2nd Circ. Agrees AIU’s $23M Asbestos Claim Came Too Late

By David Siegel

Law360, New York (August 27, 2014, 3:36 PM ET) — The Second Circuit ruled on Wednesday that TIG Insurance Co. doesn’t owe $23 million to AIU Insurance stemming from a dispute about a settlement with Foster Wheeler Corp. over asbestos suit coverage, finding that Illinois law applies in the case and that AIU waited too long to file a claim.

The appeals court affirmed a lower court’s decision granting summary judgment in favor of TIG on the grounds AIU had breached its reinsurance certificates by not giving prompt notice to TIG about a claim from Foster Wheeler for coverage of asbestos-related injury suits. AIU informed TIG in January 2007, though it had settled the coverage fight with Foster Wheeler in June 2006, according to the panel’s opinion.

The appeals court rejected arguments from AIU that the applicable contacts with New York outweigh those with Illinois and that New York law should be used to determine what TIG’s obligations consisted of instead of Illinois law.

“AIU argues that the applicable contacts with New York outweigh those with Illinois, and thus the source of substantive law should be that of New York. We are not persuaded,” the panel’s opinion states. “On this point, we agree with the district court’s well-reasoned decision holding that the circumstances of these reinsurance certificates favor the application of Illinois law.”

Through the late 1970s to the early 1980s, AIU issued umbrella insurance policies to Foster Wheeler, a manufacturer of heat exchange equipment, the appeals panel said. TIG, through its predecessor International Insurance Co., reinsured AIU’s Foster Wheeler policies.

Foster Wheeler was a party in the 1990s to numerous asbestos-related lawsuits throughout the country. In 2003, Foster Wheeler tendered claims to AIU as a result of the asbestos litigation, and the two companies later reached a settlement. In 2007, AIU gave TIG notice of its intent to bill TIG as its reinsurer under the reinsurance certificates, but the panel said TIG refused to pay, arguing that the notice AIU had provided was late. AIU filed suit in New York in 2007.

TIG argued AIU’s case could not continue because Illinois law does not require a reinsurer to prove prejudice when it refuses to pay a claim for reinsurance coverage based on having received late notice of that claim. The appeals panel noted that AIU had failed to offer any argument that it provided timely notice to TIG, and under Illinois law, that fact alone is sufficient to deny a claim.

The appeals panel said that while Illinois courts have excused late notice in a number of very limited circumstances in the direct insurance context, none of those circumstances are present in the current case.

“We agree with the district court, therefore, that a three-year delay on the part of the ceding company before notifying a reinsurer of a claim falls outside the bounds of reasonable notice,” the panel’s opinion states. “TIG was entitled to refuse coverage under the certificates. The district court correctly determined that TIG was entitled to summary judgment.”

The panel consisted of U.S. Circuit Judge Peter W. Hall and U.S. District Judge J. Garvan Murtha. Circuit Judge John M. Walker Jr. was originally assigned to the panel but was later recused.

Attorneys for the parties did not immediately respond to a request from Law360 for comment.

AIU is represented by Edward P. Krugman of Cahill Gordon & Reindel LLP, William Maher and Michael C. Ledley of Wollmuth Maher & Deutsch LLP and by Paul R. Aiudi of AIG Property Casualty.

TIG is represented by James I. Rubin, Catherine E. Isely and Julie Rodriguez Aldort of Butler Rubin Saltarelli & Boyd LLP and Sean Thomas Keely of Hogan Lovells US LLP.

The case is AIU Insurance Co. v. TIG Insurance Co., case number 13-1580, in the U.S. Court of Appeals for the Second Circuit.

–Additional reporting by Juan Carlos Rodriguez. Editing by Patricia K. Cole. All Content © 2003-2014, Portfolio Media, Inc.