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Reinsurance Group Obtains Favorable Ruling Involving the Bellefonte Rule

March 2, 2020

On March 2, 2020, the White and Williams Reinsurance Group obtained a favorable ruling from the U.S. District Court for the Southern District of New York in a case involving the so-called Bellefonte Rule. The Bellefonte Rule, named for a 1990 Second Circuit decision, holds that a reinsurer’s liability for loss and expense combined is capped at the amount identified as the limit or “reinsurance accepted” in a facultative certificate. The Bellefonte Rule has been the subject of widespread industry criticism for nearly three decades, and many experienced industry arbitrators reportedly refused to follow it. Courts, on the other hand, mostly followed Bellefonte without any real debate. That changed in the last few years as ceding companies started to chip away at Bellefonte – sometimes by focusing on variations in contract language and sometimes by challenging Bellefonte head on. In the Global v. Century case, Century did both.

Global v. Century was actually started by the reinsurer, Global, which filed a complaint seeking declaratory relief in 2013. Global initially prevailed as the court in 2014 granted summary judgment in its favor based on the 1990 Bellefonte ruling and subsequent decisions adopting the Bellefonte Rule. On appeal, however, the Second Circuit cast serious doubt on the continued viability of the Bellefonte Rule, stating that Century’s argument that Bellefonte was wrongly decided “is not without force” and acknowledging that the court found it “difficult to understand the Bellefonte court’s conclusion that the reinsurance certificates in that case unambiguously capped the reinsurer’s liability for both loss and expense.”   After the case went to the New York Court of Appeals on a certified question, the Second Circuit remanded it back to the Southern District with instructions to construe the certificates in “specific context.”

Following a two-day evidentiary hearing at which the parties introduced the testimony of six industry experts, the court rejected the Bellefonte Rule and held that the dollar amount identified in Global’s facultative reinsurance certificates does not cap Global’s overall liability to pay expenses when there are losses. Finding that the reinsured Century policies are incorporated into and part of Global’s certificates and adopting Century’s experts’ testimony that concurrency is incorporated through the certificates’ Following Form Clause and presumed as a matter of industry custom and practice, the court held that Global’s liability “must follow the underlying insurance as to the payment of expense, which means that these expenses must be paid in addition to, and are not capped by, the liability limit.”

The court’s March 2, 2020 ruling may mark the final chapter in the long Bellefonte saga and represents a significant victory for ceding companies.

Century was represented in the matter by Daryn Rush, Justin Fortescue, Ellen Burrows and Ciaran Way.

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