What’s on the Horizon? Relevant Issues to be Aware of . . .

Panel Summary Authored by Randi Ellias, Butler Rubin Saltarelli & Boyd

Karen Amos of Resolute Management Services Limited moderated a session in which John Finnegan of Chadbourne & Parke, Lloyd Gura of Mound Cotton Wollan & Greengrass, and Andrew Lewner of Stroock & Stroock & Lavan provided snapshots of the current state of play on three industry issues.

First, Mr. Finnegan reviewed the state of the law on the “follow-the-settlements” doctrine. Mr. Finnegan noted that recent court decisions have put some parameters around the follow-the-settlements doctrine, particularly in the case of settlement allocations. Those recent decisions have established that a reinsurer is not required to follow a cedent’s settlements where the cedent’s claims-handling and/or analysis is subpar. Further, according to the New York Court of Appeals, in order for the follow-the-settlements doctrine to apply to an allocation decision, that decision must be “objectively reasonable,” meaning that the parties to the underlying settlement would have arrived atthat allocation at arms’-length as though the reinsurance did not exist. Finally, a recent federal district court decision from the Federal District Court of Connecticut rejected the idea that a reinsurer is not entitled to discovery in an allocation case, recognizing that per that New York state law, the determination whether the allocation was “objectively reasonable” warranted inquiry into – and discovery of – underlying facts.

Mr. Gura then discussed various coverages applicable to supply chain disruptions, which are usually written as reinsurance of a captive insurer. First, Mr. Gura explained that contingent time element coverage differed from traditional business interruption coverage in that traditional business interruption coverage required physical damage to the insured’s own property, whereas, contingent time element coverage encompassed physical damage to any dependent property, including that of suppliers or customers, that causes loss to the insured. In the case of contingent element coverage, the loss also covers expense in addition to lost income. Depending upon policy language,contingent element coverage may indemnify for losses that occur on the customer’s premises, at the supplier’s premises, or any losses that prevent delivery, no matter where sustained.

Mr. Gura also discussed supply chain insurance, which provides coverage in the event of the total or partial reduction of supply. Supply chain insurance differs from both business interruption coverage and contingent time element coverage in that there is no requirement of physical damage. The areas of dispute for supply chain coverage often involve questions of how far down the chain of suppliers the coverage will reach.

Finally, Mr. Lewner discussed asbestosis exclusions in CGL policies, noting that in the 70s and 80s, ISO had no asbestosis exclusion, and the term “asbestosis” had two different meanings. First, asbestosis was used to referto a specific disease. Second, asbestosis was also used to refer to all asbestos-related diseases. Courts who have addressed this issue have split on the question whether the term “asbestosis” is ambiguous such that it is appropriate to consider extrinsic evidence to resolve the ambiguity. Many of the courts that have considered extrinsic evidence have concluded that the term encompasses all asbestos-related diseases.