Recent Developments in Excess, Surplus Lines, and Reinsurance Law

• Pages: 329-354
• Date: 01 April 2022
• Published date: 01 April 2022
• Author: Chelsea Brewer,Michael Carolan,Shermineh Jones,Thomas Kinney,Chris Verdugo,Molly Crabtree,Randi Ellias,Sandy Shaba
• Subject Matter: Administrative & Public Law

329

Michael Carolan and Thomas Kinney are partners in the Washington, D.C., office of

Troutman Pepper Hamilton Sanders LLP. Chelsea Brewer and Shermineh Jones are asso-

ciates with Troutman Pepper Hamilton Sanders LLP in the same office, and Christopher

Verdugo is an associate in the Chicago office of Troutman Pepper. Molly Crabtree is a part-

ner and Sandy Shaba is an associate in the Columbus, Ohio office of Porter Wright Morris

& Arthur LLP. Randi Ellias is a director in the Chicago office of Aon.

RECENT DEV ELOPMENTS IN EXCESS,

SURPLUSLINES, A ND REINSURA NCE LAW

Chelsea Brewer, Michael Carolan, Shermineh Jones,

Thomas Kinney, Chris Verdugo, Molly Crabtree,

Randi Ellias, and Sandy Shaba

I. Developments in Excess and Surplus Lines Insurance Law .......330

A. Settlements for Less Than Policy Limits

and the Availability of Excess Insurance. ..............................330

B. Exhaustion of Underlying Insurance ....................................334

C. Other Cases of Note from the Survey Period ......................338

II. Developments in Reinsurance Law .............................................342

A. Arbitrability ...........................................................................342

B. Arbitrator Bias .......................................................................343

C. Arbitrator Qualifications ......................................................343

D. Confidentiality of Arbitration Awards

in Court Proceedings ............................................................344

E. Cut-Through ........................................................................345

F. Discoverability of Reinsurance Information ........................ 345

G. Follow-the-Settlements ........................................................ 346

H. Honorable Engagement .......................................................346

I. Defense Costs in Excess of Limits........................................ 349

J. Preemption ............................................................................351

K. Vacatur................................................................................... 353

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Tort Trial & Insurance Practice Law Journal, Spring 2022 (57:2)330

I. DEVELOPMEN TS IN EXCESS AN D

SURPLUS LIN ES INSURA NCE LAW

Case law affecting the excess and surplus lines insurance industry addressed

a number of issues in the last year. Our discussion below addresses sev-

eral of those issues, including cases touching on vertical versus horizontal

exhaustion, the impact of settlements for less than limits on the availability

of excess insurance, and the ability of excess insurers to challenge coverage

decisions made at lower policy levels which triggered excess coverage by

eroding underlying policy limits.

A. Settlements for Less Than Policy Limits and the Availability of Excess

Insurance.

This survey period saw several cases exploring whether policyholders can

access excess insurance if they reach settlements with their primary insur-

ers for less than policy limits. The U.S. District Court for the Southern

District of New York addressed this issue in October 2020, albeit in the

context of a reinsurance dispute in Fireman’s Fund Insurance Co. v. One-

Beacon Insurance Co.1 That dispute arose when the insured—Asarco, Inc.—

sought coverage for asbestos-related claims from its primary and excess

insurers.2 One of those insurers was Fireman’s Fund, who had issued three

excess liability policies to Asarco for the relevant period. The first of these

(“Policy 1”) provided coverage of $20 million for losses in excess of $30

million (all of which were in excess of a $3 million self-insured retention)

for the period of March 15, 1982 to March 15, 1983.3 The second policy

(“Policy 2”) provided similar coverage on the same terms for the period of

March 15, 1983 to March 15, 1984.4 The third policy (“Policy 3”) provided

another $20 million in excess coverage for the period of March 15, 1983

to March 15, 1984, this time for losses in excess of $75 million plus the

$3 million self-insured retention.5 Policy 3 was reinsured by OneBeacon

under a facultative certificate covering a 15% share of the risk assumed by

Fireman’s Fund.6

After Asarco brought suit, Fireman’s Fund estimated its potential expo-

sure to be $50.3 million.7 Thereafter, Fireman’s Fund and Asarco entered

into a settlement agreement whereby Fireman’s Fund agreed to pay Asarco

$35 million in full satisfaction of Asarco’s claims for coverage under the

1. 495 F. Supp. 3d 293 (S.D.N.Y. 2020).

2. Id.at 298.

3. Id. at 297.

4. Id.

5. Id.

6. Id.at 298.

7. Id.

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