By: Daryn Rush
On March 2, 2020, the U.S. District Court for the Southern District of New York issued its long-anticipated ruling in the Global v. Century case. More than five years after applying the Bellefonte Rule to hold that a reinsurer’s liability for indemnity and expense combined is capped at the reinsurance accepted amount in a facultative certificate, the court, after considering evidence of industry custom and practice as directed by the Second Circuit, squarely rejected the Bellefonte Rule. The court held that the “plain and unambiguous meaning of the reinsurance contracts” is that the dollar amount identified in the reinsurance accepted provision “does not cap Global’s obligation to pay expenses when there are losses.” Finding that the reinsured policies are incorporated into and part of the facultative certificates and adopting Century’s experts’ testimony concerning concurrency (both that concurrency is incorporated through the certificates’ Following Form Clause and presumed as a matter of industry custom and practice), the court held that Global’s liability “must follow the underlying insurance as to the payment of expense, which means that these expenses must be paid in addition to, and are not capped by, the liability limit.”
The court specifically credited Century’s experts’ testimony that “concurrency was significant enough to the history of reinsurance and to the reinsurance market that parties to reinsurance agreements considered whether the reinsurance and insurance should be concurrent when drafting contracts” and that “concurrency was presumed, unless the policy contained an explicit statement of non-concurrency.” The court determined that the experts’ testimony was sufficient “to raise a fair presumption that these principles of concurrency were part of the reinsurance industry’s customs and practices in the 1970s.”
The court also directly addressed the Bellefonte line of cases explaining that the Second Circuit and New York Court of Appeals’ rulings in the Global case, “convince this Court that even if these decisions have not been overruled, their continued applicability may be scrutinized.” Instead, the court followed the Second Circuit and New York Court of Appeals’ directive to use “the traditional rules of contract interpretation,” including consideration of the “customs, practices, usages and terminology as generally understood in the reinsurance and insurance industries in the 1970s.”
The Global decision may mark the end of the road for the Bellefonte Rule, which has been the subject of overwhelming criticism by industry professionals for more than three decades. Alas, perhaps, Bellefonte has been unrung.
If you have questions or would like more information, please contact Daryn Rush (firstname.lastname@example.org; 215.864.6360) or another member of our Reinsurance Group.