to the presumed concurrency of coverage between reinsurance and primary insurance policies.