Travelers Cas. and Sur. Co. v. Certain Underwriters at Lloyd’s of London, 96 N.Y.2d 583 (2001)
A “follow the fortunes” clause in a reinsurance treaty does not override the treaty’s specific language defining what constitutes a covered loss; a reinsurer is not bound to indemnify a reinsured’s allocation of losses if the allocation is inconsistent with the treaty’s definition of “disaster and/or casualty”.
Summary
Travelers, an insurance company, sought reinsurance coverage for environmental injury claims from Koppers and DuPont. Travelers had issued liability policies to these companies and subsequently faced claims related to pollution at numerous sites. Travelers argued that these claims arose from a “common origin” (deficient corporate environmental policies) and thus could be aggregated as a single “disaster and/or casualty” under its reinsurance treaties. The New York Court of Appeals held that the aggregation of these losses was beyond the scope of the reinsurance treaties, as the sites lacked a spatial or temporal connection, and the “follow the fortunes” clause did not supersede the specific definition of covered losses in the treaty.
Facts
Travelers issued primary, excess, and umbrella liability policies to Koppers (1960-1981) and DuPont (1967-1985). Koppers faced environmental actions at over 150 sites nationwide, and DuPont faced similar claims. Travelers settled with Koppers for $140 million and with DuPont for $72.5 million, allocating portions to specific policies. For reinsurance purposes, Travelers treated the entire Koppers and DuPont settlements each as a single “disaster and/or casualty,” claiming a “common origin” in the companies’ environmental policies. The reinsurance treaties covered “each and every loss” arising out of “any one disaster and/or casualty.”
Procedural History
Travelers sued its reinsurers after they disputed the single allocation of losses. The Supreme Court dismissed Travelers’ complaints, holding that the allocations did not fall within the reinsurance treaties’ terms. The Appellate Division affirmed. The Court of Appeals granted leave to appeal and affirmed the lower courts’ decisions.
Issue(s)
1. Whether Travelers’ single allocations of the Koppers and DuPont settlements were encompassed by the term “disaster and/or casualty” in the reinsurance treaties, given the lack of spatial or temporal relationship between the contaminated sites.
2. Whether the “follow the fortunes” clauses in the reinsurance treaties mandated that the Reinsurers reimburse Travelers for losses it allocated to them reasonably and in good faith, even if the allocation was technically outside the terms of the treaties.
Holding
1. No, because the reinsurance treaties defined “disaster and/or casualty” as “all loss resulting from a series of accidents, occurrences and/or causative incidents having a common origin,” implying a spatial or temporal relationship between the incidents, which was lacking in this case.
2. No, because a “follow the fortunes” clause does not override the express terms of the reinsurance agreement; it cannot expand coverage beyond what the treaty specifically defines as a covered loss.
Court’s Reasoning
The Court reasoned that the term “disaster and/or casualty” required a spatial or temporal connection between the incidents to be aggregated as a single loss, based on the phrase “series of” accidents. The court rejected Travelers’ argument for a broad interpretation of “common origin,” stating that it would effectively excise the words “series of” from the treaty. The Court emphasized that a spatial or temporal relationship was lacking because the contaminated sites were geographically diverse and the pollution occurred over decades involving different manufacturing processes and pollutants. The court emphasized that in interpreting reinsurance policies, meaning must be given to every sentence, clause, and word of the contract. Regarding the “follow the fortunes” clause, the Court relied on Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., holding that such a clause cannot override the limitation on liability or other specific conditions in the reinsurance agreement. The Court distinguished cases cited by Travelers, noting that those cases involved challenges to settlement decisions based on the underlying policies, while this case involved a challenge to Travelers’ allocation of settlements based on the contractual language of the reinsurance treaties. The Court found that the “follow the fortunes” clause requires the reinsurer to abide by the cedent’s (Travelers’) good faith liability determinations, but only to the extent that such determinations fall within the explicit parameters of the reinsurance contract. A direct quote from the case states: “Following the fortunes means that, so long as the reinsured acts in good faith, its losses from underwriting that looks improvident in retrospect or was simply unlucky will be indemnified within the terms of the reinsurance contract.”