Allendale Mutual Insurance Co. v. Excess Insurance Co.
Issue Discussed: DJ Expenses / Costs within or in Addition to Limits
Submitted by Amy Kline
Date Promulgated: August 19, 1997
Allendale Mutual Insurance Co. v. Excess Insurance Co., Ltd, 992 F. Supp. 271 (S.D.N.Y. 1997)
Court: United States District Court for the Southern District of New York
Issue Decided: Whether a cedent’s loss adjustment expenses are recoverable from its reinsurer in excess of the amount stated in the reinsurance agreement’s limit clause.
Submitted By: Amy S. Kline[1]
Key Holding
The Southern District of New York followed Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co.[2] and dismissed the cedent’s claim for loss adjustment expenses in excess of the stated limits of the reinsurance agreement. In so holding, the court reaffirmed that the follow the settlements clause cannot modify or eliminate the limit of a reinsurer’s exposure. The court also rejected the argument that Bellefonte and Unigard Security Insurance Co. v. North River Insurance Co. [3] were distinguishable because they involved liability insurance, whereas the instant dispute involved property insurance. The court also rejected the argument that the agreement was ambiguous on this issue. Finally, the court noted that the agreement was signed after Bellefonte was decided and that the cedent should have bargained for contractual language that expressly excluded defense costs from the limit clause if that was the parties’ intent.
Key Takeaways
Commercial Union reaffirms the “Bellefonte Rule” that a reinsurer’s liability is limited to the stated limits on the certificate, but also holds that the certificate limit may not operate to cap liability for multiple occurrences.
[1] Amy Kline is a Vice-Chair of the Litigation Department and a Partner in the Insurance Practice Group of Saul Ewing LLP, resident in Philadelphia, Pennsylvania.
[2] Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990).
[3] 4 F.3d 1049 (2d Cir. July 31, 1993).
