The U.S. Court of Appeals for the Second Circuit’s reinsurance decision last month in Global Reinsurance of America v. Century Indemnity, 15-2164-cv (Dec. 27, 2016) (Global), will finally lead to resolving the unsettled question about whether reinsurers will have limitless liability for an underlying insurer’s legal costs. The final answer to this question could have a profound impact on the obscure but important reinsurance business. After deciding Bellefonte Reinsurance v. Aetna Casualty & Surety, 903 F.2d 910 (2d Cir. 1990) and Unigard Security v. North River Ins., 4 F.3d 1049 (2d Cir. 1993) in favor of limiting reinsurers’ liability for costs, the Second Circuit in Global finally decided it was time for the N.Y. Court of Appeals to weigh in on this significant reinsurance question, and the Global court certified that question to New York’s high court.1 The brokerage companies obtaining reinsurance certificates to primary insurers hope that New York’s high court will finally lay all litigation expenses at the reinsurance companies’ doorstep. On Jan. 10, 2017, the N.Y. Court of Appeals accepted the certified question and set a briefing schedule.
Background
Mention “reinsurance” and many lawyers head for the exits. Reinsurance is insurance on insurance. It allows a primary insurance company to spread its liability risk to reinsurers who charge a premium to the primary insurer to issue a reinsurance certificate. Reinsurance should be distinguished from excess insurance, which is an insurance policy that pays only when the primary policy limits are exceeded. A reinsurer agrees to reimburse the primary insurer for a proportionate share of the primary insurer’s liability payments. This reimbursement is ostensibly limited to the liability limits in the reinsurance certificate.
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