Reinsurer’s Obligation to Provide Coverage Determined Under English Law

    The Second Circuit turned to English law to determine the obligations of the reinsurer. Ins. Co. of the State of Pa. v. Equitas Ins. Ltd., 2023 U.S. App. LEXIS 12461 (2nd Cir. May 22, 2023).

    Insurance Company of the State of Pennsylvania (ICSOP) provided an umbrella policy to a predecessor of Dole Food Company for a policy period from October 1968 to October er 1971. Equitas then reinsured part of ICSOP’s exposure for the same three-year period. English law governed the reinsurance policy.

    In 2009, homeowners in Carson, California sued Dole for polluting their soil and groundwater. Dole and ICSOP settled these claims and allocated $20 million of the settlement liability to the ICSOP-Dole policy, even thought the homeowners’ property damage and personal injuries continued to accrue after the ICSOP-Dole policy period ended. In doing so, the settlement followed The California law for allocation, known as the “all sums rule.” This rule treated any insurer whose policy was in effect during any portion of the time during which the continuing harm occurred as jointly and severally liability for all property damages or personal injuries caused by a pollutant. 

    ICSOP then sought reinsurance coverage from Equitas for its liability. Equitas denied the claim on the basis that English law, which governed the reinsurance policy, would not have allocated ICSOP’s liability on an all sums basis. Equates asserted that English law would have prorated ICSOP’s liability based on the number of years it provided coverage to Dole. Therefore, Equitas contended that its reinsurance obligations were similarly limited. 

    ICSOP sued, claims that Equitas was liable on the policy for the reinsured portion of ICSOP’s settlement liability. The district court granted summary judgment to ICSOP.

    On appeal, Equitas did not dispute ICSOP’s liability to Dole under the ICSOP-Dole policy or the settlement’s apportionment of damages. The Eighth Circuit noted that English law had followed a version of the all sums rule, albeit in circumstances that were not present here. The court concluded that English law would construe the reinsurance policy as co-extensive with the ICSOP-Dole policy. English law recognised a strong presumption that liability under reinsurance was co-extensive with the underlying insurance. This was described as the back-to-back nature of reinsurance. Therefore, the back-to-back presumption applied to the reinsurance policy, thus rendering the parties’ obligations co-extensive.

    The district court was therefore affirmed.