Pacific Employers Insurance Company (“PEIC”) entered into a facultative reinsurance certificate with Global Reinsurance Corporation of America, f/k/a Constitution Reinsurance Corporation (“Global”), which reinsured an umbrella commercial liability insurance policy issued by PEIC to Buffalo Forge Company.  The “Reinsurance Accepted” provision in the facultative certificate set forth the coverage limits, which were “$1,000,000 any one occurrence.”

Buffalo Forge and its corporate successors were named as defendants in various asbestos products personal injury lawsuits, for which PEIC defended on Buffalo Forge’s behalf, and ultimately indemnified it pursuant to its liability policy.  PEIC then sought reinsurance coverage under the facultative certificate from Global.

PEIC commenced an action in the U.S. District for the Eastern District of Pennsylvania, and Global counterclaimed seeking a declaration that the $1 million limit of liability set forth in the facultative certificate was the most that PEIC could recover, with respect to both indemnity and defense expenses.  PEIC argued that the $1 million cap did not apply to expenses.

Relying upon case law originating in from the U.S. Court of Appeals for the Second Circuit, the court held that the $1 million limit set forth in the Reinsurance Accepted portion of the facultative certificate clearly and unambiguously encompassed PEIC’s defense expenses.  The court noted that had the parties intended for expenses to be excluded from the certificate’s limit of liability, they could have included specific language to that effect.  Accordingly, Global prevailed on its counterclaim.

A copy of the District Court’s decision captioned Pacific Employers Ins. Co. v. Global Reins. Corp. of America, 2:09-cv-06055 (E.D. Pa. 2010) can be found here.