2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-4-2009

Samuel Heyman v. New York Property/Casualty

Ins

Precedential or Non-Precedential: Precedential

Docket No. 07-2510

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 07-2510

 

G-I HOLDINGS, INC.; SAMUEL J. HEYMAN,

Appellants

v.

RELIANCE INSURANCE COMPANY; 

GREAT AMERICAN INSURANCE COMPANY;

HARTFORD FIRE INSURANCE COMPANY; 

NEW YORK PROPERTY/CASUALTY INSURANCE

SECURITY FUND; 

NEW JERSEY PROPERTY-LIABILITY INSURANCE

GUARANTY ASSOCIATION; 

TWIN CITY FIRE INSURANCE COMPANY

 

Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action No. 00-cv-06189)

District Judge: Honorable Dennis M. Cavanaugh

 
2

Argued January 29, 2009

Before: SCIRICA, Chief Judge, AMBRO, 

and SMITH, Circuit Judges

(Opinion filed: October 26, 2009)

Anthony Bartell, Esquire 

McCarter & English

100 Mulberry Street 

Four Gateway Center

Newark, NJ 07102-0652

Stephan G. Weil, Esquire

Jerold Oshinsky, Esquire (Argued)

Dickstein Shapiro

1825 Eye Street, N.W.

Washington, DC 20006-0000

Counsel for Appellants

Arnold R. Gerst, Esquire

Brad M. Weintraub, Esquire

Weiner Lesniak

629 Parsippany Road

P.O. Box 438

Parsippany, NJ 07054-0438

Lawrence J. Bistany, Esquire (Argued)

Celestine M. Montague, Esquire
 We use this same term to refer to G-I’s predecessor, GAF 1

Corporation, to which G-I succeeded in 2000.

 For convenience, all references to Hartford include Twin 2

City Fire Insurance Company.

3

White & Williams

1800 One Liberty Place

Philadelphia, PA 19103-0000

Counsel for Appellees

 

OPINION OF THE COURT

 

AMBRO, Circuit Judge

G-I Holdings, Inc. (“G-I”) purchased from Reliance 1

Insurance Company a policy covering claims made against G-I’s

directors and officers between July 1999 and July 2002. Shortly

after the policy was issued, Reliance encountered financial

difficulties. In the summer of 2000, Hartford Fire Insurance

Company took over claims administration for Reliance.

2

Hartford also assumed some of Reliance’s liabilities and

reinsured other of those liabilities going forward. To protect

itself against Reliance’s impending insolvency, G-I split its

initial Reliance policy with Hartford, keeping coverage for

claims made up to July 15, 2000 with Reliance and shifting
4

coverage for the remaining period (July 15, 2000 to July 1,

2002) to a new Hartford policy. Reliance went into liquidation

and G-I sought coverage for three fraudulent conveyance suits

against Samuel J. Heyman, its CEO, chairman of its Board of

Directors and controlling shareholder. The first of those suits

was brought during the amended Reliance coverage period,

while the other two were brought during the Hartford coverage

period. Under the policies’ terms, because all three suits relate

to the same allegedly fraudulent conveyance, their filing dates

relate back to the date of the first suit (and thus fall within the

Reliance coverage period).

G-I filed a claim for coverage in Reliance’s liquidation.

But it also sued Hartford, arguing both that Hartford was liable

under the policy it had issued to G-I (despite the fact that the

first suit, to which the other two relate back, was filed during the

Reliance policy period), and that Hartford was liable to G-I

under the Reliance policy because agreements Hartford entered

into with Reliance made Hartford responsible for Reliance’s

coverage obligations. In addition, G-I contended that Hartford

was barred by judicial estoppel from arguing that the suits filed

during its policy period related back to the suit filed during the

Reliance policy period because, in an earlier stage of the

litigation, Hartford had taken a position at odds with that

argument. In granting Hartford’s motion for summary

judgment, the District Court rejected all of these contentions.

We do so as well, and thus affirm.
 The United States District Court for the Southern District 3

of New York and the Supreme Court of the State of New York,

5

I. FACTS AND PROCEDURAL HISTORY

In February 2000, G-I bought an insurance policy from

Reliance that covered liability arising out of claims made by

third parties against G-I’s directors and officers (including

Heyman) between July 1, 1999 and July 1, 2002. The policy

included an “interrelated wrongful acts” provision, stating that

the filing date of all suits arising from the same wrongful act

would be the date on which the first such suit was filed. The

coverage limit was $15 million. G-I appears to have paid a

premium of $185,000. 

In 1997, facing more than $200 million in existing

asbestos liability and the prospect of hundreds of thousands of

future claims, G-I distributed to Heyman the stock of a

profitable subsidiary. As expected, asbestos claimants or their

representatives filed fraudulent conveyance actions against

Heyman and G-I: these were filed on (1) January 3, 2000 by an

injured employee seeking class certification (the “Nettles

action”); (2) September 19, 2000 by the Center for Claims

Resolution, a non-profit entity created by asbestos defendants to

pay claims (the “CCR action”); and (3) September 17, 2001 by

the Official Committee of Asbestos Claimants in G-I’s Chapter

11 bankruptcy case filed in 2001 (the “Claimants Committee

action”). 

3
venues for the Nettles and CCR actions respectively, placed

those actions on hold in 2001 pending resolution of material

parts of G-I’s bankruptcy case.

 Marsh & McLennan Companies is a professional services 4

firm. Marsh is its insurance brokerage business. See Overview:

T h e Bu s i n e s s e s o f M M C ,

http://www.mmc.com/about/index.php (last visited Oct. 21,

2009). 

 This new policy was issued by a Hartford subsidiary, Twin 5

City Fire Insurance Company. For convenience, we refer simply

to Hartford as the issuer.

6

In early 2000, Reliance was in financial trouble. In

summer and fall 2000, pursuant to an Asset Purchase

Agreement, a Quota Share Reinsurance Agreement and two

Claims Servicing Agreements, Hartford acquired renewal and

other rights to, and became a reinsurer and servicer of, certain

Reliance policies. In July 2000, after Reliance’s rating fell

below the minimum financial guidelines for insurers set by G-I’s

insurance broker, Marsh, G-I’s risk manager (Robert Flugger) 4

asked Marsh to arrange for G-I to acquire a directors and

officers insurance policy from Hartford. Reliance changed the

coverage termination date of its policy to July 15, 2000 from

July 1, 2002, and Hartford issued G-I an identical policy with a

period of July 15, 2000 to July 1, 2002. An endorsement to the 5

Hartford policy limited the sum of coverage under it and the

amended Reliance policy to $15 million. As part of the
 For the remainder of this opinion, we refer to G-I and 6

Heyman collectively as “G-I.”

 The procedural history is complex. After Reliance denied 7

coverage of the Nettles and CCR claims, G-I sued Reliance and

its excess insurer, Great American Insurance Company, in

November 2000 in New Jersey state court. G-I did not add

7

transaction, Reliance refunded, and Hartford received,

$153,935.18 in premiums. 

In sum, there were now two policies: the amended

Reliance policy, which covered claims made between July 1,

1999 and July 15, 2000; and the Hartford policy, which covered

claims made between July 15, 2000 and July 1, 2002. The

Nettles action filing date falls within the amended Reliance

policy period and the CCR and Claimants Committee filing

dates fall within the Hartford policy period. But because of the

interrelated wrongful acts provisions in both the amended

Reliance and Hartford policies, the filing date of the CCR and

Claimants Committee actions relate back to the filing date of the

Nettles action, placing them outside the Hartford policy period

and within the amended Reliance policy period.

G-I and Heyman sought coverage for the three 6

fraudulent conveyance actions. A Pennsylvania state court

ordered the liquidation of Reliance in October 2001, and G-I has

agreed to pursue coverage from Reliance in that proceeding. In 7
Hartford as a defendant until August 2001 because, according

to G-I, it was unaware of the agreements between Reliance and

Hartford, had not seen the Hartford policy, and did not know

that the amended Reliance policy moved up the coverage period

end date from July 2002 to July 2000. Reliance removed the

action to the United States District Court for the District of New

Jersey. That action was subsequently dismissed and refiled by

G-I in the Bankruptcy Court supervising its bankruptcy. In May

2002, the Bankruptcy Court referred this non-core proceeding

back to the District Court. It stayed G-I’s claims against

Reliance. In 2004, the District Court dismissed claims against

the excess insurer (Great American) without prejudice because

G-I had not exhausted its rights against Reliance. 

 In August 2004, G-I added as defendants the New Jersey 8

Property-Liability Insurance Guarantee Association and the New

York Property/Casualty Insurance Security Fund. The District

Court dismissed the claims against the former without prejudice

in December 2006 because recovery against it depended on

resolution of coverage issues pending against Reliance in

Pennsylvania. In December 2008, the parties stipulated to

dismissal without prejudice of G-I’s claims and this appeal as

against the latter. Claims against these insurers are therefore not

8

this case, G-I seeks coverage from Hartford. The District Court

in 2004 denied motions by G-I for summary judgment and by

Hartford for dismissal. In June 2006, G-I again moved for

summary judgment and Hartford did so as well. The District

Court then granted Hartford’s motion and denied that of G-I,

which now appeals. 

8
before us on appeal.

9

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had diversity jurisdiction pursuant to

28 U.S.C. § 1332 and we have jurisdiction under 28 U.S.C. §

1291. We exercise plenary review of an order granting

summary judgment. Gonzalez v. AMR, 549 F.3d 219, 223 (3d

Cir. 2008). Summary judgment is appropriate if there are no

genuine issues of material fact and the moving party is entitled

to judgment as a matter of law. Id. “[T]o survive summary

judgment . . . [,] a non[-]movant must present sufficient

evidence to allow a reasonable jury to find in [its] favor.”

Sovereign Bank v. BJ’s Wholesale Club, 533 F.3d 162, 172 (3d

Cir. 2008) (internal brackets and quotation marks omitted). We

make our view of the evidence and inferences therefrom as

favorable as possible to the non-movant. United States ex rel.

Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 94 (3d Cir. 2009).

The District Court applied New Jersey law; the parties do not

appeal that choice and we follow it. We may affirm on any

ground supported by the record. Azubuko v. Royal, 443 F.3d

302, 303 (3d Cir. 2006).

III. ANALYSIS

G-I argues that Hartford must cover some or all of the

fraudulent conveyance actions because: (1) Reliance and

Hartford agreed to provide insurance coverage for a single
 G-I’s argument that Reliance amended its policy without 9

G-I’s consent or otherwise failed to abide by the cancellation

provisions of the policy is, strictly construed, of no help to G-I,

10

policy period, and thus the Hartford policy period includes the

amended Reliance policy period; (2) the interrelated wrongful

acts provisions in the policies should not apply, and therefore

at least the two later-filed fraudulent conveyance actions fall

within the policy period Hartford claims it covered; and/or (3)

the purchase, servicing, and reinsurance agreements between

Hartford and Reliance, and the close relationship of those parties

in any event, make Hartford directly liable under the amended

Reliance policy. It further contends that we should use the

doctrine of judicial estoppel to bar Hartford from relying on the

interrelated wrongful acts provisions to avoid coverage because

Hartford asserted a contradictory argument in its motion to

dismiss in the District Court.

A. The Hartford Policy Period Does Not Include

the Amended Reliance Policy Period.

It appears that G-I agues that the Hartford policy period

includes the entire initial Reliance policy period because (1) G-I

requested a policy from Hartford that would cover the Reliance

policy period and (2) Hartford behaved as if this were the case.

We arrive at these arguments by construing in the most

favorable way G-I’s contentions that Reliance amended its

policy period without G-I’s consent and that Hartford 9
as it suggests that the initial Reliance policy remains in force

and Reliance, rather than Hartford, is therefore liable. We

construe this argument as the claim that Hartford mistakenly

provided G-I with a policy that failed to conform to a request by

G-I for a policy that would cover the entire period of July 1,

1999 to July 1, 2002 (rather than the July 15, 2000 to July 1,

2002 period in the policy Hartford in fact issued).

This “reasonable expectations” approach to interpreting 10

insurance contracts applies even where, as here, the insured is a

sophisticated actor. See Doto, 659 A.2d at 1376–77 (company’s

commercial-umbrella liability policy); Sparks v. St. Paul Ins.

11

effectively assumed Reliance’s obligations.

We note at the outset that, in arguing that the Hartford

policy period includes the initial Reliance period, G-I is asking

us to disregard the plain language of the Hartford policy, which,

by its terms, covers only the period between July 15, 2000 and

July 1, 2002. That, however, is not necessarily fatal to G-I’s

prospects, at least not in this context. Under New Jersey law, an

insurance policy that has been unilaterally drafted by the insurer

(such as this one) will typically be treated as a contract of

adhesion. See Doto v. Russo, 659 A.2d 1371, 1376 (N.J. 1995).

As such, New Jersey courts “constru[e] contracts of insurance

to reflect the reasonable expectations of the insured in the face

of ambiguous language and phrasing, and[,] in exceptional

circumstances, [even] when the literal meaning of the policy is

plain.” Id. at 1377 (internal citation omitted). Thus, it is open 10
Co., 495 A.2d 406, 414–15 (N.J. 1985) (lawyer’s liability

insurance policy); Sealed Air Corp. v. Royal Indem. Co., 961

A.2d 1195, 1206 (N.J. Super. Ct. App. Div. 2008) (corporation’s

directors and officers policy).

12

to G-I to argue that (1) it was reasonable to expect that the

Hartford policy period would include the period initially covered

by the Reliance policy, and (2) this is one of those situations in

which its reasonable expectations should trump the plain

meaning of the policy. See Pizzullo v. N.J. Mfrs. Ins. Co., 952

A.2d 1077, 1089 (N.J. 2008) (“[I]n some circumstances, we

have recognized that it might be appropriate to permit an

insured’s reasonable expectation to overcome the plain meaning

of a policy.”).

In performing the reasonable-expectations analysis, we

first ask whether, without making a request or receiving some

affirmative signal, an insured can reasonably expect that the

policy period of a new policy it takes out in response to the

financial difficulties of a prior insurer will include the period of

the old policy. If such an inclusion would follow as a matter of

course, that would strengthen G-I’s position considerably.

However, G-I has provided no evidence to show that the process

of acquiring a new policy from one insurer in response to the

financial difficulties of a prior insurer is so standardized or

driven by such determinate purposes that an insured (here G-I)

can reasonably expect a specific relationship between the policy

periods of the prior and new policies. As a result, to put at issue
 As noted, G-I employed an insurance broker, Marsh. 11

Because G-I does not challenge the actions of its broker, we

forgo analysis of agency relationships between or among Marsh,

Hartford, and/or G-I. See Aden v. Fortsh, 776 A.2d 792, 800–01

(N.J. 2001).

13

whether it was reasonable for G-I to have expected the Hartford

policy to cover the entire Reliance policy period, G-I had to

establish either that (1) it requested a policy covering the entire

period and Hartford did not clearly refuse to provide it or, more

generally, that (2) Hartford by its actions or representations

otherwise created a reasonable expectation in G-I that Hartford

would provide such a policy. 

11

G-I has provided no evidence a reasonable jury could use

to find that G-I actually requested a policy from Hartford

covering the amended Reliance policy period of July 1, 1999 to

July 15, 2000. The record contains only the statements of

Flugger:

Q. . . . So you understood that you were going to

have a Hartford policy from a certain date, it

would be effective from a certain date agreed

upon, and your Reliance policy would be canceled

as of that date; is that correct?

A. Yes.
14

Q. . . . You understood that they were two

separate policies[?]

. . .

A. They would have been two separate policies.

. . .

Q. . . . Did you have an understanding that the

effective date would be some time in or about

July of 2000 for [t]he Hartford policy? 

A. Yes.

Q. . . . [D]id you have an understanding that your

Reliance policy would be in effect up until the

date of the cancellation and rewrite? 

A. Either that or they were just going to continue

with the Reliance policy. Basically Hartford

would handle the claims, and Hartford would

collect the premiums and whatever. I believe

there was a bifurcation between the two . . . . I

was going to get Hartford paper for my D and O

policy. 

 Based on this testimony, we cannot say that Flugger asked for
 G-I points to other statements by Flugger describing his 12

expectations regarding the “prior litigation date” under the

Hartford policy. “Prior litigation date” is a technical phrase

referring to a date that precedes the start of the policy period.

Flugger’s statements are irrelevant because we are interested in

his expectations concerning the policy period, not the “prior

litigation date.”

15

a policy covering claims made during the amended Reliance

policy period (July 1, 1999 to July 15, 2000). 

12

As there is no evidence that G-I requested that Hartford

cover a period that included the amended Reliance period, we

turn to whether G-I, based on Hartford’s behavior, could

reasonably have expected Hartford to include in its coverage the

amended Reliance period. G-I has provided no evidence to

support that proposition. It nevertheless points to two factors

that it believes justify a reasonable expectation. First, the

content and administration of the initial Reliance and Hartford

policies were the same. Specifically: (a) in writing the policy,

Hartford did none of the typical underwriting acts of a successor

insurer (e.g., requiring G-I to complete a new application and

provide updated information); (b) the Hartford policy number

remained the same as the initial policy number except for an

“H”; and (c) claims administration pursuant to agreements

between Reliance and Hartford transferred “seamlessly” from

Reliance to Hartford. Second, G-I contends that the handling of

premiums and the liability cap suggested that Hartford assumed
 G-I also points to an affidavit by Flugger that states that a 13

Marsh representative “conveyed Hartford’s offer to assume

responsibilities under G-I’s existing Reliance policy.” Flugger

does not state whether this offer included assumption of liability

for claims made before July 15, 2000. Without more detail

about what “responsibilities” Flugger meant, this lends no

support to G-I.

 The initial Reliance policy states the premium as 14

$185,000, excluding a small state surcharge. The binder for the

Hartford policy lists the premium as $153,935.18. This suggests

that Reliance kept more than $30,000 of the initial premium

when it amended its policy to cover the shorter period of July 1,

1999 to July 15, 2000. Hartford got the rest. 

We note that there is some question whether G-I actually

paid $185,000 for the initial Reliance policy. The premium

listed for the Hartford policy is $121,422, before applying a

16

the old Reliance policy—specifically, (a) G-I never paid

additional premiums, (b) those it paid to Reliance were

transferred directly to Hartford, and (c) an endorsement capped

combined liability of Hartford and Reliance under the policies

at $15 million.13

The handling of premiums and the combined liability cap

could not have created a reasonable expectation that Hartford

would cover the amended Reliance policy period. There is

evidence that Flugger knew that Reliance split the original

policy premium with Hartford. That should have suggested to 14
small state surcharge. This amount differs from the Hartford

policy premium of $153,935.18 listed on the insurance binder

issued by Hartford. By analogy, a discrepancy might also exist

between the premium listed on the initial Reliance policy and

what G-I paid.

Regardless how much premium G-I actually paid, there

is evidence that Reliance split it with Hartford. The record

contains statements by both Flugger and a Hartford employee to

that effect. Flugger stated in an affidavit that a Marsh

representative told him that “unearned” premiums paid by G-I

to Reliance would be forwarded to Hartford. The Hartford

employee stated that “Hartford agreed without reunderwriting to

write a new policy for the remainder of the term for the pro rata

premium that was cancelled out of the Reliance account.”

 We are mindful that Hartford took over 80% of the initial 15

premium, and this exceeded the portion of the initial policy

period that Hartford assumed (roughly 67%). If, as a matter of

industry practice, premium and policy period should be

proportional (a possibility not addressed in the record), then this

suggests that Hartford’s share of the original premium was out

of proportion to its period of coverage.

17

a reasonable corporate insured employing a risk manager that

Reliance and Hartford were splitting the risk insured by the

original policy. Such a splitting of risk should in turn have

suggested to G-I that Reliance and Hartford were splitting the

initial three-year policy period. G-I should have concluded that

Hartford was not agreeing to cover the entire initial Reliance

policy period.15
If Hartford’s share of the original premium were grossly

excessive relative to the portion of the policy period that it

assumed, then it might be reasonable for G-I to expect Hartford

to cover more of the original policy period. G-I has not made

this argument and we can find no evidence that Hartford

received a grossly excessive share of the initial premium in any

event. We therefore do not believe that the mismatch between

premium division and policy period coverages justifies denying

summary judgment here.

18

The combined liability cap also should have suggested to

a reasonable insured that Reliance and Hartford split the risk

(and coverage period) of the initial policy. That policy charged

a certain premium for coverage of $15 million. Because G-I did

not add to the initial premium in obtaining the Hartford policy

(rather, it split the premium between Reliance and Hartford), it

makes sense that combined coverage under the amended

Reliance and Hartford policies would not vary greatly from the

$15 million commanded at the outset by the same premium

(assuming the risk profile of G-I had not changed markedly

since Reliance first wrote its coverage). In fact, the parties kept

the combined limit at the first-set $15 million.

If Hartford had assumed all risk under the initial Reliance

policy, then a reasonable insured would have expected Hartford

to acquire the entire premium G-I had initially paid to Reliance

and to have assumed coverage up to the full $15 million limit.
 As we discussed above, G-I’s sophistication does not 16

prevent us from construing the insurance policies it acquires in

light of its reasonable expectations. It does, however, affect the

analysis of what would count as a reasonable expectation for it

to have had when obtaining a particular policy.

19

That Hartford did not do these things should have put G-I on

notice that, absent other affirmative signs, it could not

reasonably expect Hartford to cover the entire policy period. 

The identity in content and administration of the amended

Reliance and Hartford policies does not change our view. We

may take G-I’s sophistication into account in deciding what was

objectively reasonable for it to expect from its insurers. See

Werner Indus., Inc. v. First State Ins. Co., 548 A.2d 188, 192

(N.J. 1988). Any knowledge of G-I that Hartford had taken 16

over claims administration for Reliance should not reasonably

have caused G-I to expect coverage from Hartford for the entire

policy period. A reasonable insured with enough sophistication

to employ a risk manager would know the difference between

claims servicing and the assumption of liabilities. Similarly, a

sophisticated insured would recognize that use of identical

policy language and a lack of additional underwriting do not

necessarily signal that a new insurer has assumed liabilities

under an old policy. Such an insured would also recognize that

these attributes are consistent with a splitting of risk, policy

periods and premiums between an old and a new insurer. We

thus discern no basis to conclude that G-I could have reasonably
 It is therefore unnecessary for us to decide whether this is 17

one of those instances in which an insured’s reasonable

expectations can trump the plain meaning of the policy

language, an issue with respect to which New Jersey law

provides little guidance.

20

expected its policy with Hartford to cover the Reliance policy

period.17

B. The Interrelated Wrongful Acts Provision

Applies.

As an alternative, G-I claims that even if the Hartford

policy does not cover the entire initial Reliance policy, it covers

the CCR and Claimants Committee actions because plaintiffs in

those actions filed them within the Hartford policy period of

July 15, 2000 to July 1, 2002. In response, Hartford points to

the interrelated wrongful acts provision in the policy, which (as

noted already) deems the filing date for all claims arising out of

the same wrongful act as the filing date of the first such claim.

Because plaintiffs in the Nettles action (the first of the three

fraudulent conveyance actions) filed on January 3, 2000, before

the July 15, 2000 start of the Hartford policy period, the

interrelated wrongful acts provision, Hartford contends, bars

coverage for all three actions.

G-I appears to concede this in the abstract, but counters

that the interrelated wrongful acts provision should not apply to
 As noted above, New Jersey courts, in interpreting 18

insurance contracts, strive to give effect to the reasonable

expectations of the insured, even in some instances where doing

so would run contrary to the contract’s plain meaning. See

Pizzullo, 952 A.2d at 1089. We need not decide whether this is

one of those instances, since an examination of the purposes for

21

this case because the purposes for which insurers include that

provision in contracts do not apply here. Citing insurance

treatises, G-I states that those purposes are (1) to ensure that

risks arising out of the same wrongful act are subject to one

policy and therefore one liability limit, and (2) to prevent

changes in policy language from one policy period to another

from creating disparate coverage determinations for the same

wrongful act. According to G-I, these purposes do not apply

here because the $15 million combined cap on the Hartford

policy and amended Reliance policy already ensures that G-I

cannot recover more than $15 million on all claims combined

for both policies. Because the language of the amended

Reliance and Hartford policies is identical, G-I continues, there

is no danger of disparate coverage determinations, and thus we

should treat the policy’s interrelated wrongful acts provision as

not triggered under the facts of this case.

We are not convinced. Even were we inclined to make

application of the policy’s interrelated wrongful acts provision

contingent on the purposes behind that provision—as opposed

to applying the contract as written —we would still apply the 18
which insurers include interrelated wrongful acts provisions in

contracts fail to reveal anything that would have justified G-I in

thinking that the provision would not apply under the facts

before us. 

22

provision. That is because the interrelated wrongful acts

provision does have a purpose that applies to this case. Such a

provision not only allows insurers to cabin related wrongful acts

to a single policy period (thus subject to one limit), it also, as

one of the treatises that G-I itself cites points out, allows an

insured (such as G-I) to obtain coverage under a new policy,

despite facing additional liability exposure from its past acts, by

“reserving the argument that any future claims arising out of the

interconnected wrongful acts of a previously submitted claim

will be covered by the former policy.” John F. Olson et al.,

Director and Officer Liability: Indemnification and Insurance

§ 12:10 (2008). We thus have ample reason to give effect to the

interrelated wrongful acts provision by barring coverage for the

CCR and Claimants Committee actions under the Hartford

policy.

C. Other Agreements Do Not Make Hartford

Directly Liable For The Fraudulent

Conveyance Actions.

G-I also argues that, even if the Hartford policy does not

cover the three fraudulent conveyance actions, Hartford still

must cover them because agreements between Hartford and
23

Reliance make Hartford directly liable under the amended

Reliance policy. Specifically, G-I contends that (1) the

agreements themselves create direct liability, or (2) the

reinsurance relationship created by them brings this case within

the ambit of Venetsanos v. Zucker, Facher & Zucker, 638 A.2d

1333 (N.J. Super. Ct. App. Div. 1994), which held a reinsurer

directly liable to an insured because of the reinsurer’s close

relationship with the insurer.

1. Hartford’s agreements with Reliance

After Reliance encountered financial difficulties,

Hartford entered into a series of agreements with Reliance

concerning various coverage obligations of Reliance. Contrary

to what G-I argues, however, none of those agreements creates

direct liability of Hartford for the amended Reliance policy.

The Asset Purchase Agreement between Reliance and

Hartford transferred books, records, and renewal rights (among

other things) relating to the amended Reliance policy to

Hartford. It also transferred liabilities associated with the policy

“to the extent that any such liability is applicable to and accrues

with respect to periods subsequent to the Closing [likely June

30, 2000, the date the parties executed the Asset Purchase

Agreement].” We therefore read the Asset Purchase Agreement

to transfer liability to Hartford on the amended Reliance policy
 We realize that the amended Reliance policy covered until 19

July 15, 2001. The difference in dates does not affect our

analysis. The same is true for the Quota Share Reinsurance

Agreement and Claims Servicing Agreements discussed

immediately below.

 The initial Reliance policy permits modification only by 20

endorsement signed by Reliance. The change in policy period

at issue in this case probably required such an endorsement. But

there is none in the record. However, whether the amendment

thus is ineffective is irrelevant to this case because we are

concerned with claims made (or relating back to) before July

2000, and it is undisputed that pre-July 2000 claims fall within

both the initial and amended Reliance policy periods.

24

only for claims made sometime after June 30, 2000. Because 19

the plaintiffs in the Nettles action filed in January 2000, and the

subsequent actions relate back to that date, the Asset Purchase

Agreement did not transfer liability for them to Hartford.20

The Quota Share Reinsurance Agreement makes Hartford

liable for a portion of amounts actually paid by Reliance under

the amended Reliance policy “relating to claims . . . made on or

after” July 1, 2000. As a threshold matter, the Reinsurance

Agreement does not create direct liability to the insured for

Hartford, but only liability of it to Reliance for amounts

Reliance pays out under the amended Reliance policy. But even

if it did, it would not cover the three fraudulent conveyance

actions because the Reinsurance Agreement applies only to
25

claims made on or after July 1, 2000.

Hartford entered into two Claims Servicing Agreements,

one covering claims made on the amended Reliance policy on or

before June 30, 2000, and the other covering claims made after

that date. Hartford agreed to adjust, defend, and in some cases

settle (on Reliance’s behalf) claims under Reliance policies.

Both agreements contain a provision stating that Hartford “is in

no event financially responsible for payment or satisfaction of

‘claims,’ lawsuits, or any form of cause of action against any

‘named insured’ under the ‘policy(ies).’” Thus, here too there is

no basis for imposing direct liability on Hartford.

2. Hartford’s relationship with Reliance

G-I argues additionally that, even if none of the specific

agreements between Hartford and Reliance makes Hartford

liable under the amended Reliance policy, the close relationship

created by those agreements had the effect of making Hartford

generally responsible for Reliance’s coverage obligations. We

disagree.

As noted above, this particular argument of G-I’s is

drawn from Venetsanos. In that case, the insurer, Homestead,

“front[ed]” in New Jersey despite its lack of an insurance license

by reinsuring a licensed insurer, Mutual, that it controlled.

Venetsanos, 638 A.2d at 1334–35, 1337. Homestead (1) had

“the entire exposure for [policy] liability,” id. at 1336, (2) had
26

final decision-making authority over whether to pay, id. at 1335,

(3) conducted the insurance investigation, id., (4) was

responsible for negotiation and settlement, id. at 1337, and (5)

acted as the agent for service of process on Mutual, id. at 1336.

Although Venetsanos recognized the “general rule that an

original insured does not enjoy a right of direct action against a

true reinsurer,” id. at 1339, it held that Homestead was directly

liable on the policy, id. at 1340, noting that “[w]here . . . the

reinsuring agreement itself provides . . . that it takes charge of

and manages the defense of suits against the original insured,

the reinsurer may be held to be a ‘privy’” to the insured’s action

against the insurer. Id. at 1339.

The Court in Venetsanos was concerned with protecting

the ability of a New Jersey-insured to seek redress against a

foreign “fronter” in New Jersey courts. Id. at 1338–39. The

insurer, Mutual, had entered rehabilitation proceedings in

Pennsylvania and the Court was concerned that the plaintiff

would find it difficult to litigate its bad faith and coverage

claims in a foreign jurisdiction, particularly where, as in that

case, the reinsurance agreement had not been located. Id.

Our case differs much from Venetsanos because (1)

Hartford did not have the same level of control over Reliance

that Homestead had over Mutual and (2) there is no allegation

of fronting. The Asset Purchase Agreement does not confer

control over defense and settlement of claims under the

amended Reliance policy and, as we remarked above, does not
We consider misleading G-I counsel’s conclusory 21

statement in its opening brief that, under the Reinsurance

Agreement, “Hartford will reimburse one hundred percent

(100%) of any payments by Reliance.” The relevant provisions

of the Agreement are more nuanced. They read:

The Ceding Company [Reliance] cedes and the

Reinsurer [Hartford] hereby accepts one hundred

percent (100%) of the Ceding Company’s Net

Liability . . . for Ultimate Net Loss relating to

claims . . . made on or after the Effective Time

[July 1, 2000].

“Ultimate Net Loss” means that amount [of

27

transfer liability for the fraudulent conveyance actions to

Hartford. The Quota Share Reinsurance Agreement irrevocably

makes Hartford Reliance’s “lawful attorney-in-fact . . . , with

full power of substitution[,]” in defending, settling and

otherwise administering claims under the amended Reliance

policy, but only “with respect to claims made on or after” July

1, 2000. The Reinsurance Agreement thus did not cede

Reliance’s control over the earlier-filed Nettles action or the

other two fraudulent conveyance actions, the filing dates of

which relate back to that of the first action. As we already

noted, the Reinsurance Agreement also did not reinsure Reliance

for the fraudulent conveyance claims. (Even if it did, it did not

do so fully, as that Agreement commits only a share of losses to

Hartford. ) The Claims Servicing Agreements specifically 21
losses] that the Ceding Company has paid . . . .

“Net Liability” means . . . that portion of any

Ultimate Net Loss that the Ceding Company has

retained net for its own account after the

application of all reinsurance . . . , which shall be

a percentage of the Ceding Company’s gross

liability for losses, which percentage shall be the

applicable quota share percentages indicated in

Attachment A . . . and shall not exceed the limits

set forth therein. Reinsurer’s liability hereunder

with respect to any loss or losses shall not be

increased by reason of the inability of the Ceding

Company to collect from any other reinsurers,

whether specific or general, any amounts which

may be due from them, whether such inability

arises from the insolvency of such other reinsurers

or otherwise . . . . 

These provisions tie Hartford’s liability to percentages (most

less than 100) contained in Attachment A to the Reinsurance

Agreement.

28

preserved the authority of Reliance to direct Hartford in the

handling of any claim. In this context, Venetsanos is simply off

track from our case.

We note in addition that we are particularly reluctant to

permit direct recovery by the insured against the reinsurer in this
29

case because of Reliance’s Pennsylvania liquidation proceeding.

Doing so could expose Hartford to double liability because

Pennsylvania law does not reduce a reinsurer’s liability to the

insurer’s estate as a result of direct payments to the insured. 40

Pa. Cons. Stat. § 221.34. Direct recovery would also prevent the

Pennsylvania liquidator from equitably apportioning the

recovery among all insureds. See id. § 221.1(c)(iv). We believe

G-I should stand in line in Pennsylvania with other insureds.

See generally James E. Rudnik, Reinsurance as a Source of

Recovery for Insured Losses, 15-Jan. Construction Law. 31,

33–34 (1995). 

D. Judicial Estoppel Does Not Apply to

Hartford’s Invoking Of The Interrelated

Wrongful Acts Provision.

In its first complaint, G-I argued that Hartford was liable

on the amended Reliance policy solely because of its reinsurance

and other agreements with Reliance. It did not yet argue, as it

does here, that Hartford was liable for the CCR and Claimants

Committee actions under the Hartford policy. In motioning to

dismiss the complaint in November 2002, Hartford claimed that

it was not bad faith to deny coverage of the CCR and Claimants

Committee actions because, regardless whether Hartford’s

agreements with Reliance created direct liability for the

amended Reliance policy, both actions were filed after the end

of the amended Reliance policy period. In making this

argument, Hartford ignored the interrelated wrongful acts
30

provision in the amended Reliance policy. As we have seen,

that provision relates the filing dates for the CCR and Claimants

Committee actions back to the Nettles action filed during the

Reliance policy period.

In February 2003, G-I amended its complaint to claim

coverage under the Hartford policy. In response to G-I’s new

claim, Hartford changed its position. In March 2003, it obtained

permission from the District Court to withdraw its initial brief

and filed a new one invoking the interrelated wrongful acts

provision in the Hartford policy to deny coverage for the two

later actions. It now argued—as it does here—that, due to that

provision, the two later actions relate back to the amended

Reliance policy period. The District Court denied the motion to

dismiss but, as we have seen, eventually granted summary

judgment based in part on the interrelated wrongful acts

provision.

G-I argues that, because Hartford initially argued that the

CCR and Claimants Committee actions were not covered by the

Reliance policy, it should not be allowed to invoke the

interrelated wrongful acts provision to deny coverage for those

actions under the Hartford policy. Under the doctrine of judicial

estoppel, a court can defend the integrity of the judicial process

by barring a party from taking contradictory positions during the

course of litigation. See, e.g., Zedner v. United States, 547 U.S.

489, 504 (2006); Scarano v. Cent. R.R. Co. of N.J., 203 F.2d

510, 513 (3d Cir. 1953); Ali v. Rutgers, 765 A.2d 714, 718 (N.J.
31

2000). 

As a threshold matter, we consider whether in diversity

cases we should apply federal or state judicial estoppel law. In

general, federal courts apply state law in diversity cases, at least

where that law is substantive in nature. See Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938). But where an area of law

implicates a “strong federal policy,” federal law may apply.

Byrd v. Blue Ridge Rural Elec. Coop., 356 U.S. 525, 538 (1958).

We have long avoided deciding whether federal judicial

estoppel law applies in diversity cases. See In re Chambers

Dev. Co., 148 F.3d 214, 229 n.13 (3d Cir. 1998); Ryan

Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355,

358–59 & n.2 (3d Cir. 1996). But today we weigh in, as we

believe that “[a] federal court’s ability to protect itself from

manipulation by litigants should not vary according to the law

of the state in which the underlying dispute arose.” Ryan

Operations, 81 F.3d at 358 n.2. In doing so, we follow five

other Courts of Appeals. See Eastman v. Union Pac. R.R. Co.,

493 F.3d 1151, 1156 (10th Cir. 2007); Ogden Martin Sys. of

Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 527 n.1 (7th

Cir. 1999); Rissetto v. Plumbers and Steamfitters Local 343, 94

F.3d 597, 603–04 (9th Cir. 1996); Guinness PLC v. Ward, 955

F.2d 875, 899 n.20 (4th Cir. 1992) (quoting Allen v. Zurich Ins.

Co., 667 F.2d 1162, 1167 n.4 (4th Cir. 1982)); Edwards v. Aetna
 Other Courts, however, have gone the other way or are 22

uncertain. See, e.g., Monterey Dev. Corp. v. Lawyer’s Title Ins.

Corp., 4 F.3d 605, 608–09 (8th Cir. 1993) (applying state law);

Konstantinidis v. Chen, 626 F.2d 933, 937–38 (D.C. Cir. 1980)

(same); see also Alternative Sys. Concepts, Inc. v. Synopsys,

Inc., 374 F.3d 23, 32 (1st Cir. 2004) (stating that “[a]s judicial

estoppel appears neither clearly procedural nor clearly

substantive, there may be a legitimate question as to whether

federal or state law . . . should supply the rule of decision,” but

declining to answer it).

32

Life Ins. Co., 690 F.2d 595, 598 n.4 (6th Cir. 1982).22

Though there is no rigid test for judicial estoppel, three

factors inform a federal court’s decision whether to apply it:

there must be (1) “irreconcilably inconsistent positions;” (2)

“adopted . . . in bad faith;” and (3) “a showing that . . . estoppel

. . . address[es] the harm and . . . no lesser sanction [is]

sufficient.” Chao v. Roy’s Constr., Inc., 517 F.3d 180, 186 n.5

(3d Cir. 2008) (internal quotation marks omitted). We do not

consider these factors, however, because, in our Circuit judicial

estoppel is generally not appropriate where the defending party

did not convince the District Court to accept its earlier position.

United States v. Pelullo, 399 F.3d 197, 222–23 (3d Cir. 2005)

(quoting New Hampshire v. Maine, 532 U.S. 742, 750–51

(2001)); Dam Things From Denmark v. Russ Berrie & Co., Inc.,

290 F.3d 548, 559 n.16 (3d Cir. 2002); Montrose Med. Group

Participating Sav. Plan v. Bulger, 243 F.3d 773, 778 (3d Cir.
33

2001).

Here the District Court never accepted Hartford’s prior

position. Hartford withdrew that position and asserted its new

one (i.e., that the interrelated wrongful acts provision applies)

before the Court ruled on its motion to dismiss. When it did

rule, the Court did not rely on Hartford’s initial position.

Rather, it held against Hartford without discussing either

Hartford’s prior or new position. On summary judgment,

Hartford reasserted its new position, and the District Court

relied on it. Because the Court never relied on Hartford’s first

position, we shall not bar its new one. 

We do not mean to suggest that where no court has

accepted an initial position, judicial estoppel can never apply. 

We will apply it to neutralize threats to judicial integrity

however they may arise. For example, in Krystal CadillacOldsmobile GMC Truck, Inc. v. General Motors Corporation,

337 F.3d 314 (3d Cir. 2003), a bankruptcy case, we applied

judicial estoppel even though no court had ever relied on the

debtor’s initial position. Id. at 320–21. We did so because

creditors almost certainly had relied on it, undermining the

bankruptcy process by weakening their bargaining position. Id.

at 324–25. 

Here, G-I has provided no evidence of a threat to judicial

integrity other than Hartford’s inconsistent positions. We

believe applying judicial estoppel here presents a greater threat
34

to judicial integrity. We do not preclude arguments not accepted

by the District Court in part to ensure that the order in which a

party presents its claims does not determine the outcome of a

case. Without this limitation, an amendment to a complaint can

checkmate opposing counsel by introducing a new claim the

defense of which contradicts the opposition’s initial position.

By amending its complaint, a plaintiff could (intentionally or

not) force the defense to choose between conceding the old

claim or the new one. That result is undesirable because a

defendant ought to have the opportunity to put up the best

possible defense in light of all the claims against it. Where, as

here, a defendant has changed position in response to an

amended complaint, there is no offense to the integrity of the

judicial process warranting estoppel. There is only danger to

that process averted.

IV. CONCLUSION

Because it was concerned that Reliance would become

insolvent, G-I shifted part of the risk under an existing Reliance

policy to Hartford. For a higher price, it might have shifted all

of it. Because it did not pay that higher price and Reliance

became insolvent, G-I must seek coverage for risks it kept with

Reliance in that company’s liquidation proceeding. Hartford,

both in its dealings with Reliance and in the policy it issued to

G-I, sought only to cover risks starting in July 2000 that were

not otherwise excluded (such as by the interrelated wrongful

acts provision). It shielded itself from the claims for which G-I
35

now seeks coverage. We decline to tamper with this scheme.

Although Hartford switched its position before the District

Court, that Court did not rely on the earlier position, and thus as

a threshold matter we will not bar the change. We therefore

affirm in all aspects.