THIRD CIRCUIT HOLDS THAT REINSURER CAN DENY COVERAGE BASED ON LATE NOTICE EVEN ABSENT PREJUDICE
A dispute arose when Pacific Employers Insurance Company demanded payment from Global Reinsurance Corporation of America under a facultative reinsurance contract. The contract reinsured part of Pacific’s exposure on an excess risk policy issued to a manufacturing company. It contained a provision requiring Pacific to “promptly provide the Reinsurer with a definitive statement of loss on any claim.” Pacific learned of the underlying insured’s exposure to significant asbestos litigation in 2001 but did not notify Global until 2008.
The district court, applying what it predicted Pennsylvania law to be, held that Global could not refuse coverage based on late notice absent evidence of prejudice, which Global had failed to proffer. The Third Circuit reversed, applying New York law, which holds that a reinsurance company can deny coverage based on late notice, even in the absence of prejudice. The Third Circuit noted, in dicta, that it could discern two reasons why a reinsurer would want to promptly receive a DSOL on a potentially serious claim: (1) to appropriately reserve, and (2) to exercise its contractual right to participate in the defense of the underlying claims. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Nos. 11-3234 & 11-3262 (3d Cir. September 7, 2012).
This post written by Ben Seessel.
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