Court Opinion

ID: 5141008
Source: CourtListenerOpinion
Date Created: 2021-12-28 15:00:16.60528+00
Date Added: 2024-06-11T09:17:34.744365
License: Public Domain

20-1476
Glob. Reins. Corp. of Am. v. Century Indem. Co.

                           In the
               United States Court of Appeals
                       FOR THE SECOND CIRCUIT

                               AUGUST TERM 2020
                                 No. 20-1476

          GLOBAL REINSURANCE CORPORATION OF AMERICA,
        SUCCESSOR IN INTEREST TO CONSTITUTION REINSURANCE,
                            CORPORATION,
                Plaintiff-Counter-Defendant-Appellant,

                                         v.

                 CENTURY INDEMNITY COMPANY,
       SUCCESSOR IN INTEREST TO CCI INSURANCE COMPANY,
SUCCESSOR IN INTEREST TO INSURANCE COMPANY OF NORTH AMERICA,
               Defendant-Counter-Claimant-Appellee.

            On Appeal from the United States District Court
                for the Southern District of New York

                            ARGUED: JUNE 3, 2021
                         DECIDED: DECEMBER 28, 2021

Before:        CALABRESI, POOLER, and MENASHI, Circuit Judges.
      Global Reinsurance Corporation of America appeals from the
judgment of the U.S. District Court for the Southern District of New
York (Schofield, J.) denying its request for a declaratory judgment.
Global issued ten facultative reinsurance certificates to Century
Indemnity Company, pursuant to which Global agreed to indemnify
Century for losses and litigation expenses that Century might incur
in connection with the liability policies it had issued to Caterpillar
Tractor Company. After Caterpillar incurred losses and expenses, it
received insurance payments from Century. Century then sought
reinsurance payments from Global. When Century billed Global,
however, Global sought a judicial declaration that the policy limits of
the reinsurance certificates capped Global’s reinsurance obligations
with respect to both losses and expenses. The district court rejected
this view. It held that litigation costs were not subject to the policy
limits because the certificates contained a follow-form provision that
incorporates into the certificates the terms and conditions of the
underlying Century policies, which made defense costs payable in
addition to the policies’ limits. We affirm this judgment and hold that
the certificates’ policy limits are not inclusive of defense costs. In so
holding, we recognize that our prior decisions in Bellefonte Reinsurance
Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990), and
Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049
(2d Cir. 1993), which concerned matters of New York law, have been
undermined by an intervening decision of the New York Court of
Appeals and no longer constitute the law of our circuit.

                                   2
            SEAN THOMAS KEELY (John M. O’Bryan, on the brief),
            Freeborn & Peters LLP, New York, NY, for Plaintiff-
            Counter-Defendant-Appellant.

            JONATHAN D. HACKER, O’Melveny & Myers LLP,
            Washington, D.C. (Anton Metlitsky, O’Melveny & Myers
            LLP, New York, NY; Daryn Earl Rush, White and
            Williams LLP, Philadelphia, PA, on the brief), for
            Defendant-Counter-Claimant-Appellee.

            Steven C. Schwartz, Karen C. Baswell, Chaffetz Lindsey
            LLP, New York, NY, for amici curiae Aon Benfield U.S., Guy
            Carpenter & Company, LLC, and Willis Re Inc.

MENASHI, Circuit Judge:

      Plaintiff-Counter-Defendant-Appellant Global Reinsurance
Corporation of America appeals from the judgment of the U.S.
District Court for the Southern District of New York (Schofield, J.)
denying Global’s request for a declaratory judgment.

      Global issued ten facultative reinsurance certificates to
Defendant-Counter-Claimant-Appellee           Century       Indemnity
Company, pursuant to which Global agreed to indemnify Century for
losses and litigation expenses Century might incur in connection with
commercial liability policies Century had issued to Caterpillar Tractor

                                  3
Company.     1   After Caterpillar incurred losses and expenses, it
received insurance payments from Century. Century then sought
reinsurance payments from Global. When Century billed Global,
however, Global sought a judicial declaration that the policy limits of
the reinsurance certificates capped Global’s reinsurance obligations
with respect to both losses and defense costs. Century contended that
the policy limits applied only to indemnity losses and that Century’s
litigation costs were payable in addition to the policy limits.

      Applying our decisions in Bellefonte Reinsurance Co. v. Aetna
Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990), and Unigard Security
Insurance Co. v. North River Insurance Co., 4 F.3d 1049 (2d Cir. 1993),
the district court ruled for Global, holding that the policy limits
imposed a cap on Global’s liability with respect to both losses and
defense costs. Century appealed this decision, arguing that Global’s
reinsurance certificates did not cap payments related to litigation
expenses. This was so, Century argued, because the reinsurance
certificates were written to be “concurrent with,” or the same as, the
policies Century had issued to Caterpillar, under which Century’s
obligation to pay for Caterpillar’s defense against covered claims was
not subject to the policies’ liability limits. Century argued that
concurrency was not only expressed in the language of the certificates
but also fundamental to the reinsurance market itself and that our
court erred in Bellefonte and Unigard by disregarding this crucial
principle.

1 For clarity, this opinion refers to the current parties-in-interest, Global
Reinsurance Corporation of America and Century Indemnity Company,
rather than to their predecessors-in-interest.

                                     4
      We thought this argument merited further consideration and
therefore asked the New York Court of Appeals by means of a
certified question whether New York law imposed a rule of
construction or a strong presumption that a reinsurance certificate’s
liability limit caps the reinsurer’s liability with respect to both
indemnity losses and defense costs regardless of whether the
underlying policy being reinsured is understood to cover defense
costs in excess of the policy’s liability limit. The Court of Appeals
answered that New York law imposes no such rule of construction or
presumption. Reinsurance contracts, the Court of Appeals explained,
are subject to ordinary rules of contract interpretation. After receiving
this answer, we remanded the case to the district court, instructing it
to construe the reinsurance certificates according to the language of
those certificates and the specific context of reinsurance.

      On remand, the district court reversed its prior decision. It held
that the reinsurance certificates do not cap Global’s obligation to pay
its proportionate share of Century’s defense costs when Century
suffers indemnity losses. The district court explained that concurrent
treatment of defense costs was incorporated into the certificates
through each certificate’s “follow-form” clause, which made Global’s
reinsurance subject to the same terms and conditions of the
underlying Century policies except as otherwise specifically
provided. Finding that no provision specifically provided for non-
concurrent treatment of defense costs and that the testimony of
Century’s expert witnesses as to the presumption of concurrency in
the reinsurance market was credible, the district court denied Global’s
request for declaratory relief. Global appeals from that judgment.

                                   5
      Applying ordinary rules of contract interpretation, we agree
with the district court: the reinsurance certificates’ follow-form
clauses require Global to pay its proportionate share of Century’s
defense costs in excess of the certificates’ liability limits. We base this
conclusion on the certificates’ unambiguous language as well as the
testimony of Century’s experts confirming that a strong presumption
of concurrency prevailed in the reinsurance market at the time the
certificates were issued. To the extent that Bellefonte and Unigard
suggest a different outcome, we conclude that those cases have been
undermined by the decision of the New York Court of Appeals
answering our certified question. For that reason, Bellefonte and
Unigard no longer constitute the law of our circuit. Accordingly, we
affirm the judgment of the district court.

                           BACKGROUND

                                     I

      From 1962 to 1981, Century Indemnity Company issued
liability insurance policies to Caterpillar Tractor Company. The
policies obligated Century to indemnify Caterpillar for loss or
damages resulting from third-party claims up to the stated liability
limit for each policy. In addition to paying indemnity losses—that is,
settlements and judgments—on covered claims, Century was also
required under the policies to participate in Caterpillar’s defense
against claims or to help pay for the costs of Caterpillar’s defense.
Under the terms and conditions of the policies, Caterpillar’s defense
costs were payable in addition to the applicable limits on liability
under the policies. In other words, Century’s payments for

                                    6
Caterpillar’s litigation expenses did not count toward the policies’
liability limits. 2

       Century decided to reinsure 3 the policies and accordingly
executed facultative reinsurance certificates with Global Reinsurance
Corporation of America. In a facultative reinsurance transaction, the
company purchasing reinsurance—known as the “cedent”—sells, or
“cedes,” all or a portion of the risk under a single insurance policy to
the reinsurance provider. The reinsurer has the ability, or “faculty,”
to accept or reject the risk of any given policy on an individual basis. 4
Under such agreements, the cedent pays the reinsurer a premium for
assuming a portion of the risk under the policy being reinsured.
Between 1971 and 1980, Global issued ten facultative certificates that
reinsured policies Century had issued to Caterpillar.

       The certificates begin with a preamble expressing Global’s
general promise to reinsure. For example, one certificate opens:

2  Century’s obligation to pay Caterpillar’s defense costs ceased once
Century’s indemnity payments exhausted the policies’ liability limits. See
J. App’x 296 (Hall Statement ¶ 24).
3 “Reinsurance is the insurance of one insurer (the ‘reinsured’) by another
insurer (the ‘reinsurer’) by means of which the reinsured is indemnified for
loss under insurance policies issued by the reinsured to the public.” In re
Liquidation of Union Indem. Ins. Co. of N.Y., 89 N.Y.2d 94, 105-06 (1996)
(internal quotation marks omitted).
4 In contrast to facultative reinsurance, “treaty reinsurance” involves the
transfer of a portion of the risk of numerous insurance policies issued to
different policyholders covering an entire class of risk. In such transactions,
the reinsurer is usually obligated to reinsure any policy that falls within the
defined class of risk being reinsured.

                                      7
      In consideration of the payment of the premium, and
      subject to the terms, conditions, and limits of liability set
      forth herein and in the Declarations made a part hereof,
      the Reinsurer [Global] does hereby reinsure the ceding
      company [Century] named in the Declarations (herein
      called the Company) in respect of the Company’s
      policy(ies) as follows.
J. App’x 193. In another representative certificate, to which the parties
refer as “Certificate X,” the “Declarations” consist of five “Items” that
outline Global’s reinsurance obligations. 5 Item 1 provides that the
“Type of Insurance” being reinsured is “Blanket General Liability,
excluding Automobile Liability as original.” J. App’x 168. Item 2 sets
forth the “Policy Limits and Application,” which is “$1,000,000 each
occurrence as original.” Id. Item 3 provides a “Company Retention”
of “$500,000 of liability as shown in Item #2 above.” Id. Item 4 specifies
the “Reinsurance Accepted” by Global and provides that Global will
reinsure “$250,000 part of $500,000 each occurrence as original excess
of the Company’s retention as shown in Item #3 above.” Id. Finally,
Item 5 identifies the “Basis” of coverage as “Excess of Loss.” Id.

      Taken together, the Declarations of Certificate X structure
Global’s reinsurance obligations as follows. For the first $500,000 of
indemnity losses suffered by Century, Global has no liability. Those
losses fall within the primary layer of coverage—the $500,000
retention—that Century did not reinsure. Once Century’s indemnity

5 The ten reinsurance certificates and the underlying policies do not use
identical language, but the parties have stipulated that the differences in
language between the certificates and policies are not material. See J. App’x
854 n.1. Accordingly, this opinion relies on the preamble quoted above and
the language of Certificate X to establish the meaning of all of the
certificates.

                                     8
losses exceed the $500,000 retention, Global becomes obligated to pay
“$250,000 part of $500,000,” or 50 percent, of Century’s losses for each
“occurrence” covered by the policy, up to the policy limit of
$1,000,000. The reinsurance thus provides an excess layer of coverage
above the primary layer, with Century bearing 100 percent of the risk
in the primary layer and Global bearing 50 percent of the risk in the
excess layer. In exchange for taking on 50 percent of the risk in the
excess layer, Century paid Global 50 percent of the net premium
Century received on that layer. Century took out a separate
reinsurance policy with another company for the remaining 50
percent of the risk in the excess layer, making the layer fully
reinsured.

      The reinsurance certificates each contain a standard “follow-
form” or “follow-the-fortunes” clause, which incorporates into
Global’s reinsurance the terms and conditions of the Century policies.
In Certificate X, the follow-form clause provides that “the liability of
the Reinsurer specified in Item 4 above [the ‘Reinsurance Accepted’
provision] shall follow that of the Company and, except as otherwise
specifically provided herein, shall be subject in all respects to all the
terms and conditions of the Company’s policy.” Id. at 169. In industry
parlance, this provision means that Global’s reinsurance liability is
“concurrent with,” or the same as, Century’s liability under the
underlying policy. In addition to the follow-form clause, the
certificates each contain a payments provision that explains how
Global’s reinsurance liability is calculated. In Certificate X, the
payments provision provides that “[a]ll claims involving this
reinsurance, when settled by the Company, shall be binding on the
Reinsurer, who shall be bound to pay its proportion of such
settlements, and in addition thereto, in the ratio that the Reinsurer’s

                                   9
loss payment bears to the Company’s gross loss payment, its
proportion of expenses … incurred by the Company in the
investigation and settlement of claims or suits.” Id.

      In the late 1980s, Caterpillar began to be sued for bodily injuries
allegedly resulting from exposure to asbestos contained in Caterpillar
products. Caterpillar sought coverage and defense for these claims
through a successful declaratory judgment action it filed against
Century in Illinois state court. See Caterpillar, Inc., v. Century Indem.
Co., No. 3-09-0456, 2011 WL 488935 (Ill. App. 3d Feb. 1, 2011). As a
result of that judgment and related settlements, Century became
obligated to indemnify Caterpillar for certain amounts Caterpillar
had paid as damages to asbestos claimants and for costs Caterpillar
had incurred to defend itself against covered claims. Century has
since taken over the defense of asbestos claims against Caterpillar and
continues to pay loss settlements and litigation expenses incurred in
connection with those claims.

      When Century’s payments to Caterpillar exceeded the
reinsurance certificates’ retentions, Century began billing Global for
its proportionate share of indemnity losses and defense costs. In each
case that Century demanded payment, Global paid up to the dollar
amount stated in the applicable “Reinsurance Accepted” provision
but refused to pay any amounts—whether for indemnity or defense
costs—that exceeded the dollar figures listed in those provisions.
Global maintained that the dollar amount stated in each Reinsurance
Accepted provision established a cap on its liability to Century with
respect to both indemnity losses and defense costs. In Global’s view,
therefore, once its total payments to Century reached the amount
listed in each Reinsurance Accepted provision, it had no further

                                   10
obligation to indemnify Century. Global thus took the position that,
unlike the underlying Century policies, its payments for Century’s
defense costs were subject to the liability limit set forth in each
certificate. Century took the opposite position, arguing that the
certificates were concurrent with the underlying policies with respect
to the treatment of defense costs and that as a result those costs were
payable in addition to the certificates’ policy limits.

                                     II

      Invoking federal diversity jurisdiction, Global commenced a
lawsuit against Century in the U.S. District Court for the Southern
District of New York. See Glob. Reins. Corp. of Am. v. Century Indem. Co.
(Global I), No. 13-CV-6577, 2014 WL 4054260 (S.D.N.Y. Aug. 15, 2014).
Global sought inter alia a declaratory judgment that the Reinsurance
Accepted provision in each certificate capped the amount that Global
was obligated to pay to Century for both indemnity losses and
defense costs. Id. at *1. To analyze Global’s claim, the district court
consulted two of our precedents that construed similar provisions in
reinsurance contracts: Bellefonte Reinsurance Co. v. Aetna Casualty &
Surety Co., 903 F.2d 910 (2d Cir. 1990), and Unigard Security Insurance
Co. v. North River Insurance Co., 4 F.3d 1049 (2d Cir. 1993). Global I, 2014
WL 4054260, at *4-7.

      In Bellefonte, the insurance provider Aetna issued primary and
excess insurance policies to a medical device manufacturer that
became liable to third parties for bodily injury claims. 903 F.2d at 911.
A group of reinsurers had issued facultative certificates to Aetna that
reinsured portions of the excess policies. Id. As with the policies at
issue here, the certificates provided that the reinsurance was “subject
to the terms, conditions and amount of liability set forth herein,”

                                    11
which included a Reinsurance Accepted provision setting forth each
reinsurer’s liability. Id. The certificates also each contained a follow-
form provision and a payments provision that are materially identical
to those at issue in this case. Compare id., with J. App’x 169.

       In construing the reinsurance certificates, we held that “the
limitation on liability” set forth in the Reinsurance Accepted
provision “capped the reinsurers’ liability under the certificates” such
that “[a]ll other contractual language must be construed in light of
that cap.” Bellefonte, 903 F.2d at 914. We concluded that “the
reinsurers’ entire obligation is quantitatively limited by the dollar
amount the reinsurers agreed to reinsure” and that “[o]nce the
reinsurers have paid up to the certificate limits, they have no
additional liability to Aetna for defense expenses or settlement
contributions.” Id. We rejected Aetna’s argument that the follow-form
clause and payments provision “in each reinsurance certificate[]
exempts defense costs from the clauses limiting the reinsurers’ overall
liability under the certificates,” holding instead that Aetna’s defense
costs were “‘subject to’ the express cap on liability set forth in each
certificate.” Id.

       In Unigard, we again confronted a facultative reinsurance
certificate providing that the reinsurer’s obligations were “subject to
the terms, conditions, limits of liability, and Certificate provisions set
forth herein.” 4 F.3d at 1071. The cedent argued that notwithstanding
that provision, the reinsurer was obligated to pay defense costs in
excess of the certificate’s policy limit under the follow-form clause,
which provided that the reinsurer’s liability “except as otherwise
provided by this Certificate, shall be subject in all respects to all the terms
and conditions of [the underlying policy].” Id. at 1070-71. We rejected

                                      12
this argument, explaining that “[t]he Certificate otherwise provides
for the policy limits.” Id. at 1071. Following Bellefonte’s instruction that
“‘[a]ll … contractual language must be construed in light of th[e]
cap’” set forth in the policy limits, we concluded that the follow-form
clause “did not ‘override the limitation on liability’ and that therefore
the reinsurer was not liable for expenses in excess of the liability
limit.” Id. at 1070-71 (quoting Bellefonte, 903 F.2d at 913-14).

      Faced with these precedents, the district court granted
summary judgment to Global, noting that “the relevant language in
the Certificates at issue is nearly identical to the language relied on by
the Second Circuit in Bellefonte.” Global I, 2014 WL 4054260, at *5. The
district court also noted that “[s]tanding on its own, the unambiguous
language in the ‘Reinsurance Accepted’ sections of the Certificates
does not differentiate between reinsurance accepted for loss versus
reinsurance accepted for expenses, but simply provides a total cap on
liability.” Id. at *6. And because “[t]he Bellefonte and Unigard courts
made it clear that all other contractual language must be construed in
light of the Certificate Limit,” the district court concluded that “[t]he
dollar amount indicated in each of the Certificate Limits is the
maximum amount that Global can be obligated to pay for loss and
expenses, combined.” Id. at *5, *7 (internal quotation marks and
alteration omitted). Following the district court’s decision, Century
moved for reconsideration, which the district court denied. See Glob.
Reins. Co. of Am. v. Century Indem. Co. (Global II), No. 13-CV-6577, 2015
WL 1782206 (S.D.N.Y. Apr. 15, 2015).

      Century appealed, repeating its contention that Global was
obligated to pay a proportionate share of Century’s defense costs in
addition to the amount stated in the Reinsurance Accepted provision

                                    13
of each certificate. Glob. Reins. Corp. of Am. v. Century Indem. Co. (Global
III), 843 F.3d 120, 122 (2d Cir. 2016). With the support of four large
reinsurance brokers as amici curiae, Century argued that Bellefonte and
Unigard were wrongly decided. Id. at 126. We concluded that
Century’s argument was “not without force” because it was “not
entirely clear what exactly the ‘Reinsurance Accepted’ provision in
Bellefonte meant,” making it “difficult to understand the Bellefonte
court’s conclusion that the reinsurance certificate in that case
unambiguously capped the reinsurer’s liability for both loss and
expenses.” Id. We noted that “[e]vidence of industry custom and
practice might have shed light on this question, but the Bellefonte court
did not consider any such evidence in its decision.” Id.

      We further explained that “[t]he purpose of reinsurance is to
enable the reinsured to ‘spread its risk of loss among one or more
reinsurers,’” but “[i]f the amount stated in the ‘Reinsurance Accepted’
provision is an absolute cap on the reinsurer’s liability for both loss
and expense, then Century’s payment of defense costs could be
entirely unreinsured.” Id. (quoting Travelers Cas. & Sur. Co. v. Certain
Underwriters at Lloyd’s of London, 96 N.Y.2d 583, 587 (2001)). We found
this possibility “in tension with the purpose of reinsurance.” Id. We
also observed that “the premium Global received was ‘commensurate
with its share of policy risk,’” but “[i]nterpreting the ‘Reinsurance
Accepted’ provision as a cap for both losses and expenses, as we did
in Bellefonte, could permit Global to receive 50% of the premium while
taking on less than 50% of the risk.” Id. Finally, we noted the amici’s
warning that “continuing to follow Bellefonte could have ‘disastrous
economic consequences’” because “potentially massive exposures to
insurance    companies      throughout      the   industry     would     be
unexpectedly unreinsured … creat[ing] a gaping hole in reinsurance

                                    14
for many companies, and potentially threaten[ing] some with
insolvency.” Id.

      We deemed these arguments “worthy of reflection” but noted
“other considerations as well,” such as “the principle of stare decisis”
and the possibility that “reinsurers may have relied on this Court’s
opinions in Bellefonte and Unigard in estimating their exposure and in
setting appropriate loss reserves.” Id. We also considered Global’s
argument that the decision of the New York Court of Appeals in
Excess Insurance Co. v. Factory Mutual Insurance Co., 3 N.Y.3d 577
(2004), controlled the outcome of the case because in Excess the Court
of Appeals “followed Bellefonte and Unigard to hold that subordinate
clauses could not expand reinsurer liability ‘beyond the stated limit
in the policy.’” Global III, 843 F.3d at 127 (quoting Excess, 3 N.Y.3d at
583). We regarded that holding as particularly significant, explaining
that “[i]f Excess imposes a clear rule (or a presumption) with respect
to these reinsurance policies, the rule would guide our interpretation
of this and substantially similar policies.” Id. at 128. But “[i]f, on the
other hand, the standard rules of contract interpretation apply, we
would construe each reinsurance policy solely in light of its language
and, to the extent helpful, specific context.” Id.

      We decided to “seek the views of the New York Court of
Appeals on this important question” because “[t]he interpretation of
the certificates at issue … is a question of New York law that the New
York Court of Appeals has a greater interest and greater expertise in
deciding than do we.” Id. at 127. We accordingly certified the
following question to the New York Court of Appeals:

      Does the decision of the New York Court of Appeals in
      Excess Insurance Co. v. Factory Mutual Insurance Co.,

                                    15
      3 N.Y.3d 577 [789 N.Y.S.2d 461, 822 N.E.2d 768] (2004),
      impose either a rule of construction, or a strong
      presumption, that a per occurrence liability cap in a
      reinsurance contract limits the total reinsurance available
      under the contract to the amount of the cap regardless of
      whether the underlying policy is understood to cover
      expenses such as, for instance, defense costs?
Id. at 128. The court accepted the question for its consideration.
28 N.Y.3d 1129 (2017).

      The Court of Appeals answered the certified question in the
negative, holding that “[u]nder New York law generally, and in
Excess in particular, there is neither a rule of construction nor a
presumption that a per occurrence liability limitation in a reinsurance
contract caps all obligations of the reinsurer, such as payments made
to reimburse the reinsured’s defense costs.” Glob. Reins. Corp. of Am.
v. Century Indem. Co. (Global IV), 30 N.Y.3d 508, 511 (2017). Instead, the
Court of Appeals held that “[r]einsurance contracts are governed by
the same principles that govern contracts generally.” Id. at 518. Those
principles, the Court of Appeals explained, “do not permit a court to
disregard the precise terminology that the parties used and simply
assume … that any clause bearing the generic marker of a ‘limitation
on liability’ or ‘reinsurance accepted’ clause was intended to be cost-
inclusive.” Id. at 519. The court therefore concluded that under New
York law, “a limitation on liability clause” does not “necessarily cap[]
all obligations owed by a reinsurer, such as defense costs, without
regard for the specific language employed therein.” Id.

      Upon receipt of the answer of the New York Court of Appeals
to our certified question, we remanded the case to the district court
“for consideration in the first instance of the contract terms at issue,

                                   16
employing standard principles of contract interpretation.” Glob. Reins.
Corp. of Am. v. Century Indem. Co. (Global V), 890 F.3d 74, 77 (2d Cir.
2018). While acknowledging that the district court’s previous grant of
summary judgment in Global’s favor was “reasonable in light of our
reasoning in Bellefonte and Unigard,” we concluded that it was “now
clear that the district court’s determination that the contract was
unambiguous was premised on an erroneous interpretation of New
York state law.” Id. We vacated the district court’s judgment and
instructed the district court on remand to “construe each reinsurance
policy solely in light of its language and, to the extent helpful, specific
context.” Id.

      On remand, the district court held an evidentiary hearing to
determine whether the language of the reinsurance certificates was
ambiguous and whether and how industry-specific context sheds
light on the meaning of the certificates. Glob. Reins. Corp. of Am. v.
Century Indem. Co. (Global VI), 442 F. Supp. 3d 576, 579 (S.D.N.Y. 2020).
Century submitted four expert witness statements as direct
testimony, while Global submitted two. Id. at 581. Century’s experts
contended that the facultative certificates were drafted such that the
terms and conditions of the certificates would be concurrent with
those of the underlying policies. Id. at 582. Because the underlying
Century policies required Century to pay litigation expenses in
addition to the policies’ limits, Century’s experts contended that
Global was required to do so as well. Id. They explained that
concurrency was drafted into the reinsurance certificates through the
follow-form clauses and could be rebutted only by an explicit textual
directive, which, they argued, the certificates do not contain. Id. They
further explained that the purpose of the follow-form clause is to
adopt the terms and conditions of the underlying insurance into the

                                    17
reinsurance certificates without having to draft additional language,
which could lead to inconsistencies or gaps in coverage. Id. In the
view of Century’s experts, the principle of concurrency was so
fundamental to facultative reinsurance in the 1970s that no other
interpretation of the certificates was possible. Id. at 583.

      Global’s experts, for their part, contended that the plain text of
the reinsurance certificates caps all of Global’s payment obligations at
the dollar amount stated in the Reinsurance Accepted provision and
that there was no custom or practice in the reinsurance industry in the
1970s that would warrant a different result. Id. They further argued
that insurers acquire facultative reinsurance for a variety of reasons
such that a general presumption of concurrency would be
unwarranted. Id. Finally, Global’s experts contended that claims
generating substantial defense costs above liability limits had not yet
emerged in the insurance industry in the 1970s and that the industry
at that time would not have developed a presumption of concurrency
as to defense costs. Id.

      The district court credited the testimony of Century’s experts,
finding that they “offer[ed] more than enough credible evidence ‘to
raise a fair presumption’ that these principles of concurrency were
part of the reinsurance industry’s customs and practices in the 1970s.”
Id. at 590 (quoting Reuters Ltd. v. Dow Jones Telerate, Inc., 231 A.D.2d
337, 343 (N.Y. App. Div. 1st Dep’t 1997)). Based on that testimony and
the policy language, the district court concluded that “[t]he plain and
unambiguous meaning of the reinsurance contracts is that the dollar
amount stated in [the Reinsurance Accepted provision] caps Global’s
obligation to pay losses and also caps Global’s obligation to pay

                                    18
expenses when there are no losses, but does not cap Global’s
obligation to pay expenses when there are losses.” Id. at 587.

      In so holding, the district court rejected Global’s argument that
the language in the certificates’ preamble providing that Global’s
reinsurance obligations are “subject to” the limits on liability set forth
in the Reinsurance Accepted provision was sufficiently detailed and
specific to override the follow-form clause and payments provision.
Id. at 589-90. The district court also rejected Global’s contention that
Bellefonte and Unigard controlled, explaining that “[t]he Second
Circuit’s instruction in Global III that Bellefonte and Unigard are
‘worthy of reflection’ convinces this Court that even if these decisions
have not been overruled, their continued applicability may be
scrutinized.” Id. at 590.

      The district court denied Global’s request for declaratory relief.
Id. at 592. Global now appeals from that judgment.

                        LEGAL STANDARDS

      In Global III, we observed that “[t]he interpretation of the
certificates at issue here is a question of New York law.” 843 F.3d at
127. The New York Court of Appeals has since clarified that under
New York law, “[r]einsurance contracts are governed by the same
principles that govern contracts generally.” Global IV, 30 N.Y.3d at
518. For that reason, “[w]e turn first to principles of contract
interpretation to inform our analysis.” Olin Corp. v. OneBeacon Am.
Ins. Co., 864 F.3d 130, 147 (2d Cir. 2017).

      “The fundamental objective of contract interpretation is to give
effect to the expressed intentions of the parties.” Klos v. Polskie Linie
Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997). Given that objective, “the

                                    19
first principle of contract interpretation” is that “where the language
of the contract is clear and unambiguous, the contract is to be given
effect according to its terms.” Lilly v. City of New York, 934 F.3d 222,
236 (2d Cir. 2019). “[T]he key inquiry at the initial stage of interpreting
a contract” is therefore “whether it is ambiguous with respect to the
issue disputed by the parties.” Bank of N.Y. v. First Millennium, Inc.,
607 F.3d 905, 914 (2d Cir. 2010). “The language of a contract is not
made ambiguous simply because the parties urge different
interpretations.” Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d
425, 428 (2d Cir. 1992). Rather, “[a]n ambiguity exists where the …
contract could suggest ‘more than one meaning when viewed
objectively by a reasonably intelligent person who has examined the
context of the entire integrated agreement and who is cognizant of the
customs, practices, usages and terminology as generally understood
in the particular trade or business.’” Morgan Stanley Grp. Inc. v. New
Eng. Ins. Co., 225 F.3d 270, 275 (2d Cir. 2010) (quoting Lightfoot v. Union
Carbide Corp., 110 F.3d 898, 906 (2d Cir. 1997)).

      Whether a contract is ambiguous is “a question of law subject
to our de novo review.” Aon Fin. Prods., Inc. v. Societe Generale, 476
F.3d 90, 95 (2d Cir. 2007). In determining whether a contract is
ambiguous, courts “look[] within the four corners of the document,
not to outside sources.” JA Apparel Corp. v. Abboud, 568 F.3d 390, 396
(2d Cir. 2009). This does not mean, however, that courts may not
consider proof of custom and usage to determine ambiguity. To the
contrary, “proof of custom and usage consists of proof that the
language in question is fixed and invariable in the industry in
question.” Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595
F.3d 458, 466 (2d Cir. 2010) (internal quotation marks omitted). While
extrinsic evidence of the parties’ subjective intentions “is generally

                                    20
inadmissible to add to or vary the writing,” evidence of industry
custom and usage “is considered, as needed, to show what the
parties’ specialized language is fairly presumed to have meant.” Id. at
466-67 (internal quotation marks and alterations omitted). If despite
that evidence “the language in the … contract [remains] ambiguous,”
then “the parties may submit extrinsic evidence as an aid in
construction, and the resolution of the ambiguity is for the trier of
fact.” State of New York v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985). 6

      When ascertaining the meaning of contractual language, “it is
important for the court to read the integrated agreement ‘as a whole.’”
Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir.
2011) (quoting Law Debenture Tr. Co., 595 F.3d at 468). In conducting
that exercise, “words and phrases should be given their plain
meaning, and the contract should be construed so as to give full
meaning and effect to all of its provisions.” LaSalle Bank Nat. Ass’n v.
Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005) (internal
quotation marks and alteration omitted). “If the document as a whole
‘makes clear the parties’ over-all intention, courts examining isolated
provisions should then choose that construction which will carry out
the plain purpose and object of the agreement.’” Lockheed Martin, 639
F.3d at 69 (quoting Kass v. Kass, 91 N.Y.2d 554, 567 (1998)) (alteration
omitted).

6 In the context of facultative reinsurance, the reinsurance certificate and
the underlying policy together “constitute the fully integrated agreement.”
Global IV, 30 N.Y.3d at 519. Accordingly, where “a formal certificate of
reinsurance … incorporates [an] underlying policy, the underlying policy
is not considered extrinsic evidence.” Id. (internal quotation marks
omitted).

                                    21
                            DISCUSSION

      Applying these principles, we hold that Global’s obligation to
pay its proportionate share of Century’s defense costs is not capped
by the certificates’ liability limits and therefore affirm the judgment
of the district court. Because the certificates do not specifically
provide that the terms of Global’s reinsurance differ from those of the
Century policies with respect to the treatment of defense costs, the
follow-form clause requires that Global’s payments toward Century’s
defense costs be made in addition to the certificates’ limits. This
conclusion follows not only from the unambiguous language of the
certificates but also from evidence of custom and usage concerning
the central importance of concurrency to the reinsurance market
when the certificates were issued.

      To the extent that Bellefonte and Unigard suggest a different
result, we conclude that those decisions were undermined by the
New York Court of Appeals in Global IV and are no longer valid law
in our circuit. In Global IV, the New York Court of Appeals held that
“the ‘standard rules of contract interpretation’ … applicable to
facultative reinsurance contracts … do not permit a court to disregard
the precise terminology that the parties used and simply assume …
that any clause bearing a generic marker of a ‘limitation of liability’ or
‘reinsurance accepted’ clause was intended to be cost-inclusive.”
30 N.Y.3d at 518-19. That holding conflicts with our decisions in
Bellefonte and Unigard, in which we held that the liability limits
contained in the certificates at issue “necessarily cap[ped] all
obligations owed by [the] reinsurer[s], such as defense costs, without
regard for the specific language employed therein.” Id. at 519. Because
Global IV exposed a fundamental conflict between these precedents
and “New York law as determined by the New York Court of
                                   22
Appeals,” which we are “bound to apply,” Van Buskirk v. New York
Times Co., 325 F.3d 87, 89 (2d Cir. 2003), we are “require[d] to
conclude” that Bellefonte and Unigard are “no longer good law,” In re
Arab Bank, PLC Alien Tort Statute Litig., 808 F.3d 144, 155 (2d Cir. 2015).

                                     I

      “[U]nder New York law … [t]he first step in interpreting a
contract is to determine whether its language is ambiguous.” United
States v. Prevezon Holdings, Ltd., 289 F. Supp. 3d 446, 451 (S.D.N.Y.
2018) (citing Lockheed Martin, 639 F.3d at 69) (alteration omitted).
Global contends that “[t]he reinsurance contracts … are susceptible of
just one interpretation,” which is that the certificates “unambiguously
limit Global’s liability, whether for loss or expense or both combined,
to the reinsurance Global accepted as the amount stated in the
Declarations of each Certificate.” Appellant’s Br. 25, 28. In support of
that position, Global notes that the preamble “provides that Global’s
agreement to provide reinsurance is ‘subject to the … limits of liability
set forth herein and in the Declarations made a part hereof.’” Id. at 26.
This “language limiting liability,” Global observes, “makes no
distinction between loss or expense.” Id. Global argues that “[t]he
limits of liability referenced in the [preamble] are set forth in the
Declarations, Item 4, under the heading ‘Reinsurance Accepted,’”
which, according to Global, “sets forth the reinsurance accepted as a
precise dollar figure, not as a percentage or proportion of any amount
paid.” Id. Global claims that these provisions, taken together, mean
that “[a]ll amounts for loss or expenses are subject to the … limit of
reinsurance accepted.” Id. at 27.

      Global further argues that the follow-form clause does not
commit Global to following the Century policies with respect to the

                                    23
treatment of defense costs. Rather, the follow-form clause merely
“confirms that the Certificates provide coverage for the same types of
liabilities that are covered by Century’s underlying policies.” Id. at 26.
But “[t]hat ‘follow-form coverage,” Global maintains, “is nevertheless
‘subject to’ the stated limit as set forth in the [preamble] and specified
in Item 4 [the Reinsurance Accepted provision].” Id.

       Global’s analysis is flawed because it improperly subordinates
the follow-form clause to the limitations on liability referenced in the
preamble and contained the Reinsurance Accepted provision. That
reading of the certificates is untenable in light of the plain language
of the follow-form clause, which requires the opposite approach. The
follow-form clause provides that “the liability of the Reinsurer
specified in Item 4 above shall follow that of the Company and, except
as otherwise specifically provided herein, shall be subject in all respects to
all the terms and conditions of the Company’s policy.” J. App’x 169
(emphasis added). The plain import of this language is that Global’s
liability as specified in the Reinsurance Accepted provision must
conform “in all respects” to “all” terms and conditions of the Century
policies unless the certificates “specifically” state otherwise. Id.
(emphasis added). The certificates thus subject the amount of
“Reinsurance Accepted” to the terms and conditions of the Century
policies barring an explicit statement to the contrary; the certificates
do not, as Global contends, subordinate Global’s liability under the
terms and conditions of the Century policies to “the stated limit as set
forth in the [preamble] and specified in Item 4.” Appellant’s Br. 26. 7

7 To the extent that these provisions conflict, we conclude that the follow-
form clause takes precedence over the preamble and Reinsurance Accepted
provision. “[I]t is a fundamental rule of contract construction that ‘specific

                                     24
       Among the “terms and conditions” of the Century policies
made binding on Global through the follow-form clause is a provision
stating that Century “will pay, in addition to the applicable limit of
liability … all expenses incurred by … the Insured in any suit
defended by [Century] or by others with [Century’s] consent.”
J. App’x 154, 169 (emphasis added). Accordingly, Global must pay
Century’s defense costs “in addition to the applicable limit of
liability” contained in the Reinsurance Accepted provision unless the
certificates “otherwise specifically provide[].” Id.

       Nowhere do the certificates “specifically provide[]” that the
certificates’ policy limits are inclusive of defense costs. The preamble
does not so provide; as Global acknowledges, the “language limiting
liability” in that provision “makes no distinction between loss or
expense,” Appellant’s Br. 26, and thus does not “specifically” provide
that the certificates’ limits apply to both losses and expenses, J. App’x
169. The Reinsurance Accepted provision similarly fails to address

terms and exact terms are given greater weight than general language.’”
Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir. 2001). “Even where
there is no ‘true conflict’ between two provisions, ‘specific words will limit
the meaning of general words if it appears from the whole agreement that
the parties’ purpose was directed solely toward the matter to which the
specific words or clause relate.’” Id. at 413-14 (quoting 11 Richard A. Lord,
Williston on Contracts § 32:10, at 449 (4th ed. 1999)). Here, the preamble
states in general terms that Global’s reinsurance obligations are “subject to”
the “limits of liability” set forth in the Reinsurance Accepted provision.
J. App’x 193. The follow-form clause, in contrast, defines those obligations
by incorporating the specific terms and conditions of the Century policies.
Under “standard principles of contract interpretation,” Global V, 890 F.3d at
77, we have no difficulty concluding that the general expression of Global’s
promise to reinsure is trumped by the clause that designates the specific
terms on which that reinsurance is offered.

                                     25
whether the limits stated therein are inclusive of defense costs. See id.
at 168. Contrary to Global’s argument, the failure of these provisions
to address the treatment of defense costs cannot be read as a specific
provision requiring non-concurrency with respect to those costs.

      The    payments     provision     also   does   not   support   the
interpretation urged by Global. That provision obligates Global to pay
its proportionate share of “[a]ll claims involving this reinsurance …
settled by the Company” and, “in addition thereto,” Global’s
“proportion of expenses … incurred by the Company in the
investigation and settlement of claims or suits.” Id. at 169 (emphasis
added). 8 It is true that, unlike the analogous provision in the Century
policies, the payments provision does not expressly provide that
expense payments are made “in addition to the applicable limit of
liability.” J. App’x 154. But the provision clearly does not, as Global
contends, “specifically provide otherwise than the Century policies
with respect to limits and expenses.” Appellant’s Br. 28.

      In sum, nothing in the certificates “specifically provide[s]” that
the certificates differ from the Century policies with respect to the
treatment of defense costs. J. App’x 169. Because the follow-form
clause makes Global’s “liability … subject in all respects to all the
terms and conditions of the Company’s policy” unless “otherwise
specifically provided,” id., Global must pay its proportionate share of

8 The payments provision defines Global’s “proportion of expenses” as
“the ratio that the Reinsurer’s loss payment bears to the Company’s gross
loss payment.” J. App’x 169.

                                   26
Century’s expenses “in addition to the applicable limit of liability”
contained in the Reinsurance Accepted provision, id. at 154. 9

                                       II

       This conclusion finds support not only in the unambiguous
language of the certificates but also in the credible “testimony
regarding the relevant industry custom and practice” that Century’s
experts provided to the district court. Global VI, 442 F. Supp. 3d at 590.
One expert testified that “during the 1970s and thereafter, it was the
invariable custom and practice of the insurance and reinsurance
industry” that “unless otherwise specifically stated, facultative
reinsurance certificates covered investigation and defense expense in
addition to limits of liability when the reinsured policy covered
expense in addition to its limits of liability.” J. App’x 289 (Hall
Statement ¶ 2). The expert further testified that “[w]hile non-

9 We note here that the district court erred in holding that “the dollar
amount stated on the facultative certificates caps indemnity payments and
also caps expense payments when there are no losses.” Global VI, 442
F. Supp. 3d at 578 (emphasis added). The district court reached that
conclusion based on a misreading of a sentence in one certificate’s
payments provision stating that “[i]f there is no loss payment, the Reinsurer
shall pay its proportion of such expenses only in respect of business
accepted on a contributing excess basis and then only in the percentage
stated in Item 4 of the declarations in the first layer of participation.” Id. at
581 (quoting J. App’x 193). This sentence does not impose a cap on the
amount of expenses that Global is required to pay when Century makes “no
loss payment.” J. App’x 193. Rather, the sentence means that in such a
scenario, Global’s proportion of expenses is the same as that specified in the
Reinsurance Accepted provision rather than “the ratio that the Reinsurer’s
loss payment bears to the Company’s gross loss payment.” Id. at 169. This
error, however, had no impact on the district court’s judgment because
Century did pay indemnity losses on the policies at issue in this case.

                                       27
[con]currency between the facultative certificate and the reinsured
policy” was “possible,” it was “rare,” 10 and thus “[t]o overcome the
textual presumption of [con]currency stated in the following form
provision,” it was necessary “clearly and explicitly” both to “state the
non-concurrency” and to “define the nature of the non-concurrency.”
J. App’x 295 (Hall Statement ¶ 20). According to this expert, such non-
concurrency would be indicated “by endorsement” or “by checking
the ‘Non-Concurrent’ box on the form certificate and specifically
stating the non-concurrency elsewhere on the form.” Id. But a
statement of non-concurrency would not, as Global insists, be found
“in the wording of the certificate form itself.” Id.; see also id. at 380
(Thomson Statement ¶ 12) (“The Reinsurance Accepted provision is
not a provision that is used to identify a non-concurrency.”).

       Because non-concurrency “would … be specifically identified
and negotiated,” the expert maintained that “neither the ‘subject to’
phrase in the certificates’ preamble nor the dollar amount set forth in
the certificates’ ‘Reinsurance Accepted’ provision would have been
understood in the industry to provide … a specific exception [to the

10 Two Century experts testified that in their decades of experience in the
reinsurance industry, they had never encountered facultative reinsurance
that was non-concurrent as to the treatment of defense costs. See J. App’x
348 (Manning Statement ¶ 46) (“It is theoretically possible for a reinsurer to
decline to provide expenses in addition to policy limits even though the
policy covered expenses in addition to the policy limits but, in the
reinsurance I have placed on the thousands of insurance policies I have
personally written, I have never once seen this happen.”); id. at 358 (Lyew
Statement ¶ 20) (“While it is theoretically possible that a reinsurer could
seek to negotiate reinsurance coverage that is non-concurrent with respect
to the payment of defense expenses, in my many years in the industry, I do
not recall a single reinsurer seeking such non-concurrent coverage.”).

                                     28
presumption of concurrency] or an overall ‘cap’ on the reinsurer’s
exposure.” Id. at 289, 295 (Hall Statement ¶¶ 2, 20). The other Century
experts agreed. See id. at 347 (Manning Statement ¶ 45) (“Any
knowledgeable     and    experienced    insurance    or   reinsurance
underwriter would understand that the fact that the reinsurance is
‘subject to’ the limits does not tell you whether expenses are payable
in addition to limits, within limits or not at all.”); id. at 360 (Lyew
Statement ¶ 28) (“[T]here is no language in the certificates that would
be understood by a reinsurance underwriter to identify a reinsurance
limit or cap without regard to the manner in which the reinsured
policy applies.”); id. at 380 (Thomson Statement ¶ 13) (“[T]he
Reinsurance Accepted provision [does not establish non-concurrency
with respect to defense costs] as it is silent as to whether the amount
of assumed reinsurance is cost-inclusive or cost-exclusive.”).

      Century’s experts also explained the sound reasons underlying
the presumption of concurrency in the reinsurance industry. As one
expert explained, concurrency promotes efficiency in the reinsurance
market by enabling reinsurers, through the follow-form clause, to
“follow the liability of the specific policy being reinsured regardless
of what type of policy it is and regardless of the terms and conditions
contained in that policy.” Id. at 356 (Lyew Statement ¶ 15). In
accordance with that goal, the “standard language” of follow-form
clauses “is intentionally broad so that the reinsurance coverage
applies seamlessly to whatever the terms and conditions of the
reinsured policy may be.” Id. at 363 (Lyew Statement ¶ 35). Such is
the case, for example, with Certificate X, which makes Global’s
reinsurance liability “subject in all respects to all the terms and
conditions of the Company’s policy.” Id. at 169. Such broad follow-
form coverage serves the interests of reinsurance purchasers and

                                  29
providers alike by eliminating the need to negotiate coverage
conditions and draft particularized language. These advantages help
explain why “[c]oncurrency between the insurance coverage and
reinsurance coverage is a fundamental feature of facultative
reinsurance” that, unless otherwise provided, “includes the treatment
of expense.” Id. at 357 (Lyew Statement ¶ 18).

      The Century experts offered another, perhaps even more
fundamental, reason why the reinsurance industry operates under a
presumption of concurrency. As Century’s experts explained, “[i]t is
well known and universally understood in the insurance and
reinsurance industry that ‘premium follows risk,’” id. at 306 (Hall
Statement ¶ 58), meaning that “whoever takes the risk will get the
premium for it,” id. at 346 (Manning Statement ¶ 40). This principle
requires concurrency as to the treatment of defense costs because
otherwise, as one expert explained, the cedent “would be left with
gaps in coverage and it would potentially end up keeping risk for its
own account even though it had paid reinsurers all of the premium
associated with that risk.” Id. at 300-01 (Hall Statement ¶ 37). The
market would not be able to sustain such a “disparity in exposure”
between cedents and their reinsurers: “[n]o ceding company would
accept [such] gaps in coverage while at the same time paying full
premium to the reinsurers,” “[o]ther reinsurers on the same layer
would never accept more exposure for the same premium as received
by one reinsurer for less exposure,” and “insurers would not buy
coverage with that sort of gap.” Id. at 306 (Hall Statement ¶ 56). It is
therefore unsurprising that in the district court proceedings, “neither
Global, its fact witnesses nor its expert witnesses [could] identif[y]
any … instance in which any reinsurer, pre-Bellefonte, asserted the

                                  30
position that Global takes in this case.” Id. at 382 (Thomson statement
¶ 18). 11

       This problem is illustrated by Certificate X. Under Certificate X,
Global agreed to reinsure “$250,000 part of $500,000,” or 50 percent,
of the excess layer above Century’s $500,000 retention. J. App’x 168.
Because “premium follows risk,” id. at 306 (Hall Statement ¶ 58),
Global received 50 percent of the net premium paid on that layer. The
risk that Century reinsured through Certificate X consisted not only
of the risk that Century would suffer indemnity losses but also the
risk that it would incur substantial litigation expenses defending
against claims—expenses which, under the terms of the policy it
issued to Caterpillar, were not subject to the policy’s liability limit. Yet
Global insists that Century paid it 50 percent of the net premium
Century received on the excess layer in exchange for Global taking on
less than 50 percent of the risk: while Century had been exposed to
$250,000 in indemnity losses and litigation expenses in excess of that
amount, Global’s total exposure was purportedly capped at $250,000.
Thus, in Global’s view, Century decided to remain exposed to defense

11 Indeed, one Century expert testified that “Bellefonte … [was] widely
considered in the industry to be contrary to well-established industry
custom and practice.” J. App’x 310 (Hall Statement ¶ 68). Even though
Bellefonte putatively benefited reinsurers, this expert testified that the
decision was “decried among the reinsurer members and staff of … the
Reinsurance Association of America” because it “gave opportunists an
opening to deny liability for expenses that clearly were contemplated as
covered when the business was written.” Id. Yet notwithstanding that
opportunity, another expert testified that “the vast majority of reinsurers
continued to follow industry custom and practice by paying expenses in
addition to loss limits where the reinsured policy paid expense in addition
to loss,” further indicating the reinsurance industry’s norm in favor of
concurrency as to defense costs. Id. at 383 (Thomson Statement ¶ 22).

                                    31
costs in excess of Global’s $250,000 liability cap in exchange for
nothing in return. Global cannot explain why any cedent would agree
to confer such a windfall on its reinsurer. 12

      Century’s evidence of industry custom thus confirms what is
apparent from the unambiguous language of the certificates: Global’s
reinsurance is concurrent with the Century policies with respect to
the treatment of defense costs. For that reason, Global must pay its
proportionate share of those costs in addition to the applicable
liability limit for each respective certificate.

                                     III

      To the extent that Bellefonte and Unigard suggest a different
result, we conclude that those decisions were undermined by the
New York Court of Appeals in Global IV and hold that those cases are
no longer valid law in our circuit.

      “[W]e of course recognize that generally ‘a decision of a panel
of this Court is binding unless and until it is overruled by the Court
en banc or by the Supreme Court.’” United States v. Hightower, 950 F.3d
33, 36 (2d Cir. 2020) (quoting Jones v. Coughlin, 45 F.3d 677, 679 (2d Cir.

12 See J. App’x 300 (Hall Statement ¶ 37) (“If … the Century insurance
policy was understood to pay defense costs in addition to limits but the
Global reinsurance certificate paid defense costs only within the limit … the
reinsurance transaction would make no sense.”); id. at 367 (Lyew Statement
¶ 44) (“If the reinsured policy paid expense in addition to loss, the
reinsurance followed and paid expense in addition as well. … If any
reinsurer had asserted [Global’s] ‘cap’ position, their reinsurance would
have been unmarketable.”); id. at 348 (Manning Statement ¶ 49) (“[I]f a
reinsurer tried to write reinsurance that was non-concurrent with the
reinsured policy as to the treatment of expense, no reasonable insurance
underwriter would buy it.”).

                                     32
1995)) (alteration omitted). But there are “exception[s] to this general
rule.” Id. One exception occurs because the “ultimate source for state
law adjudication in diversity cases is the law as established by the
constitution, statutes, or authoritative court decisions of the state.”
Desiano v. Warner-Lambert & Co., 467 F.3d 85, 90 (2d Cir. 2006). In such
cases, “the highest court of a state has the final word on the meaning
of state law,” and thus “we are bound to apply New York law as
determined by the New York Court of Appeals” even when a decision
of the New York Court of Appeals conflicts with our precedent. Van
Buskirk, 325 F.3d at 89 (alteration omitted). In this way, “[t]he federal
Court of Appeals is in the same position as a lower state court vis-à-
vis the New York Court of Appeals in construing state substantive
law.” In re E. & S. Dists. Asbestos Litig., 772 F. Supp. 1380, 1391
(S.D.N.Y. 1991), aff’d in part, rev’d in part sub nom. In re Brooklyn Navy
Yard Asbestos Litig., 971 F.2d 831 (2d Cir. 1992). When our circuit’s
precedent conflicts with a more recent decision of the New York
Court of Appeals as to a matter of New York law, “this court will
follow the outcome it believes the New York Court of Appeals would
reach, without giving binding authority to [our precedent].” Id. 13

13 See also Silva v. Garland, 993 F.3d 705, 717 (9th Cir. 2021) (stating that a
federal court of appeals is “bound to reach the same result as [its]
precedent” on a question of state law when “there is no intervening
decision on controlling state law by a state court of last resort”) (internal
quotation marks omitted); Wimbush v. Wyeth, 619 F.3d 632, 639 n.5 (6th Cir.
2010) (explaining that “reconsideration of our precedents is justified” when
intervening state appellate court decisions “provide the best indication” of
how the state’s highest court “would rule on [an] issue … [of] state law”);
Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003) (“In cases
arising under a federal court’s diversity jurisdiction … the federal court
must defer to the most recent decisions of the state’s highest court.”).

                                      33
      The intervening state court decision does not need to contradict
our precedent outright to justify a departure from it. “[F]or this
exception to apply, the intervening decision need not [even] address
the precise issue already decided by our Court.” Union of Needletrades,
Indus. & Textile Emps., AFL-CIO, CLC v. INS, 336 F.3d 200, 210 (2d Cir.
2003). Rather, there need only be “a conflict, incompatibility, or
‘inconsistency’ between this Circuit’s precedent and the intervening
[state court] decision.” In re Arab Bank, 808 F.3d at 155 (alteration
omitted). Even if “[t]he effect of intervening precedent” is “subtle,” as
long as “the impact is … ‘fundamental,’” we must “conclude that a
decision of a panel of this court is ‘no longer good law.’” Id.

      Even when “there is no decision by the New York Court of
Appeals,” we still “must apply what we find to be New York law after
giving proper regard to relevant rulings of other New York courts,”
In re Elm Ridge Assocs., 234 F.3d 114, 121 (2d Cir. 2000) (citation and
alterations omitted), because “the job of the federal courts is carefully
to predict how the highest court of the forum state would resolve the
uncertainty or ambiguity,” Travelers Ins. Co. v. 633 Third Assocs.,
14 F.3d 114, 119 (2d Cir. 1994). For that reason, even a development
short of a decision of the highest court, if it indicates the court would
decide a state-law question differently than our precedent, might call
that precedent into question.

      In this case, we have an intervening decision of the state’s
highest court. The decision of the New York Court of Appeals in
Global IV revealed a “conflict” between the approach our court took
in Bellefonte and Unigard, In re Arab Bank, 808 F.3d at 155, and “the
‘standard rules of contract interpretation’ otherwise applicable to
facultative reinsurance contracts,” Global IV, 30 N.Y.2d at 518 (internal

                                   34
citation omitted). Although Global IV did not confront “the precise
issue already decided by our Court” in Bellefonte and Unigard, the
decision of the New York Court of Appeals and “its reasoning
supporting that [decision] are sufficiently broad to support the
conclusion we reach today, our prior holding[s] in [Bellefonte and
Unigard] notwithstanding.” Union of Needletrades, 336 F.3d at 210.
Because “the impact” of Global IV on Bellefonte and Unigard is
“fundamental,” In re Arab Bank, 808 F.3d at 155, we must reexamine
“our controlling precedent,” Wojchowski v. Daniels, 498 F.3d 99, 106
(2d Cir. 2007).

      In Global IV, the New York Court of Appeals was asked to
decide whether its decision in Excess Insurance Co. v. Factory Mutual
Insurance Co., 3 N.Y.3d 577 (2004), “impose[s] either a rule of
construction, or a strong presumption, that a per occurrence liability
cap in a reinsurance contract limits the total reinsurance available
under the contract to the amount of the cap regardless of whether the
underlying policy is understood to cover expenses such as, for
instance, defense costs.” 30 N.Y.3d at 512. The Court of Appeals
answered in the negative, holding “definitively” that “Excess did not
supersede the ‘standard rules of contract interpretation’ otherwise
applicable to facultative reinsurance contracts,” which, the Court of
Appeals explained, are “the same principles that govern contracts
generally.” Id. at 518 (citation omitted). Those “principles,” the Court
of Appeals stated, “do not permit a court to disregard the precise
terminology that the parties used and simply assume … that any
clause bearing the generic marker of a ‘limitation on liability’ or
‘reinsurance accepted’ clause was intended to be cost-inclusive.” Id.
at 519. The Court of Appeals thus held that under New York law, “a
limitation on liability clause” does not “necessarily cap[] all

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obligations owed by a reinsurer, such as defense costs, without regard
for the specific language employed therein.” Id.

      By so holding, the New York Court of Appeals exposed a
fundamental conflict between our holdings in Bellefonte and Unigard
and the “‘standard rules of contract interpretation’ … applicable to
facultative reinsurance contracts.” Id. at 518 (citation omitted). As
noted above, in Bellefonte, we construed reinsurance certificates
containing both a “Reinsurance Accepted” provision and a standard
follow-form clause. See 903 F.2d at 911. Although the Reinsurance
Accepted provision did not specify whether the cedent’s defense costs
were payable within or in addition to the policy limits, we held—
without relying on any other textual support in the certificates or
evidence of industry custom—that “the limitation” stated in the
Reinsurance Accepted provision “is to be a cap on all payments by
the reinsurer.” Id. at 913. From that assumption we concluded that
“[a]ll other contractual language must be construed in light of that
cap,” asserting that to “allow[] the ‘follow the fortunes’ clause to
override the limitation on liability … would strip the limitation clause
and other conditions of all meaning,” which would be “contrary to
the parties’ express agreement and to the settled law of contract
interpretation.” Id. at 913-14. In Unigard, we reached the same result,
holding that because the reinsurance certificate at issue “provide[d]
for the policy limits,” the reinsurer was “not liable for expenses
beyond the stated liability limit in the Certificate,” notwithstanding
the language contained in the follow-form clause and in the
underlying policy. 4 F.3d at 1071.

      In both Bellefonte and Unigard, we thus “disregard[ed] the
precise terminology that the parties used and simply assume[d] …

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that … clause[s] bearing the generic marker of a ‘limitation on
liability’ or ‘reinsurance accepted’ clause [were] intended to be cost-
inclusive.” Global IV, 30 N.Y.3d at 519. Rather than analyze the
language of the follow-form clauses and the underlying policies, we
assumed from the outset that the applicable policy limits capped the
reinsurers’ liability as to both losses and expenses and held that “[a]ll
other contractual language must be construed in light of th[ose]
cap[s].” Bellefonte, 903 F.2d at 914; Unigard, 4 F.3d at 1071. As Global IV
makes clear, these decisions were inconsistent with “the ‘standard
rules of contract interpretation’ … applicable to facultative
reinsurance contracts,” under which there is “[n]either a rule, [n]or a
presumption, that a limitation on liability clause necessarily caps all
obligations owed by a reinsurer, such as defense costs, without regard
for the specific language employed therein.” 30 N.Y.3d at 518-19
(citation omitted). In light of Global IV, we are “require[d] … to
conclude” that Bellefonte and Unigard are “no longer good law.” In re
Arab Bank, 808 F.3d at 155 (2d Cir. 2015).

                            CONCLUSION

       For the foregoing reasons, we AFFIRM the judgment of the
district court.

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