Opinion ID: 808087
Heading Depth: 2
Heading Rank: 5

Heading: All loss settlements made by

Text: the Company, provided they are within the terms and conditions of this Certificate of Reinsurance, shall be binding on the Reinsurer. 11 Upon receipt of a definitive statement of loss, the Reinsurer shall promptly pay its proportion of such loss as set forth in the Declarations. In addition thereto, the Reinsurer shall pay its proportion of expenses (other than office expenses and payments to any salaried employee) incurred by the Company in the investigation and its proportion of court costs and interest on any judgment or award, in the ratio that the Reinsurer‘s loss payment bears to the Company‘s gross loss payment . . . . The Certificate goes on to define the components of a DSOL, referred to in the first sentence of Paragraph D and the second of Paragraph E, as ―those parts or portions of the Company‘s investigative claim file which in the judgment of the Reinsurer are wholly sufficient for the Reinsurer to establish adequate loss reserves and determine the propensities of any loss reported hereunder.‖ Id. D. Buffalo Forge Gives Notice to PEIC; PEIC Gives Notice to Global In the early 1990s, claimants across the country began inundating Buffalo Forge with asbestos-related lawsuits. It first notified PEIC, its excess carrier, of these claims and suits in April 2001. By 2004, Buffalo Forge‘s Primary Policy was exhausted. Beginning in October 2005, PEIC instructed its broker to keep its reinsurers informed about developments in the Buffalo Forge matter. PEIC asked its broker to forward 12 billings, notices, and updates to its reinsurers in 2006, 2007, and 2008, but apparently the broker failed to do so. Instead, PEIC first told Global, having succeeded Constitution, about the Buffalo Forge matter in April 2008 when it sent a one-page claim report to Global‘s New York office. The report did not demand any payment from Global. It was not until more than a year later, in September 2009, that PEIC‘s payments under the Excess Policy exceeded its $1 million retention. Around that time, PEIC sent its first bill, dated September 2, 2009, for $559,071.67 to Global‘s New York office through PEIC‘s Minnesota broker. PEIC also emailed a copy directly to Global. Along with the billing, PEIC submitted supporting information and portions of its investigative claim file. On October 6, 2009, Global responded with a reservation-of-rights letter to PEIC‘s Philadelphia office that, among other things, requested additional information and disputed some areas of coverage. On November 2 and 4, 2009, Global audited PEIC‘s files at PEIC‘s offices in Philadelphia. During the audit, Global apparently discovered that PEIC first received notice of the Buffalo Forge matter in April 2001, yet PEIC did not notify Global of the Buffalo Forge situation until April 2008. In a November 11, 2009 letter, Global asserted a late-notice defense. E. The District Court Proceedings In December 2009, PEIC sued Global for breach of contract, seeking $559,072 and a declaration of its rights. Global answered, denied liability, and asserted a counterclaim for its own declaratory relief. Specifically, it sought a declaration that it had no liability under the Certificate because PEIC failed to satisfy Paragraph D‘s DSOL requirement. In the alternative, it sought a declaration that the Certificate capped its maximum liability at $1 million, 13 inclusive of expenses. Global moved for a judgment on the pleadings on this issue, and the District Court agreed that the Certificate‘s $1 million limit is unambiguously inclusive of expenses. In May 2011, the District Court denied Global‘s motion for summary judgment on the Certificate liability issue. See Pac. Emp’rs Ins. Co. v. Global Reinsurance Corp. of Am., No. 09-6055, 2011 WL 2003359 (E.D. Pa. May 23, 2011). The Court found that Paragraph D‘s DSOL provision unambiguously requires PEIC to provide Global with a DSOL promptly after Buffalo Forge reports a claim or occurrence involving a death, serious injury, or lawsuit to PEIC under the Excess Policy, not promptly after Buffalo Forge reports such a claim to PEIC and PEIC submits a claim for payment to Global under the Certificate. Further, the Court found that PEIC‘s compliance with Paragraph D‘s DSOL provision is unambiguously a condition precedent to Global‘s obligation to provide reinsurance coverage altogether, rather than simply a condition precedent to Global‘s obligation to remit payment promptly. The Court also addressed whether Paragraph D‘s DSOL provision is enforceable as written. Global claimed that New York law applied while PEIC insisted that Pennsylvania law did. The Court acknowledged, as the parties agreed, that under New York law when a reinsurance contract expressly sets prompt notice as a condition precedent to coverage, a court will enforce the condition as written and not require the reinsurer to prove prejudice in the event of late notice. As there was no holding from the Supreme Court of Pennsylvania directly on point, the District Court ―predict[ed] that the Pennsylvania Supreme Court would hold [contrary to New York law] that a reinsurer must prove prejudice to avoid coverage even where the cedant breached a notice condition that is a condition precedent.‖ Confronted with a true 14 conflict, the Court conducted a choice-of-law analysis and concluded that Pennsylvania‘s predicted must-show-prejudice rule applied. Because Global failed to allege facts to support a finding of prejudice, the Court ruled that Global could not succeed under Pennsylvania law. After the denial of Global‘s motion for summary judgment, the parties agreed that there were no issues left for trial and stipulated to entry of a final judgment that embodied the Court‘s rulings. The Final Order and Judgment decrees that PEIC shall recover from Global $507,926 plus interest and that Global must pay all future billings under the Certificate up to $1 million, inclusive of expenses. PEIC appeals the District Court‘s interpretation of Paragraph D‘s DSOL provision and Global challenges the District Court‘s prediction of Pennsylvania law and its choice-of-law analysis. PEIC also appeals the Court‘s limitof-liability ruling.3