Parties settle in asbestos liability reinsurance case
In the matter United States Fidelity & Guaranty Company (USF&G) v. American Re-Insurance Company (AmRe), Charles Bates was retained by Wachtell Lipton on behalf of AmRe and ACE Property & Casualty Company (ACE) as the asbestos estimation expert.
The case started when USF&G brought claims against AmRe and ACE, which acted as reinsurers to USF&G for asbestos liability, in an effort to recover its losses from a nearly $1 billion settlement of asbestos claims with Western MacArthur. In an attempt to maximize the amount of the settlement covered by reinsurance, USF&G ascribed the entire amount of the settlement to asbestos losses and nothing to its potential liability risk for “failure to defend” claims, which is excluded from reinsurance coverage. As is customary in the industry, the reinsurance treaty contained a “follow the settlements” clause that precluded reinsurers from objecting to an insurer’s settlement. At issue in the case was whether this clause applied to the decision about the allocation of the settlement to covered and uncovered losses. The reinsurers argued that USF&G did not properly allocate the settlement amount in attributing the entire amount to asbestos losses and nothing to its potential liability risk for “failure to defend” claims.
Dr. Bates provided written and oral testimony. His analysis showed that the arithmetic and methodological errors made by USF&G overstated the reinsurance bill more than 10-fold. ACE and USF&G settled after jury selection.