Two years ago, in United States Fidelity & Guaranty Co. v. American Re-Insurance Co. (USF&G), the Court of Appeals confirmed that the “follow the settlements” doctrine in the reinsurance context is robust and applies to an insurance company’s allocation decisions following a settlement with its insured. It nevertheless found evidence on the record that the allocation decision at issue may not have been reasonable, and ruled that a trial must be held on that issue. With that case apparently heading to trial, the First Department recently decided a related issue in New Hampshire Insurance Company v. Clearwater Insurance Company.1
In New Hampshire, the Appellate Division, First Department, was faced with the question whether a reinsurer must “follow the settlements” in the absence of a specific agreement to do so. But the court reserved answer on that question for another day because, following USF&G, it found questions of fact existed on the issue of whether the allocation at issue was reasonable—even assuming the “follow the fortunes” doctrine applied.
Background and Settlement
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