The Insurance Company of the State of Pennsylvania v. Equitas Insurance

20-3559-cv
The Insurance Company of the State of Pennsylvania v. Equitas Insurance Limited
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2022
Argued: December 1, 2022 Decided: May 22, 2023
Docket No. 20-3559-cv
THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA,
Plaintiff-Appellee,
— v. —
EQUITAS INSURANCE LIMITED,
Defendant-Appellant.
Before:
CALABRESI, LYNCH, and NARDINI, Circuit Judges.
Defendant-Appellant, a reinsurer, appeals from an order of the Southern
District of New York (Swain, C.J.) granting summary judgment to Plaintiff-
Appellee, its reinsured. On appeal, Appellant argues that the district court
erroneously held that its reinsurance obligations to Appellee are co-extensive
with Appellee’s separate insurance obligations to a third party and that it
presented no triable issue of fact on its late-notice defense. We disagree. The
district court correctly determined that English law, which governs the relevant
reinsurance policy, would interpret that policy to provide coverage that is co-
extensive with Appellee’s separate insurance obligations. The district court also
correctly rejected Appellant’s late-notice defense because Appellant has not
shown the sort of extreme facts that would be necessary under English law to
support recognition of that defense where, as here, timely notice is not a
condition precedent to coverage. We therefore AFFIRM the district court’s order
granting summary judgment.
PETER R. CHAFFETZ (Andrew L. Poplinger, on the brief),
Chaffetz Lindsey, LLP, New York, NY, for Plaintiff-
Appellee.
SEAN THOMAS KEELY, Freeborn & Peters LLP, New York, NY,
for Defendant-Appellant (Jill C. Anderson, Freeborn &
Peters LLP, Chicago, IL, on the brief).
GERARD E. LYNCH, Circuit Judge:
This is a reinsurance dispute between Defendant-Appellant Equitas
Insurance Limited (“Equitas”) and Plaintiff-Appellee the Insurance Company of
the State of Pennsylvania (“ICSOP”). In the late 1960s, ICSOP provided umbrella
insurance to a predecessor of Dole Food Company for a policy period from
October 1968 to October 1971 (the “ICSOP-Dole policy”). Equitas then reinsured
part of ICSOP’s exposure for the same three-year period.
2
Many years later, in 2009, homeowners in Carson, California, sued Dole
for polluting their soil and groundwater. Dole and ICSOP settled those claims
and allocated $20 million of the settlement liability to the ICSOP-Dole policy,
even though the Carson plaintiffs’ property damages and personal injuries
continued to accrue after the ICSOP-Dole policy period had ended. In doing so,
the settlement followed California law’s approach to allocation, known as the
“all sums rule,” which treats any insurer whose policy was in effect during any
portion of the time during which the continuing harm occurred as jointly and
severally liable (up to applicable policy limits) for all property damages or
personal injuries caused by a pollutant.
ICSOP thereafter sought reinsurance coverage from Equitas for its liability,
only for Equitas to deny its claim on the basis that English law, which governs
the reinsurance policy, would not have allocated ICSOP’s liability on an all sums
basis. Instead, Equitas asserted, English law would have prorated ICSOP’s
liability based on the number of years it provided coverage to Dole. Accordingly,
Equitas contended that its reinsurance obligations were similarly limited. Equitas
also defended its denial on the theory that ICSOP had deliberately delayed notice
of claim, and thus forfeited any claim under the reinsurance policy.
3
ICSOP then brought this suit, claiming that Equitas was liable on the
policy for the reinsured portion of ICSOP’s settlement liability. Rejecting both of
Equitas’s arguments for denying coverage, the district court (Laura Taylor
Swain, C.J.) granted summary judgment to ICSOP.
We agree with the district court. Although the question is not without
doubt, we conclude that under the better reading of English law, Equitas’s
obligations under the reinsurance policy are co-extensive with ICSOP’s
obligations under the ICSOP-Dole policy. The question is not whether English
law would have allocated ICSOP’s liability on an all sums basis; English law
does not govern ICSOP’s liability. Instead, the question is whether, once ICSOP’s
liability was properly allocated, as Equitas concedes that it was, English law
would then interpret the reinsurance policy as providing co-extensive coverage.
Under English law, there is a strong presumption that facultative reinsurance
policies provide back-to-back coverage, meaning that the liability of the insured
is generally equivalent to the liability of the reinsured.
Searching for a way around that presumption, Equitas urges that the
United Kingdom Supreme Court would never apply the back-to-back
presumption where, as here, a foreign jurisdiction’s law has the effect of
4
avoiding a reinsurance policy’s coverage period. But the United Kingdom
Supreme Court has never limited the presumption in that way, and it has in fact
applied a version of the all sums rule in limited instances. Separately, English
law has never recognized the defense of full repudiation based on late notice of
claim where, as here, timely notice is not a condition precedent to coverage.
While Equitas urges that English law would recognize such a defense on extreme
facts, no such facts are present here.
We therefore AFFIRM the judgment of the district court.
BACKGROUND
In the late 1960s, a subsidiary of Castle & Cooke Inc. purchased land in
Carson, California, where Shell Oil Company had formerly operated an oil and
petroleum containment facility. The Castle & Cooke subsidiary demolished the
facility and developed a housing tract. Decades later, in 2008, the California
Department of Toxic Substances Control tested a site adjacent to the housing
tract and found hazardous levels of petroleum hydrocarbons, including benzene,
a known carcinogen, in the soil and groundwater. Soon after that discovery,
Carson homeowners sued Dole Food Company (with which Castle & Cooke had,
by then, merged) and Shell in California state court. According to their
5
complaint, long-term benzene exposure can cause various latent diseases, such as
anemia and leukemia, that can manifest many years after exposure. Thus, the
homeowners sued for personal injuries and property damage related to the
environmental contamination.
Shortly after suit was filed in October 2009, Dole notified its insurers. One
insurer was ICSOP, a wholly-owned subsidiary of the American International
Group, Inc. In 1968, ICSOP had issued umbrella insurance to Castle & Cooke (the
“ICSOP-Dole policy”). The ICSOP-Dole policy covers up to $20 million for “all
sums” for which Dole might be liable in damages “caused by or arising out of
each occurrence happening during” a three-year policy period, from October 1,
1968, to October 1, 1971. J. App’x 754.
Dole and its insurers settled the homeowners’ and other related lawsuits,
assigning $20 million in liability to the ICSOP-Dole policy – even though that
policy contained a three-year coverage period and even though the plaintiffs’
losses accrued over four decades. The parties do not dispute either the fact or the
extent of ICSOP’s liability under the ICSOP-Dole policy. As for ICSOP’s liability
in general, the ICSOP-Dole policy sets “occurrence” as the relevant thing that
must happen during the policy period, id., and it defines occurrence to include
6
“an event or a continuous or repeated exposure to conditions which result in
Personal Injury or Property Damage,” id. at 755-56. As for the extent of ICSOP’s
liability, the settlement followed the “all sums” rule, a rule that is followed by
the State of California, whose laws governed the settlement. See Armstrong World
Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 710-11 (Cal. Ct. App.
1996). While the ICSOP-Dole policy is governed by the laws of the State of
Hawaii, neither party disputes that Hawaii, like California, follows that rule. See
Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawai’i, Ltd., 875 P.2d 894, 917 (Haw. 1994),
as amended (June 24, 1994).
As discussed more fully below, the all sums rule applies in long-tail
liability cases – cases that involve, for example, injuries that manifest many years
after exposure to a pollutant – and holds insurers jointly and severally liable, up
to applicable policy limits, for all property damages or personal injuries caused
by the pollutant so long as some of the continuing harm occurred while each
policy was in effect. See Montrose Chem. Corp. of Cal. v. Superior Ct. of L.A. County,
460 P.3d 1201, 1206-07 (Cal. 2020), as modified (May 27, 2020).
To cover part of its losses, ICSOP notified Equitas, its reinsurance carrier,
of Dole’s claim against the ICSOP-Dole policy. In 1969, ICSOP had obtained
7
facultative reinsurance 1 from underwriters at Lloyd’s of London to hedge some
of the risk stemming from the ICSOP-Dole policy; Equitas later inherited those
reinsurance obligations from Lloyd’s. The reinsurance policy spans the same
three-year period as the ICSOP-Dole policy, and it covers up to $7,234,125 for
each $20 million limit that ICSOP pays to Dole. It provides that reinsurance
coverage is “[a]s [o]riginal,” J. App’x 779, 796, and it contains a follow-the-
settlements clause, which reads:
Now We the Underwriters hereby agree to reinsure
against loss to the extent and in the manner hereinafter
provided.
Being a Reinsurance of and warranted same gross rate,
terms and conditions as and to follow the settlements of
the Company . . . .
Id. at 777, 793.
Equitas has refused to cover any portion of ICSOP’s part of the settlement
and to pay ICSOP’s claim.
1 “In a facultative reinsurance transaction, the company purchasing reinsurance
. . . ‘cedes[]’ all or a portion of the risk under a single insurance policy to the
reinsurance provider,” which in turn obtains a portion of the original premium.
Glob. Reinsurance Corp. of Am. v. Century Indem. Co., 22 F.4th 83, 88 (2d Cir. 2021).
“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.” Id. at 88 n.4.
8
In September 2017, ICSOP filed suit against Equitas for reinsurance
coverage in the Southern District of New York. At the close of discovery, the
parties cross-moved for summary judgment. Equitas principally argued that
ICSOP is not entitled to indemnity under the reinsurance policy because, while it
did not dispute ICSOP’s liability to Dole under the all sums rule, Equitas’s
liability to ICSOP under the reinsurance policy is governed by English law,
which does not follow that rule. Equitas also asserted a separate repudiation
defense, contending that it may fully repudiate the reinsurance policy because
ICSOP deliberately delayed notice of claim for about six years after becoming
aware that a claim was likely, and misled Equitas into believing that ICSOP had
no claim against the reinsurance policy.
For its part, although it agreed that English law governed the reinsurance
policy, ICSOP argued that English law would interpret the reinsurance policy as
“back-to-back” – that is, providing co-extensive coverage – with the ICSOP-Dole
policy. ICSOP also argued that English law has never recognized a defense of full
repudiation based on late notice of claim, and that in any event ICSOP’s conduct
did not reflect untimely notice or the extreme bad faith that, on one reading of
English law, might permit such a defense.
9
The district court agreed with ICSOP, holding that the parties’ obligations
are co-extensive and rejecting Equitas’s full repudiation defense. See Ins. Co. of
State of Pennsylvania v. Equitas Ins. Ltd., No. 17-6850, 2020 WL 4016815, at *2-5
(S.D.N.Y. July 16, 2020). Consequently, it awarded ICSOP $7,234,125 in damages.
Id. at *6. Equitas appeals from that judgment.
DISCUSSION
We review a grant of summary judgment de novo. Bey v. City of New York,
999 F.3d 157, 164 (2d Cir. 2021). We first consider the scope-of-coverage issue –
whether Equitas’s obligations under the reinsurance policy are, as the district
court held, co-extensive with ICSOP’s obligations under the ICSOP-Dole policy.
We then consider Equitas’s repudiation defense. Because, as the parties agree,
English law governs the reinsurance policy, our role is to predict how the United
Kingdom Supreme Court would resolve those issues. See Terra Firma Invs. (GP) 2
Ltd. v. Citigroup Inc., 716 F.3d 296, 299-300 (2d Cir. 2013) (predicting that “a
rebuttable presumption of reliance” that attaches to some claims for “fraudulent
misrepresentation” is “a burden-shifting device” under English law). 2
2As a federal court sitting in alienage jurisdiction under 28 U.S.C. § 1332(a)(2),
we apply the choice-of-law rules of the forum state – here, the State of New York.
10
I. Scope of Coverage
Under English law, a facultative reinsurance contract is “a separate
contract” that “is not an insurance against liability.” Wasa Int’l Ins. Co. v.
Lexington Ins. Co. [2010] 1 AC 180 (HL) ¶ 32 (Lord Mance); see also Delver v. Barnes
[1807] 127 Eng. Rep. 748 (CP) 749-50 (Mansfield, C.J.). Thus, “an insurer seeking
indemnity under a reinsurance must, in the absence of special terms, establish
both [1] its liability under the terms of the insurance and [2] its entitlement to
indemnity under the terms of the reinsurance.” Wasa [2010] 1 AC 180 (HL) ¶ 35
(Lord Mance) (emphasis added). To be entitled to indemnity, ICSOP therefore
must show that its liability was properly allocated under the terms of the ICSOP-
See Int’l Mins. & Res., S.A. v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996) (applying the
forum state’s choice-of-law rules in dispute arising under § 1332(a)(2)); Klaxon Co.
v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) (holding “that the prohibition
declared in Erie Railroad v. Tompkins, 304 U.S. 64 [(1938)], against such
independent determinations by the federal courts extends to the field of conflict
of laws”). Because the parties agree that New York’s choice-of-law rules compels
the application of English law, we need not undertake a complicated choice-of-
law analysis. “Under New York choice-of-law rules, ‘where the parties agree that
[a certain jurisdiction’s] law controls, this is sufficient to establish choice of law.’”
Alphonse Hotel Corp. v. Tran, 828 F.3d 146, 152 (2d Cir. 2016), quoting Fed. Ins. Co.
v. Am. Home Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011) (alterations added in
Alphonse Hotel).
11
Dole policy and that it is entitled to indemnity for that liability under the
reinsurance policy.
A. Liability under the ICSOP-Dole Policy
Equitas does not dispute ICSOP’s liability to Dole under the ICSOP-Dole
policy or the settlement’s apportionment of damages. Nonetheless, because some
of Equitas’s arguments against indemnity under the reinsurance policy concern
whether English law is receptive to the all sums rule, it is helpful to outline some
general principles of American and English law that inform those arguments.
Those principles aid our prediction of how the United Kingdom Supreme Court
would decide the contested question of indemnity in the reinsurance context.
i. American Tort and Insurance Law
As one commentator has put it, “[v]ery few developments have ever
transformed either tort or insurance law, . . . and only one[] [development] has
transformed both . . . .” Kenneth S. Abraham, The Long-Tail Liability Revolution:
Creating the New World of Tort and Insurance Law, 6 U. Pa. J.L. & Pub. Aff. 347, 349
(2021) (emphasis omitted). That development is the rise in tort and insurance
litigation concerning “long-tail harms,” a term that “describes a series of
indivisible harms, whether bodily injury or property damage, that are
12
attributable to continuous or repeated exposure to the same or similar substances
or conditions that take place over multiple years or that have a long latency
period.” Restatement of the Law of Liability Insurance § 33 cmt. f (Am. L. Inst.
2019) (identifying “asbestos-related bodily injuries and environmental property
damage” as two “paradigmatic examples”).
In tort law, long-tail harms present “quintessentially difficult causation
questions, largely because of the length of time between the defendant’s
allegedly tortious conduct and the manifestation of injury, disease, or damage
that may have been caused by that conduct.” Abraham, supra, at 357-58. Those
quandaries inspired judicial innovations regarding but-for causation. In the
seminal case on market-share liability, for example, the Supreme Court of
California addressed claims brought by the daughters of mothers who had
ingested diethylstilbestrol (“DES”) during their pregnancies, which led to latent
injuries manifesting in their daughters many years later. See Sindell v. Abbott
Lab’ys, 607 P.2d 924, 925-26 (Cal. 1980). Ordinarily, the doctrine of but-for
causation would have required the plaintiff-daughters to prove which of many
manufacturers had produced the DES that their mothers had ingested. See id. at
927-28. But the Supreme Court of California relieved them of that near-
13
impossible burden, holding that “[e]ach defendant will be held liable for the
proportion of the judgment represented by its share of that market unless it
demonstrates that it could not have made the product which caused plaintiff's
injuries.” Id. at 937.
Similarly, when it comes to asbestos-related injuries, it is nearly impossible
to prove with “absolute certainty which particular exposure to asbestos dust
resulted in injury to” a particular plaintiff, especially for an employee who was
exposed to several different sources of asbestos from several different employers.
Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076, 1094 (5th Cir. 1973). In
responding to that issue, courts developed more plaintiff-friendly causation
rules. In Borel, for example, the Fifth Circuit (applying Texas law) held that it was
enough for a victim of mesothelioma and asbestosis to show that he was
tortiously “exposed to the [asbestos-contaminated] products of all the defendants
on many occasions.” Id. (emphasis added). Mere tortious exposure was
sufficient, the court held, because “[i]t was . . . established that the effect of
exposure to asbestos dust is cumulative, that is, each exposure may result in an
additional and separate injury.” Id. Similarly, in Rutherford v. Owens-Illinois, Inc.,
the Supreme Court of California held that “plaintiffs may prove causation in
14
asbestos-related cancer cases by demonstrating that the plaintiff’s exposure to
defendant’s asbestos-containing product in reasonable medical probability was a
substantial factor in contributing . . . to the risk of developing asbestos-related
cancer. 941 P.2d 1203, 1219 (Cal. 1997), as modified (Oct. 22, 1997) (first emphasis
added; footnote omitted). Under that approach, a plaintiff need not “demonstrate
that fibers from the defendant’s particular product were the ones, or among the
ones, that actually produced the malignant growth.” Id. (emphasis omitted).
Those judicial innovations and others like them expanded the universe of
liable defendants, and thus spawned ever more difficult questions concerning
how to allocate that liability. Those questions still remain. There appears to be no
majority American rule, for instance, governing how to allocate liability when
multiple defendants are liable for an indivisible injury – like mesothelioma or
other cancers or property damage – flowing from environmental contamination;
some jurisdictions appear to employ hybrid approaches to apportioning liability.
See Restatement (Third) of Torts: Apportionment Liab. § 17 cmt. a (Am. L. Inst.
2000) (collecting various approaches). On the one hand, eight years after Sindell,
the Supreme Court of California rejected the imposition of joint-and-several
liability in the context of market-share liability, confining liability instead to the
15
defendants’ respective share of the market. See Brown v. Superior Court (Abbott
Lab’ys), 751 P.2d 470, 485-87 (Cal. 1988). On the other, the Borel court (again
applying Texas law) imposed joint-and-several liability. 493 F.2d at 1095-96.
Related developments occurred in the world of insurance law as claims for
long-tail harms made their way through the courts. With rising long-tail tort
liability and a competitive American insurance market in the 1960s,
comprehensive general liability insurance shifted from covering tort liability
caused by an “accident,” which arguably covered only abrupt events that
resulted in immediate harm, to covering tort liability caused by an “occurrence.”
Abraham, supra, at 369-71. 3 That change was “a recognition that the policy was to
cover liability for harm caused by pollution and other similar, slowly-occurring
processes.” Id. at 371.
3Ironically, that shift appears to have been led by Lloyd’s seeking to tap into the
American insurance market. Abraham, supra, at 370-71. Lloyd’s faced a “financial
disaster,” however, when “the long-tail chickens” came “home to roost.” Id. at
371. To stave off financial ruin, it “established and funded” Equitas “to be the
repository of its syndicates’ liability under CGL policies issued prior to 1992.” Id.
at 402. Thus, Equitas hatched from a problem its predecessor helped sire, the
same problem ICSOP confronted with Dole, that ultimately led to ICSOP’s claim
against Equitas.
16
The ICSOP-Dole policy descends from that lineage. Executed in the late
1960s, it covers Dole for “all sums” that Dole “shall be obligated to pay by reason
of liability imposed upon [Dole] by law,” and for “all damages, direct or
consequential, . . . on account of personal injuries . . . and property damage,
caused by or arising out of each occurrence happening during the policy period.”
J. App’x 754 (emphases added). Notably, the ICSOP-Dole policy defines
“occurrence” broadly to include “an event or a continuous or repeated exposure
to conditions which result in Personal Injury or Property Damage.” Id. at 755-56
(emphasis added).
That language appears to codify the so-called “continuous injury” trigger
in insurance law. Whether insurance coverage is “triggered” refers to the
question of “what events, from the point of exposure to the point of
manifestation, trigger coverage.” Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034,
1042 (D.C. Cir. 1981). In answering that question, courts within the United States
have developed several approaches: (1) the manifestation theory, where coverage
is triggered when an injury manifests, even if the injury occurred many years
earlier; (2) the injury-in-fact theory, where coverage is triggered when an injury
actually occurs, even if the injury might manifest many years later; (3) the
17
exposure theory, where coverage is triggered when the injured person or
property is exposed to the risk that later manifests into harm; and (4) the
continuous injury trigger, where coverage is triggered throughout the
progression of a disease or property damage, from initial exposure to the risk all
the way to manifestation of harm. Restatement of the Law of Liability Insurance
§ 33 cmt. f; see also Sentinel Ins. Co., 875 P.2d at 914-15. 4 There is no consensus
rule. Importantly for our purposes, California and Hawaii have adopted the
continuous injury trigger when interpreting occurrence-based policies like the
ICSOP-Dole policy. See Montrose Chem. Corp. of Cal., 460 P.3d at 1206-07; Sentinel
Ins. Co., 875 P.2d at 917 (Hawaii law; adopting an “injury-in-fact” theory in
general, but adopting the continuous injury theory where the “injury-in-fact
occurs continuously over a period covered by different insurers or policies, and
4Some courts apply different theories that, depending on the circumstances,
result in “little ultimate difference” between types of triggers. See Restatement of
the Law of Liability Insurance § 33 cmt. f. For example, in jurisdictions that
follow the injury-in-fact theory, “when the available scientific evidence is not
able to determine the precise amount of harm attributable to a particular year or
to particular years, most courts have concluded either that the continuous-trigger
rule applies or, applying the injury-in-fact trigger, that the bodily injury or
property damage actually takes place continuously from the moment of first
exposure to asbestos or environmental contaminants.” Id.
18
actual apportionment of the injury is difficult or impossible to determine”).
Hence, there is no dispute that ICSOP was liable to Dole.
The extent of ICSOP’s liability to Dole presents a different, though also
undisputed, question. The continuous injury trigger implicates distinct allocation
issues because that trigger presents circumstances where multiple insurers, like
multiple defendants in a tort action, might be liable. It also presents
circumstances where, as here, a single insurer is liable even though that insurer
provided coverage during only a short part of the period of exposure to the risk
that later evolved into harm.5
5Recall that ICSOP insured Dole only for a three-year policy period but was
deemed liable for damage that continued to accrue for decades after the policy
period had ended. As far as the record discloses, Dole obtained other insurance
during that time, but apparently many (or all) of its policies for later periods
contained pollution exclusions, while the ICSOP-Dole policy did not. Pollution
exclusions were not an uncommon response in occurrence-based policies issued
following legal developments beginning in the 1960s. See Abraham, supra, at 372-
73 (explaining that insurers “got cold feet” and began to include “‘qualified’
pollution exclusion[s]” in the 1970s). We cannot independently verify the extent
to which Dole had other insurance coverage against which ICSOP could assert a
contribution claim. But that does not matter for our purposes because whether or
not other insurance coverage was available to Dole, the all sums rule deems
ICSOP jointly and severally liable, up to the ICSOP-Dole policy limit, for Dole’s
settlement liability. See Montrose Chem. Corp. of Cal., 460 P.3d at 1207.
19
In those circumstances, some jurisdictions, like California and Hawaii,
follow the all sums rule. That rule resolves the allocation issue in favor of the
insured by holding the insurer jointly and severally liable for “all sums for
property damage attributable to the polluted site, up to their policy limits, if
applicable, as long as some of the continuous property damage occurred while
each policy was on the loss.” Montrose Chem. Corp. of Cal., 460 P.3d at 1207
(internal quotation marks, citation, and brackets omitted); see also Sentinel Ins. Co.,
875 P.2d at 915 (similar under Hawaii law). That rule reflects the understanding
that an insurer’s duty to the insured is an issue distinct from apportionment and
allocation between multiple insurers. See Armstrong World Indus., Inc., 52 Cal.
Rptr. 2d at 710-11, 742. In other words, once an insurer is on the hook for “all
sums,” the dispute between the insured and insurer ends, and a contribution
dispute between co-insurers begins. In light of that understanding, a
policyholder may obtain full recovery from one insurer even if it was insured by
several successive insurers or uninsured for part of when the damages accrued.
Id.
Courts have applied the all sums rule where language in the policy
required the insurer to pay “all sums” for which the insured becomes liable on
20
account of an event during the policy period. California v. Cont’l Ins. Co., 281 P.3d
1000, 1007-08 (Cal. 2012), as modified (Sept. 19, 2012); see also Keene Corp., 667 F.2d
at 1047-50. The ICSOP-Dole policy contains that language. See J. App’x 754. Thus,
Equitas does not dispute the extent of ICSOP’s liability to Dole under California
law.
An alternative approach is to prorate responsibility “by year among
triggered policy years.” Abraham, supra, at 380. For example, “[i]f a $200 million
liability triggered twenty policy years, then each policy year would be
potentially responsible for its pro-rata share of $10 million.” Id.
“There is some disagreement over the precise number of jurisdictions that
have adopted each position” – the all sums rule or the pro rata approach – “in
part because of variation in policy language and in part because of differing
possible interpretations of the holdings in some cases.” Restatement of the Law
of Liability Insurance § 41 cmt. c. What seems to be clear, however, is that “a
significant number of courts” have adopted the all sums rule, “a clear majority”
have adopted the pro rata approach, and “many courts have not yet taken a
position.” Id.; see also Rossello v. Zurich Am. Ins. Co., 226 A.3d 444, 451 nn.12-13
(Md. 2020) (collecting some of the divide).
21
Whether to relax causation in tort, set a default rule that more expansively
triggers insurance coverage, or allocate liability on a pro rata or all sums basis, are
quintessentially public policy questions. As a federal court sitting in alienage
jurisdiction, it is not our role to answer those questions. Instead, our role is to
determine how English law would resolve those issues in the context of
reinsurance. How English law has approached those issues in the context of tort
liability and insurance is therefore helpful to understanding the parties’
arguments.
ii. English Tort and Insurance Law
As with American law, we begin our discussion of English law with torts.
In Fairchild v. Glenhaven Funeral Services Ltd., the House of Lords heard an appeal
involving three claimants whose long-term and substantial exposure to asbestos
caused them to develop mesothelioma. [2003] 1 AC 32 (HL) ¶¶ 3-5 (Lord
Bingham). The Lords considered whether there were “special circumstances,” in
light of the medical uncertainty concerning how asbestos exposure causes
mesothelioma, that would justify deviating from the ordinary rule of but-for
causation. Id. ¶ 9; see also id. ¶¶ 41, 43 (Lord Nicholls); id. ¶¶ 56, 63 (Lord
Hoffmann). Citing California’s approach, the Lords in Fairchild agreed to deviate
22
from the traditional rule, holding that an employer is liable if the employer
“wrongful[ly] expose[d] . . . its employee to asbestos dust” and that exposure
was not “insignificant” but rather materially increased the risk that the employee
would contract disease. Id. ¶ 42 (Lord Nicholls); see also id. ¶¶ 31, 34 (Lord
Bingham); id. ¶¶ 47, 63, 73 (Lord Hoffmann); id. ¶¶ 105, 107-09 (Lord Hutton); id.
¶¶ 161, 168 (Lord Rodger). 6
After Fairchild, the House of Lords faced the allocation issue in Barker v.
Corus UK Ltd. [2006] 2 AC 572 (HL). Ordinarily, under English law, if two
tortfeasors are the proximate cause of an indivisible injury, like mesothelioma,
both tortfeasors are jointly and severally liable. See id. ¶ 28 (Lord Hoffmann).
Applying that apportionment rule, liability under Fairchild would seem to result
in joint-and-several liability, because a necessary condition for Fairchild liability is
that the claimant suffer an indivisible injury. Id. ¶ 61 (Lord Scott). But that would
be incongruent with the basis of Fairchild liability, which is the creation of a
6Barker v. Corus UK Ltd. [2006] 2 AC 572 (HL) ¶ 1 (Lord Hoffmann) (explaining
that Fairchild held “that a worker who had contracted mesothelioma after being
wrongfully exposed to significant quantities of asbestos dust at different times by
more than one employer or occupier of premises could sue any of them,
notwithstanding that he could not prove which exposure had caused the
disease”).
23
material increase in risk, even if the defendant did not factually cause the injury.
Id. ¶ 53 (Lord Scott); see also id. ¶ 126 (Baroness Hale) (“For the first time in our
legal history, persons are made liable for damage even though they may not
have caused it at all . . . .”). Thus, in Barker, the House of Lords rejected a rule that
apportioned tort liability on a joint-and-several basis between multiple
employers who exposed their employee to asbestos and were thereby liable
under the Fairchild rule. Id. ¶ 48 (Lord Hoffmann); id. ¶ 62 (Lord Scott); id.
¶¶ 109-10 (Lord Walker); Id. ¶ 127 (Baroness Hale). The House of Lords instead
allocated liability on a pro rata basis. Id.
In response, however, Parliament passed the Compensation Act 2006 c. 29
§ 3, effectively reversing that aspect of Barker. See Durham v. BAI (Run off) Ltd.
[2012] UKSC 14 ¶ 78 (“Trigger”) (Lord Clarke) (“Th[e] [allocation] decision [in
Barker] was reversed by the Compensation Act 2006, so that such employers are
jointly and severally liable for the whole of the consequences.”). The
Compensation Act 2006 holds “that when a victim contracts mesothelioma each
person who has, in breach of duty, been responsible for exposing the victim to a
significant quantity of asbestos dust and thus creating a ‘material increase in risk’
of the victim contracting the disease will be held to be jointly and severally liable
24
in respect of the disease.” Id. ¶ 5 (Lord Mance).
English insurance law followed that development. In Trigger, the United
Kingdom Supreme Court held that insurers who cover employers who are liable
under the Compensation Act 2006 are likewise liable for such claims against the
employers. Id. ¶¶ 49-50, 71-74. Lord Mance explained that “[w]here two contracts
are linked” – as in the reinsurance context – “the law will try to read them
consistently with each other.” Id. ¶ 69. Thus, “[t]he intention under the present
insurances must be taken to have been that they would respond to whatever
liability the insured employers might be held to incur within the scope of the
risks insured and within the period in respect of which they were insured.” Id.
Then in Zurich Insurance PLC UK Branch v. International Energy Group Ltd.,
the United Kingdom Supreme Court extended Trigger, holding that insurers are
jointly and severally liable on an all sums basis for their insured’s liability when
that insured is jointly and severally liable pursuant to the Compensation Act.
[2015] UKSC 33 ¶¶ 45-51, 54, 94-97 (Lord Mance). In so holding, the Court
explained that “facultative liability insurance” – again, like facultative
reinsurance – “normally responds to whatever may prove to be the liability
incurred by the insured.” Id. ¶ 45. Thus, “[o]nce one accepts that causation
25
equates with exposure, in tort and tort liability insurance law,” as was held in
Fairchild and Trigger, “there is no going back on this conclusion simply because
there was exposure by the insured of the victim both within and outside the
relevant insurance period.” Id. ¶ 46. That is so despite, as a dissenting Lord
pointed out, “the fundamental importance under English law of the temporal
scope of a time policy,” id. ¶ 153 (Lord Sumption), quoting Wasa [2010] 1 AC 180
(HL) ¶ 15 (Lord Brown). Just as the California Court of Appeal recognized in
Armstrong World Industries, 52 Cal. Rptr. 2d at 710-11, the United Kingdom
Supreme Court recognized that the “primary question” concerns the duty that
the insurer owes to the insured – in Zurich, to cover the insured’s liabilities
flowing from exposure to asbestos – not the relative position “between two
insurers.” Zurich [2015] UKSC 33 ¶ 48 (Lord Mance). Viewed that way, “there is
. . . nothing illogical about a conclusion that each of successive insurers is
potentially liable in full, with rights of contribution inter se.” Id.
But the Compensation Act is limited to the particular situation of asbestos-
related mesothelioma. Where that Act does not apply, as is the case here, neither
does Zurich’s adoption of joint-and-several liability. See id. ¶¶ 8-9, 35; cf. Wasa
[2010] 1 AC 180 (HL). That is because policy periods are accorded fundamental
26
importance under English law. See Municipal Mutual Ins. Ltd. v. Sea Ins. Co. Ltd.
[1998] Lloyd’s Rep. (Civ) 421, 436 (Hobhouse, L.J.) (“When the relevant cover is
placed on a time basis, the stated period of time is fundamental and must be
given effect to.”).
B. Indemnity under the Reinsurance Policy
As we have already noted, both parties agree that the reinsurance policy is
governed by English law. And because the Compensation Act does not apply
here, English law would not have allocated ICSOP’s liability under the
underlying ICSOP-Dole policy on an all sums basis. But that fact does not resolve
the question whether the United Kingdom Supreme Court would construe the
reinsurance policy as entitling ICSOP to indemnity for its properly allocated
liability.
Under English law, the terms of a reinsurance policy must be interpreted
in light of its “commercial purpose” and circumstances. GRAYDON S. STARING &
HON. DEAN HANSELL, LAW OF REINSURANCE § 13:1 (Mar. 2022 update), quoting
Reardon Smith Line Ltd. v. Hansen-Tangen [1976] 2 Lloyd’s Rep. 621 (HL) 624-25
(Lord Wilberforce); see also Charrington & Co. v. Wooder [1914] AC 71 (HL) 82
(Lord Dunedin). In the context of facultative reinsurance, the original insurer
27
reinsures part of its risk by paying the reinsurer “a proportional share of the
premium.” Wasa [2010] 1 AC 180 (HL) ¶ 55 (Lord Collins). “[T]he obvious
commercial intention” of that arrangement is “for the reinsurer to accept that
part of the risk.” Id. ¶ 60. “Consequently, the starting point is that normally
reinsurance of that kind is back-to-back with the insurance, and that the reinsurer
and the original insurer enter into a bargain that if the insurer is liable under the
insurance contract, the reinsurer will be liable to pay the proportion which it has
agreed to reinsure.” Id. ¶ 55 (emphases added).
English law therefore recognizes a “strong” – though not conclusive –
presumption that “liability under a proportional facultative reinsurance is co-
extensive with the insurance.” Id. ¶ 116. Thus, it will “almost invariably be the
case” that losses falling within the original insurance policy will also fall within
the reinsurance, “even if the losses are payable under a foreign law . . . which
takes a view different from English law” on liability. Id. That “obvious” outcome
“is simply commercial common sense.” Id. ¶ 60. While a facultative reinsurance
contract can deviate from that presumption, “[s]uch a contract would . . . be
wholly exceptional” and constitute “a departure from the normal understanding
28
of the back-to-back nature of reinsurance.” Id. ¶ 62 (internal quotation marks and
citation omitted).
A seminal English case applying that presumption is
Forsikringsaktieselskapet Vesta v. Butcher [1989] 1 AC 852 (HL) (“Vesta”). There, an
insurance policy covered a fish farm and contained a warranty requiring the
farm to keep a 24-hour watch; the reinsurance policy in question, which covered
that original insurance policy, contained the same warranty. Id. at 890-91 (Lord
Templeman). The owner of the fish farm failed to keep the watch as required,
and the farm was destroyed. Id. What destroyed the farm, however, was not
failure to keep a watch, but rather a storm. Id. Under Norwegian law, which
governed the original insurance policy, the breach of warranty was no defense to
liability because the owner’s failure to keep a watch was not what destroyed the
fish farm. Id. at 891. Had the original policy been governed by English law –
which governed the reinsurance policy – that same non-causative breach would
have entitled the original insurer to refuse payment. Id. However, the House of
Lords held that absent some “express declaration to the contrary in the
reinsurance policy, a warranty must produce the same effect in each policy.” Id.
at 892. It reasoned that the parties, who had access to a “Norwegian legal
29
dictionary” when they agreed upon the original contracts, must have intended
the clause to have the same meaning in both the insurance and the reinsurance –
that is, the meaning given by Norwegian law – and thus provide back-to-back
coverage. Id. at 911 (Lord Lowry).
Equitas argues that Vesta and, more broadly, the back-to-back
presumption do not apply here. It insists that Wasa, a case with similar facts to
this one, limits the back-to-back presumption. In Wasa, an insurance company,
Lexington, issued a $20 million insurance policy to Aluminum Co. of America
(“Alcoa”), which Lexington then reinsured in the London market with two
English reinsurers. [2010] 1 AC 180 (HL) ¶¶ 18-21 (Lord Mance). Neither contract
specified a governing law, although the insurance included a “service of suit
clause” that required Lexington to “submit to the jurisdiction of any court of
competent jurisdiction within the United States.” Id. ¶ 19 (internal quotation
marks omitted). Both contracts covered a three-year period, but the Washington
Supreme Court held that Pennsylvania law, which followed the all sums rule,
applied to a group of consolidated claims and that the underlying Alcoa policy
could therefore cover environmental damages spanning 44 years. Id. ¶¶ 12-13
(Lord Brown); id. ¶¶ 19-20, 25-26 (Lord Mance). Lexington sued its English
30
reinsurers to cover their share of the risk. But this time, unlike in Vesta, the House
of Lords held that the back-to-back presumption did not apply, and it instead
strictly construed the reinsurance contract’s three-year temporal provision. Id.
¶ 54 (Lord Mance); id. ¶ 116 (Lord Collins).
But Wasa differs from this case in one important aspect. There, the
underlying Alcoa policy did not contain a choice-of-law clause, and it was
unpredictable at the time of contracting that Pennsylvania law would govern the
Alcoa policy. Here, by contrast, the underlying ICSOP-Dole policy contains an
express choice-of-law clause directing the application of Hawaii law, which,
Equitas concedes, like California law, follows the all sums rule in environmental
suits involving continuous and indivisible injuries.
In Wasa, the absence of a choice-of-law clause was significant to Lords
Collins and Mance, whose speeches garnered support from a majority of the
Lords. Lord Mance explained that the Washington Supreme Court found that
Pennsylvania law governed the Alcoa policy by “taking into account matters and
events extraneous to th[at] policy.” Id. ¶ 49. The choice of Pennsylvania law
could not, therefore, “be regarded as in any sense predictable at the time when
the reinsurance was placed.” Id. It was for that reason that Wasa presented
31
“materially different” circumstances from those presented in Vesta. Id. While in
Vesta it was possible “to identify the foreign law which would govern the
insurance” when the contract was formed, id. ¶ 44, in Wasa “[t]here was . . . no
identifiable legal dictionary (formal or informal), still less a Pennsylvanian legal
dictionary,” at the time of contracting that “could lead to any different
interpretation of the reinsurance wording,” id. ¶ 49. Lord Collins distinguished
Vesta on the same basis. “[I]n complete contrast to the Vesta case,” Lord Collins
explained, “there was in 1977, when the [Wasa] insurance contract and the
reinsurance contract were concluded, no identifiable system of law applicable to
the insurance contract which could have provided a basis for construing the
contract of reinsurance in a manner different from its ordinary meaning in the
London insurance market.” Id. ¶ 108. Meanwhile, in Vesta, “the substance of the
foreign law as to the consequences of a non-causative breach of warranty could
be ascertained at the outset, if necessary by recourse to a relevant Norwegian . . .
legal source.” Id.
Here, as in Wasa, the ability or inability to predict the law governing the
original insurance when the parties execute reinsurance is no small factor. Under
English law, “a contract has a meaning which is to be ascertained . . . when it is
32
concluded.” Id. ¶ 45 (Lord Mance). Thus, absent an ability to predict the
governing legal regime at the outset, an unspecified foreign law cannot dictate
the meaning of a reinsurance contract. The presence of a choice-of-law clause in
the ICSOP-Dole policy therefore distinguishes this case from Wasa.
To be sure, Wasa left open whether the presence of a choice-of-law clause
would have revived the back-to-back presumption. In the course of arguing
Wasa, counsel for Lexington asked the House of Lords, “what more could
Lexington have done to reinsure themselves on a fully back to back basis?” Id.
¶ 51. Tellingly, among other responses, Lord Mance replied that “steps could . . .
be taken to make the insurance subject to an identifiable governing law, though
this would not necessarily foreclose all argument.” Id. (emphasis added).
But, even as Wasa does not altogether foreclose Equitas’s arguments, we do
not believe that the United Kingdom Supreme Court would be persuaded by
them.
i. The Fundamental Importance of a Policy Period
Equitas argues that Wasa hinged not just on the lack of a choice-of-law
clause, but also on the fundamental importance of a policy period to English
insurance law. That argument is not without force. As Equitas argues, a policy
33
period is indeed accorded “fundamental importance” under English law. Id. ¶ 15
(Lord Brown). As Lord Brown pointed out in Wasa, if the policies were back-to-
back, then Lexington, the insurer in that case, could have recovered the full loss
no matter how short the period of cover, whether it was three years or “only
three months.” Id. Disregarding a policy period would, Lord Collins wrote in
Wasa, lead to some “very uncommercial consequences.” Id. ¶ 111. Similarly, Lord
Mance explained that the “all sums” doctrine was a “fundamental and surprising
change[] in the ordinary understanding . . . of a reinsurance period.” Id. ¶ 40.
Vesta did not involve a policy period. Instead, it involved “uncommercial and
technical points” of English law: the ability of an insurer to deny coverage based
on a breach of a warranty that had no causal relationship to the insured’s losses.
Id. ¶ 56 (Lord Collins). In that area, Lord Mance explained in Wasa, “English law
has long been recognised as unduly stringent and in need of review.” Id. ¶ 50.
Even so, Equitas’s theory falls short for several reasons. To start, the
opinion of Lord Brown, who relied most heavily on the fundamental nature of
the policy period, did not gain majority support. Lords Mance and Collins, who
were joined by a majority, put decisive weight on the inability to predict the
governing legal regime at the time the contract was executed. See id. ¶ 49 (Lord
34
Mance) (distinguishing Vesta on the basis that there was an “identifiable legal
dictionary” to interpret the contracts in that case); id. ¶ 108 (Lord Collins)
(describing the lack of an “identifiable system of law” as in “complete contrast”
to Vesta). 7 Moreover, as even Equitas’s English law expert acknowledges, the
back-to-back presumption is not “confined to such unattractive types of case[s]”
like Vesta. J. App’x 1178, ¶ 41. Rather, Lord Collins in Wasa explained that
modern English law would likely apply the presumption even in a case
involving a dispute about the definition of the very risk that the parties
bargained to insure. [2010] 1 AC 180 (HL) ¶¶ 64-65, citing St. Paul Fire & Marine
Ins. Co. v. Morice [1906] 11 Com. Cas. 153, a case that involved the meaning of “all
risks of mortality” in an insurance dispute about coverage of a bull who was
slaughtered on board a ship after contracting foot and mouth disease.
More significantly, Equitas’s “fundamental importance” argument relies
on its view that the all sums rule is “anathema” to English insurance law.
7 While on the Supreme Court of the United Kingdom, Lord Mance gave a
speech to an association of insurers, during which he repeated that Wasa was
based on the absence of a “special dictionary meaning” of the terms of the
original insurance that “could [have] be[en] carried through into the
reinsurance.” Lord Mance, Supreme Court of the United Kingdom, Keynote
Address to Association internationale de Droit des Assurances, Copenhagen ¶ 10
(June 12, 2015), https://www.supremecourt.uk/docs/speech-150612.pdf.
35
Appellant’s Br. 21-22, 32. That view, however, rests on a misreading of Municipal
Mutual [1998] Lloyd’s Rep. (Civ) 421, as well as an incomplete account of English
law. In Municipal Mutual, England’s Court of Appeal declined to apply the back-
to-back presumption to hold that the coverage period of an insurance policy was
co-extensive with the coverage periods of several successive reinsurance policies.
Id. at 435-36 (Hobhouse, L.J.). All policies, however, were given an English law
construction, and the reinsurances’ coverage periods were textually narrower
than the original insurance’s coverage period. Id. Additionally, the Court of
Appeal rejected an all sums allocation of liability in part because the case did not
involve “the special problems of liability for asbestosis claims arising from long
periods of potential exposure.” Id. at 436. Instead, the facts of Municipal Mutual
presented “much simpler questions.” Id.
And as outlined above, while English law does not generally follow the all
sums rule, in more complex cases involving asbestos liability, English law has
followed a version of the all sums rule, albeit in circumstances that are not
present here. After the House of Lords initially eschewed apportioning tort
liability jointly and severally between multiple employers who exposed their
employees to asbestos, see Barker [2006] 2 AC 572 (HL) ¶ 49 (Lord Hoffmann),
36
Parliament passed the Compensation Act 2006 c. 29 § 3, making “each” employer
who materially increases the risk that its employee would develop mesothelioma
jointly and severally liable “in respect of the whole of the damage caused by the
mesothelioma.” Trigger [2012] UKSC 14 ¶ 57 (Lord Mance). True, the text of the
Act applies to employer tort liability, not insurance liability. But that did not stop
the United Kingdom Supreme Court from holding that where the Act holds an
employer jointly and severally liable, its insurers are likewise jointly and
severally liable, on an all sums basis, with various rights to contribution, even if
the employer has multiple successive insurers or was uninsured for part of the
employee’s exposure. Zurich [2015] UKSC 33 ¶¶ 45-51, 54, 94-97 (Lord Mance);
see also Trigger [2012] UKSC 14 ¶¶ 49-50, 71-74 (Lord Mance). In so holding, the
Court analogized “facultative liability insurance” to facultative reinsurance, in
that both “normally respond[] to whatever may prove to be the liability incurred
by the insured.” Zurich [2015] UKSC 33 ¶ 45 (Lord Mance); see also Trigger [2012]
UKSC 14 ¶ 69 (Lord Mance). Notably, one dissenting Lord invoked Municipal
Mutual and Wasa – as Equitas does here – to emphasize the fundamental
importance of a policy period under English insurance law. Zurich [2015] UKSC
33 ¶¶ 153-55 (Lord Sumption). But, again, that did not stop the majority, which
37
acknowledged that principle, from imposing joint-and-several liability upon
insurers nonetheless. Id. ¶¶ 40, 46 (Lord Mance). There is no reason to think it
would stop that majority from imposing joint-and-several liability on a reinsurer
in the present circumstances either.
To be clear, we do not know whether Zurich, if applied here, would lead to
the same outcome concerning ICSOP’s liability to Dole or Equitas’s liability to
ICSOP. Zurich recognizes various rights of contribution, including under
principles of self-insurance, see [2015] UKSC 33 ¶¶ 65-82, which may or may not
differ from California’s and Hawaii’s approaches to contribution. The point of
our reliance on Zurich is that the case recognizes a circumstance where an insurer
can be jointly and severally liable for the whole of the insured’s tort liability even
though that liability might have accrued after the policy period’s expiration. That
recognition defeats Equitas’s argument that the all sums rule is anathema to
English law. Accordingly, Zurich reinforces the conclusion that English law
would construe the reinsurance policy in this case as co-extensive with the
ICSOP-Dole policy.
38
ii. Change in Law
Equitas next underscores that even if the presence of a choice-of-law clause
distinguishes this case from Wasa, the all sums rule first came into existence long
after the parties executed the ICSOP-Dole policy and the reinsurance policy (and,
for that matter, long after the policy periods ended). For that reason, Equitas
insists, the parties here could not have predicted an all sums approach to
allocating liability, and an English court would therefore not impose that
approach.
Again, that argument has some merit. The Lords in Wasa were troubled
not only by the inability to predict the governing legal regime but also by the
resulting inability to predict the substantive rules of that regime. For example,
Lord Phillips suggested that it was “unlikely” that the parties could have
anticipated that the same words in the original insurance and the reinsurance
would mean “radically” different things under different legal systems. Wasa
[2010] 1 AC 180 (HL) ¶¶ 4-5. Lord Collins explained that in Vesta the “substance
of the foreign law as to the consequences” of the 24-hour watch clause “could be
ascertained at the outset,” whereas, in Wasa, it was impossible to predict that a
39
U.S. court would apply the all sums rule because U.S. courts had not yet
developed that rule when the parties executed their agreements. Id. ¶¶ 108-09.
That point cannot be decisive, however. The reinsurers in Wasa made the
exact same argument. Assuming that the reinsurers were correct that
Pennsylvania law had only later adopted the all sums rule, Lord Mance asked,
“would that matter?” Id. ¶ 53. Noting an observation of Lord Justice Longmore,
who sat on the appellate court from which the reinsurers had appealed, Lord
Mance explained the Court of Appeal’s view that “[i]t would have been ‘nothing
to the point’” if in Vesta, for example, “‘the relevant Norwegian statute had been
enacted after the inception of the policy.’” Id. (citation omitted). “[R]einsurers
must,” Lord Justice Longmore had explained, “take the risk of any change in the
law.” Id. And there, as here, “one is only talking at most about a change in the
construction put at common law on a particular contract wording.” Id. Likewise,
Lord Collins explained that “[i]t is elementary” that insurers and reinsurers
“take[] the risk of changes in the law” and cannot “be heard to say that [they]
rated the risk by reference to the then current scope of the original insured’s duty
. . . provided that the risk is within the reinsurance.” Id. ¶ 110.
40
Thus, when parties fail to define in their insurance agreements a term such
as “all sums” – the term that invokes the all sums rule – they adopt the meaning
a common law court will ascribe to it, and thereby bear the rewards and risks of
the common law’s dynamic nature. See Trigger [2012] UKSC 14 ¶ 70 (Lord
Mance), citing Kleinwort Benson Ltd v. Lincoln City Council [1999] 2 AC 349 (HL)
378-79 (Lord Goff) (explaining that “when . . . judges state what the law is, their
decisions . . . have a retrospective effect” not only “in relation to the particular
case” but “also inevitabl[y] in relation to other cases in which the law as so stated
will in future fall to be applied” because no “common law system . . . can operate
otherwise if the law is [to] be applied equally to all and yet be capable of organic
change”); Woodland v. Essex County Council [2013] UKSC 66 ¶ 28 (Lady Hale)
(“The common law is a dynamic instrument. It develops and adapts to meet new
situations as they arise. Therein lies its strength. But therein also lies a danger,
the danger of unbridled and unprincipled growth to match what the court
perceives to be the merits of the particular case.”).
To that end, turning back to Zurich and Trigger, the United Kingdom
Supreme Court acknowledged in those decisions that the relevant policies were
executed before the various legal developments leading to those decisions had
41
occurred. See Zurich [2015] UKSC 33 ¶ 149 (Lord Sumption); Trigger [2012] UKSC
14 ¶ 70 (Lord Mance). But that did not stop the Lords from imposing liability
upon insurance carriers in Trigger and joint-and-several liability upon insurance
carriers in Zurich. It would be incongruent to make the change-of-law point
decisive here where it was not in those cases, and unfaithful to our mandate to
predict how the United Kingdom Supreme Court would decide an issue to do
something directly contrary to what it has done in the past. That is especially
true because the reinsurance policy in this case expressly warrants that coverage
is “[a]s [o]riginal” and that it will provide the “same gross rate, terms and
conditions as and [will] follow the settlements of [ICSOP].” J. App’x 777, 779, 793,
796. Equitas therefore cannot confine its current obligations to what those
obligations would have been had this dispute arisen fifty years ago.
* * *
This case unquestionably presents an issue that was expressly left open in
Wasa, and has not since been resolved by the United Kingdom Supreme Court.
We thus cannot be certain that our prediction as to how that Court would resolve
this case had it been litigated in England is correct. But it remains our
42
responsibility to make our best considered judgment of how that Court would
decide the issue, based on the available precedents. 8
We have carefully reviewed those precedents, and for the reasons set forth
above, we conclude that under English law the back-to-back presumption is
strong, and we do not believe that the United Kingdom Supreme Court would
condition that presumption on the importance of a policy term or the
predictability of how a foreign court might later interpret that term. Accordingly,
the back-to-back presumption applies to the reinsurance policy, thus rendering
the parties’ obligations co-extensive.
B. Late Notice of Claim
Separately, Equitas claims that ICSOP’s failure to provide timely notice of
claim allows it to fully repudiate the reinsurance policy. Equitas concedes,
8In certain domestic cases, where a federal court must decide an unsettled
question of the law of a State, it is possible for that court to certify the question to
the highest court of that State. See, e.g., 2d Cir. Local R. 27.2(a) (“If state law
permits, the court may certify a question of state law to that state’s highest
court.”); 22 N.Y.C.R.R. § 500.27(a) (authorizing the New York Court of Appeals
to review certain certified questions). No such procedure is available here, so we
are left to our own reading of English law. See Terra Firma Invs. (GP) 2 Ltd.,
716 F.3d at 301 (Lohier, J., concurring) (explaining that, “[i]n the context of cross-
border commercial disputes, there is every reason to develop a similar formal
certification process pursuant to which federal courts may certify an unsettled
and important question of foreign law to the courts of a foreign country”).
43
however, that timely notice is not a condition precedent to a claim for coverage
under the reinsurance policy. Where timely notice is not a condition precedent,
English law rejects the defense of partial repudiation – that is, an insurer’s ability
to reject a claim for coverage. See Friends Provident Life & Pensions Ltd. v. Sirius
Int’l Ins. [2005] EWCA (Civ) 601 ¶ 32 (Lord Mance). That would seem to foreclose
Equitas’s more radical defense of full repudiation based on late notice of claim.
Nevertheless, Equitas’s English law expert opines that on “extreme facts,”
“dishonest non-notification” that causes “serious prejudice to” an insurer might
give rise to the defense of full repudiation of the contract. J. App’x 1189-90,
¶¶ 70-73. Conspicuously, neither he nor Equitas cite a case reaching that result,
which would in any event sit in some tension with English law’s rejection of a
partial repudiation defense.
Even accepting for a moment the expert’s proposed standard, however,
the facts that Equitas alleges – that ICSOP notified Equitas some six years after
becoming aware that a claim was likely under the reinsurance policy, that ICSOP
failed to inform Equitas of the likely claim in response to queries about other
claims, and that some of ICSOP’s failures may even have been deliberate – do not
suffice to show serious prejudice. Equitas’s expert defined serious prejudice as
44
something that goes to the “root of the whole” contract. Id. at 1189-90, ¶¶ 68, 72.
We see none of that in this record, and thus no reason to go where no English
court has gone. Accordingly, we agree with the district court that Equitas’s late-
notice defense is unavailing.
CONCLUSION
For the reasons set forth above, we AFFIRM the judgment of the district
court.
45