Opinion ID: 148187
Heading Depth: 3
Heading Rank: 2

Heading: The Settlement Negotiations

Text: Acme initially sought coverage for the tens of thousands of breast implant claims brought against it under the AL policies, and sought coverage for the chemical products claims under both the XS policies and the XN policies. [13] At first, Aetna CS declined coverage, and then, starting in February 1996, made a series of settlement offers to Acme, each of which was rejected. Upon its acquisition of Aetna CS, Travelers restarted settlement negotiations from scratch. Negotiations were handled, from Travelers' end, by Timothy Yessman, who was Senior Vice President of Travelers' Special Liability Group, and Susan Stonehill-Clafin, who was General Counsel for Travelers' Environmental Litigation Group. Yessman acted as lead negotiator, while Stonehill-Clafin provided legal advice. Up to that point, Acme had not yet settled, or received an adverse judgment on, any of the claims against it, but had incurred substantial defense costs. Accordingly, the parties focused initially on reaching a coverage-in-place deal. Under such an arrangement, Travelers would agree to pay a fixed sum to cover Acme's past losses, and, for Acme's future losses, the parties would work out a formula for matching the specific claims against Acme to the specific insurance policies. Travelers would then make payments pursuant to that formulasubject to a finite capas Acme's ultimate liability developed. In its negotiations with Acme about how to characterize the claims for which coverage was being sought, Travelers was adamant about two pointsthat the breast implant claims were products claims, and thus were not covered by the AL policies, [14] and that they arose out of a single occurrence (namely, a single act of negligent testing on Acme's part). According to testimony Yessman later provided, it was the number of occurrences issue that was viewed as the most critical. Because the AL policies possessed per-occurrence limits, but were not (for the most part) subject to aggregate limits, Travelers' greatest concern was that the breast implant claims would be characterized as non-products claims arising out of multiple occurrences. Under such a scenario, it was possible that Travelers' exposure under the AL policies would be exponentially greater, at least if the liability for each occurrence was below the per-occurrence limit. [15] While the negotiations with Acme were ongoing, Yessman had Mark Wigmore, a Vice-President and Associate General Counsel in Travelers' reinsurance department, produce a memo (the Wigmore Memo) that became central to the litigation that followed. [16] The Wigmore Memo explored the reinsurance implications of different coverage scenarios for the breast implant claims. The Memo noted a number of issues of potential concern, only two of which are particularly germane to this appeal. First, the Memo suggested that, because Travelers could not collect captive reinsurance on payments made to cover defense costs unless it also paid out in indemnity, it was possible that Acme [would] litigate each and every case to the fullest extent, without making any settlements, in order to avoid its . . . reinsurance obligations. (J.A. at 615.) Second, the Memo mentioned that, if the breast implant claims were determined to be non-products claims arising out of multiple occurrences, Acme might never get out of the AL layer of coverage and into the reinsured XN layer, since, if the liability for each occurrence was low enough, it was possible that it would never exhaust the per-occurrence limits of the AL policies not subject to aggregate limits. The Memo also speculated that, if Travelers were to bill its reinsurers based on a single occurrence characterization, [c]ollection [from them would] likely . . . be more difficult, but that, if Acme agreed to that characterization in any settlement, Travelers would have a strong position in litigation or arbitration with its reinsurers. (J.A. at 616.) The final settlement meeting between Travelers and Acme took place on July 7, 1998, at which point both parties changed their approach. Acme proposed moving to an all-cash net settlement. That meant that, rather than (as with a coverage-in-place deal) coming up with a formula for how to treat Acme's future losses, Travelers would simply pay Acme a lump sum forgoing both retrospective premiums and captive reinsurancein exchange for Acme releasing all of its future claims under the policies. [17] Travelers accepted the proposal and, with the new framework in place, the parties quickly agreed on a figure of $137 million. They then decided that, of that $137 million, $80 million would be dedicated to the breast implant claims, $20 million would be dedicated to the chemical products claims, and the remaining $37 million would go to claims that are not at issue in this case. In addition, the parties agreed that the breast implant claims would be treated as non-products, single occurrence claims, while the chemical products claims would be treated as products claims. Beyond that, they did not come to any agreement about how to allocate the settlement to the specific policies potentially implicated.