Posted on 13 Feb 2013 by Neilson
New York State's highest court has sent a complicated dispute over asbestos claims between Travelers Insurance and its reinsurers back to the trial court.
The New York Court of Appeals narrowed the issues in dispute, affirming a portion of two lower courts' rulings, but said questions of fact remain in the case.
At issue is a nearly $1 billion settlement that Travelers' subsidiary United States Fidelity & Guaranty Co. agreed to in connection with asbestos claims from Western MacArthur Co. USF&G had agreed to settle a suit filed by MacArthur for $975 million, plus $12.3 million in fees, in 2002. USF&G then turned to its reinsurers, which include American Re, a subsidiary of Munich Re, to pay its share of the settlement.
After a long legal battle, the New York Supreme Court ruled in 2010 that the reinsurers must pay $262.3 million, plus significant interest, to pay their share of the settlement.
In January 2012, a New York appellate court affirmed a lower court ruling that Munich Re still owed Travelers $420.4 million (the principal award plus 9% interest) in the case.
Reinsurers argued that USF&G's allocation of the settlement minimized the burden to USF&G while maximizing the burden on its reinsurers, and that they were not bound by it.
"Reinsurers didn't dispute that the insurer should have settled, they disputed the amount submitted to reinsurers and how the payments should be allocated," said Kara Morell, assistant general counsel for the Reinsurance Association of American, which filed a "friend of the court" brief in the case.
In the latest ruling, the state's highest court found a couple of issues should be decided by a jury: whether the original settlement included bad faith claims (which would not be covered by reinsurance), and whether the amount USF&G allocated to specific injuries was appropriate.
United States Fidelity & Guaranty Co., was acquired by St. Paul Cos. in 1998 and is now part of Travelers following Travelers' acquisition of St. Paul Cos. in 2004. The case involves policies USF&G wrote from 1948 to 1960 to cover Western Asbestos Co., a California-based company that sold and distributed insulation that contained asbestos manufactured by Johns-Manville Co., according to the court ruling.
The lower court had ordered American Re to pay $202.5 million and interest, which could actually be another $369.4 million, the court said at that time. In addition, the court ordered a group of reinsurers who did business as the Excess Casualty Reinsurance Association Ace Property & Casualty Co., Century Indemnity Co., OneBeacon American Insurance Co. and Excess Treaty Management Corp. to pay $59.8 million in damages, plus as much as $109 million in interest.
Western Asbestos ran into financial trouble in the 1960s and was acquired by MacArthur Co., which sold and installed asbestos products. Western Asbestos was dissolved as a company, leaving those injured by asbestos years later to sue Western MacArthur in the late 1970s both for its own work with asbestos, and as a successor to Western Asbestos.
In 1993, Western MacArthur sued USF&G seeking damages and asking USF&G pay for Western MacArthur's defense in asbestos cases. While USF&G initially fought the case for several reasons one argument was that it had insured Western Asbestos not Western MacArthur neither company could locate the insurance policies in issue. Some of the policies dated back to the 1950s.
Travelers and Munich Re declined to comment on the case.
Subsidiaries of Travelers Group and Munich Re currently have Best's Financial Strength Ratings of A+ (Superior).