NEW YORK COURT FINDS DISPUTED ISSUE OF FACT REGARDING WHETHER $600 MILLION SETTLEMENT WAS MADE IN GOOD FAITH, POSSIBLY IMPLICATING EXCEPTION TO FOLLOW-THE-FORTUNES DOCTRINE
A New York appellate court decided an appeal of a grant of summary judgment and dismissal of an action relating to a 1993 settlement of massive coverage litigation regarding the manufacture of polychlorinated biphenyl (PCB). After the 1993 settlement, the underlying insured who manufactured the PCB became the subject of claims for bodily injury and property damage related to PCB. The insured settled those cases for roughly $600 million, $150 million of which was paid by National Union and its affiliates. National Union turned to its reinsurers for reimbursement; the reinsurers refused to pay. Normally, reinsurers are bound by settlements entered into by a ceding insurance company in good faith. Here, however, the appeal court found that there were issues of fact related to whether National Union settled in good faith. Though there was no evidence that National Union negotiated in bad faith, a 1993 Delaware superior court decision called into question the propriety of National Union’s dealings. Accordingly, the grant of summary judgment was overturned. American Home Assurance Co. v. National Union Fire Insurance Co. of Pittsburgh, No. 06-6430 (N.Y. App. Div. Dec. 27, 2011).
This post written by John Black.
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