Legal Roundup 

June 12, 2018
Summary Written By Jenna Buda, Allstate


Melissa Baris, David Timmins and Scott Davis of Husch Blackwell presented “Legal Roundup: Recent Notable Court Decisions and the New Restatement of the Law of Liability Insurance.”  First, Melissa discussed the erosion of Bellafonte, using an example of an insurer that issued a policy requiring it to indemnify and defend, with defense costs outside of policy limits. In this example, the insurer also purchased facultative reinsurance, with limits of $1 million, and paid indemnity to the original insured totaling $1 million, plus defense costs. The question for analysis: Was the reinsurer’s liability to the insurer under the certificate capped at $1 million, or was the reinsurer also responsible for defense costs outside of limits? In Bellafonte, the court held that the Reinsurance Accepted amount was a cap on all payments by the reinsurer, including defense costs, deciding that under the certificate language, the reinsurer’s obligations were unambiguously “subject to” the “amount of liability.”  However, Melissa reported that in a series of recent cases, courts have retreated from Bellafonte, holding in similar situations that the limitation of liability provisions are ambiguous as to whether they include expenses. Melissa opined that in this post-Bellafonte world, courts will look to specific policy language and extrinsic evidence, including evidence of underwriting intent and industry usage.

Next, David Timmins examined allocation and the unavailability exception via Keyspan East Gas Corp. The Keyspan case involved the plaintiff suing for indemnity for clean-up costs associated with long-tail contamination. In the trial court, Century filed a MSJ, arguing that pro rata allocation applied. In response, Keyspan argued that theallocation period should not include years in which insurance was not available in the marketplace. The trial court mostly agreed with Keyspan, holding that Keyspan was responsible for those years in which insurance was available but it did not buy it, and Century was responsible for those years in which insurance was not available. In the Appellate Division, the court reversed based on the policy language. The court certified the question to the New York Court of Appeals, in which the Appellate Division decision was affirmed, rejecting the unavailability exception. The Court held that the unavailability exception was inconsistent with the expectations of the insurer and the insured, as well as public policy.       

Finally, Scott Davis discussed the draft ALI Restatement of the Law of Liability Insurance. While the draft has not been approved, courts have cited to the draft. Scott detailed some key provisions of the Restatement, emphasizing inconsistencies between the information in the Sections and the Comments, as well as significant departures from established law.  For example, Section 27 provides that a carrier failing to reasonably settle will be liable for the full amount of any resulting judgment.  A Comment states that these damages would include punitive exposure, even if the policy excludes coverage and/or punitive damages are not insurable.  While, the Reporters’ Notes acknowledge that every court has rejected this rule, the Restatement relies on dissenting opinions. Overall, the Restatement contains some novelties worth examining.