By Joseph Ax
NEW YORK, Feb 7 (Reuters) - The New York Court of Appeals on
Thursday said a trial must determine whether Travelers Cos
deliberately structured a nearly $1 billion asbestos settlement
to force its reinsurers to pay more than their fair share.
The ruling, the latest development in one of the
longest-running asbestos-related cases in U.S. history, throws
into question a $420.4 million award Travelers won at an earlier
stage in the case.
The litigation pits a Travelers unit against various
reinsurers, who have argued they should not be obligated to help
cover nearly $1 billion that Travelers paid to cover asbestos
claims against the company Western MacArthur.
The reinsurers include American Re-Insurance Company, the
U.S. unit of industry leader Munich Re, and units of the
insurance and reinsurance company ACE Ltd.
A trial court awarded Travelers $420.4 million in 2010, a
decision that was upheld by the First Department, Appellate
Division, last year.
But the Court of Appeals said on Thursday that a trial is
needed to determine whether Travelers had improperly designed
the Western MacArthur settlement to maximize the amount of money
it could recoup from reinsurers.
In doing so, the court followed the reasoning of First
Department Justice Sheila Abdus-Salaam, the lone dissenter in
last year's ruling affirming the award.
Nevertheless, the Court of Appeals affirmed that the
reinsurers must help Travelers cover at least some portion of
the settlement.
A spokesman for Travelers declined to comment.
Representatives for Munich Re and ACE did not have an immediate
comment on the ruling.
Calls to the lawyers representing all three companies were
not immediately returned.
The court said it was unclear whether Travelers had inflated
the value of claims for certain asbestos victims while lowering
those of others to increase its reinsurance coverage.
In addition, the court ruled, the deal with Western
MacArthur allocated all of the settlement to claims within
Travelers' policy limits and nothing to "bad faith claims"
stemming from Travelers' initial refusal to cover the asbestos
damage. That decision came despite evidence that both sides
recognized Travelers could face bad faith liability before the
settlement was reached.
The allocation worked to Travelers' advantage, since the
claims within policy limits were covered by reinsurance.
"In short, we find it impossible to conclude, as a matter of
law, that parties bargaining at arm's length, in a situation
where reinsurance was absent, could reasonably have given no
value to the bad faith claims," Judge Robert Smith wrote for the
unanimous five-member court.
The court made it clear that it was not persuaded by the
reinsurers' arguments that they have no obligation whatsoever to
cover any of Travelers' expenses.
The case stems from 1948, when a Travelers unit, United
States Fidelity & Guaranty, wrote a liability insurance policy
for Western Asbestos Co. Three decades later, people harmed by
asbestos had begun to sue Western Asbestos's successor company,
Western MacArthur.
Western MacArthur sued USF&G and two other insurers in 1993
seeking indemnification. In 2002, the two sides settled the
lawsuit, pushing Western MacArthur into bankruptcy. USF&G then
sought indemnification from its reinsurers, leading to the
current dispute.
The case is United States Fidelity & Guaranty Company v.
American Re-Insurance Co, New York Court of Appeals, No. 1.
For Excess Casualty Reinsurance Association: Kathleen
Sullivan of Quinn Emanuel Urquhart & Sullivan.
For American Re-Insurance Company: Herbert Wachtell of
Wachtell, Lipton, Rosen & Katz.
For Travelers: Mary Kay Vyskocil of Simpson Thacher &
Bartlett.
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