As we all (or at least some of us) wait breathlessly for the New York Court of Appeals to answer the Second Circuit’s certified question in Global Reinsurance Corp. of Am. v. Century Indemn. Co., 843 F.3d 120 (2d Cir. 2016), which is now scheduled for argument on Wednesday, November 15, 2017 at 2:00 p.m., a Pennsylvania intermediate appeals court has affirmed a lower court order denying summary judgment to a reinsurer seeking to cap its liabilities based on the limits of a facultative certificate and granting judgment to the ceding companies on their claim for recovery of expenses.  In a non-precedential decision, the court affirmed the lower court’s determination that the facultative certificate was ambiguous, allowed and credited the cedent’s extrinsic evidence, including expert testimony on custom and practice, and provided a detailed analysis of Bellefonte and its progeny, through Global Reinsurance.

In Century Indemn. Co. v. OneBeacon Ins. Co., No. 1280 EDA 2016, 2017 Pa. Super. LEXIS 810 (Super. Ct. Pa. Oct. 17, 2017), the court addressed whether  a facultative certificate provided coverage for defense expenses in excess of the liability limit of the certificate.  Case involved two cedents that issued similar excess blanket catastrophe liability policies to insureds hit with massive asbestos-related claims.  Facultative certificates were purchased by the cedents to cover a certain layer of the reinsured policies.  The reinsurer paid the reinsurance accepted amounts on the certificates, but refused to pay any defense expenses above the stated limit.

The reinsurer moved for summary judgment, which the motion court denied.  The court found the certificates ambiguous and allowed the cedents to present extrinsic evidence.  The court also rejected the reinsurer’s argument that the cedents were collaterally estopped from asserting their claims based on prior decisions.  A three-day, non-jury trial resulted in a finding for the cedents.  The reinsurer appealed.

The reinsurer relied on Bellefonte and its progeny, but the court noted that this was a case of first impression for Pennsylvania courts.  The court analyzed Bellefonte in detail and its history through Global Reinsurance.  The appellate court, while agreeing that the General Conditions language was almost identical to Bellefonte, agreed with the trial court that the “subject to” clause was materially different.  In Bellefonte, the “subject to” clause stated that the reinsurance was subject to the terms, conditions and amount of liability set forth in the certificate.  In this case, the “subject to” clause stated that the reinsurance was subject to the general conditions set forth on the reverse side of the certificate.  It did not expressly provide that all of the coverage was subject to the reinsurance accepted limit.  The court found that because the certificate followed the underlying policy, it would cover expenses above the liability limit.  The appellate court agreed with the trial court that the certificate language was ambiguous as to whether defense expenses are limited by the reinsurance accepted amount and that summary judgment was properly denied, and that the reinsurer was not entitled to any relief on its first claim.

The court also addressed and rejected the reinsurer’s objection to the use of extrinsic evidence and expert testimony specifically and also that the cedents were collaterally estopped from raising their defenses.  The court distinguished the prior cases on a similar basis as it distinguished Bellefonte.

The number of cases that have distinguished Bellefonte has grown, albeit that many, like this one, have been non-precedential.  Next up is whether the New York Court of Appeals will continue this trend and whether the Second Circuit will follow suit.