Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc. (381 F. Supp. 3d 185, 2019)

Brenda K. Sannes, U.S. District Judge I. INTRODUCTION

These related diversity breach-of-contract actions arise from Utica Mutual Insurance Company's ("Utica") billings to Munich Reinsurance America, Inc. ("Munich") under the terms of the facultative reinsurance certificates Munich issued to Utica in 1973 (6:12-cv-196) ("Utica I ") and 1977 (6:13-cv-743) ("Utica II "). In Utica I , Utica claims that Munich violated the 1973 facultative reinsurance certificate ("1973 Certificate") by failing to pay $ 2,760,533.96 in expenses. In Utica II , Munich claims that Utica violated the terms of the 1977 facultative reinsurance certificate ("1977 Certificate") by billing it for $ 789,813.47 in expenses; Munich paid that expense billing and now seeks reimbursement.

Munich has paid the $ 5 million and $ 1 million liability limits on the Certificates. At issue here is Munich's liability for additional loss expenses-that is, whether Munich is obligated to pay loss expenses incurred in investigating, adjusting, and litigating claims supplemental to the liability limits. The resolution of this issue hinges on the interpretation of certificates issued and umbrella policies reinsured in the 1970s, when neither party likely anticipated the kind of catastrophic asbestos claims faced by Utica in this case.

In July 2018, the Court held a ten-day bench trial in Syracuse, New York, at which ten fact witnesses and five expert witnesses testified. Both parties have submitted proposed findings of fact and conclusions of law. (Dkt. Nos. 429, 430, 431, 431-1, 440-442, 447, 449, 449-1, 450, 450-1). The Court has carefully considered the trial record, the credibility of the witnesses at trial, and the submissions of the parties. In accordance with Rule 52(a) of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law.

For the reasons set forth below, the Court finds that, with respect to the 1973 Certificate, Munich is not liable for any additional monies to Utica. Even assuming that Munich's liability under the 1977 Certificate is limited to the $ 1 million policy limit, the Court finds that the voluntary payment doctrine bars Munich from recovering the loss and declaratory judgment expenses it has already paid Utica. The Court therefore finds that Munich is entitled to judgment in Utica I , and that Utica is entitled to judgment in Utica II .

II. FINDINGS OF FACT

A. The Primary Policies, Umbrella Policies, and Facultative Reinsurance Certificates

Utica, an insurance company, issued primary general liability insurance policies (the "primary policies") to Goulds Pumps, Inc. from 1955 through 1986. (Dkt. No. 360, Section IV.B.4). Utica also issued umbrella policies to Goulds from 1964 to 1975 and 1977 to 1982. (Dkt. No. 360, Section IV.B.7). The primary policies, combined, provided $ 12,300,000 in liability limits and were expense-supplemental, allowing for expenses in addition to limits. (Ex. D-346-A, at R-0062463). The umbrella policies, combined, provided $ 255,000,000 in liability limits. (Ex. D-346-A, at R-0062463). Utica purchased facultative reinsurance certificates from Munich on several of its umbrella policies.

At issue in this action are the 1973 Umbrella Policy ("1973 Umbrella"), which provided $ 25 million in liability limits, the 1977 Umbrella Policy ("1977 Umbrella"), which provided $ 3 million in liability limits, and the facultative reinsurance certificates (the 1973 and 1977 Certificates) that Utica purchased from Munich on those policies. (Dkt. No. 360, Sections IV.A.3, C.10 and 13). The dispute centers on whether the 1973 Umbrella, as allegedly modified by a midterm defense endorsement ("1973 defense endorsement"), and the 1977 Umbrella required Utica to pay Goulds' defense expenses supplemental to losses. The 1973 defense endorsement, which Utica asserts changed the 1973 Umbrella from expense-inclusive to expense-supplemental, was the subject of contention: the parties dispute whether Utica delivered the endorsement, upon issuance, to Munich; key Utica participants were unaware of the endorsement during its dealings with Goulds; and Utica, accordingly, took inconsistent positions, before and after its settlement with Goulds, on whether Munich's liability under the 1973 Certificate is expense-supplemental or expense-inclusive.

Alternatively, Utica asserts that, even if the Court disagrees with its interpretation of the Umbrella Policies, the 1973 and 1977 Certificates obligate Munich to reimburse Utica for defense expenses, including declaratory judgment expenses, on an expense-supplemental basis.

B. Asbestos Claims Against Goulds

In the early 1990s, Goulds became the subject of claims by individuals alleging bodily injury as a result of exposure to asbestos in a Goulds product. (T. 1156; Dkt. No. 450-1, ¶ 4). Utica was defending and settling those claims under the primary policies. (T. 1158-60). Because the cost was minimal, Utica was not "really tracking [the claims] to the policies" but would "load them all in one [policy] year" for "administrative purposes." (T. 1160-61). It likewise posted "a nominal reserve for loss and a nominal reserve for expense." (T. 1160).

In the late 1990s, however, because the number of asbestos claims had increased, (T. 1164-65), and "breached the aggregate limit of the [single] policy" to which Utica had been allocating claims, Utica began allocating the loss "to the appropriate policy year." (T. 1161-62). For example, if a claimant alleged asbestos exposure from 1975 to 1985, and Utica paid $ 1,000 for the claimant's loss, Utica would "allocate $ 100 to the ten policy year files." (T. 1162). This enabled Utica to "accurately spread[ ] the loss to the periods that were impacted." (T. 1162-63). Utica "allocate[d] expense evenly across the years in the same method." (Ex. P-8, at A-0003509). Utica set up separate policy year files for each primary and each umbrella policy so that, if the amounts Utica set aside in reserve for each claim "went over the primaries," Utica would then set reserves for "the umbrella for the corresponding year." (T. 1170).

In June 2002, Utica deemed the 1975, 1976, and 1978 primary policies exhausted. (Dkt. No. 450-1, ¶ 6; Ex. P-336). In October 2002, Utica advised Goulds that these policies had exhausted and that there was no evidence of an umbrella policy above the primary policy for the July 2, 1976 to December 31, 1976 time period and requested reimbursement for the indemnity and expenses it had paid on Goulds' behalf for that time period. (Ex. P-336, at R-0029305; Ex. P-8, at A-0003510).

Utica determined that Goulds also lacked umbrella coverage over its 1959 to 1963 primary policies and began "to allocate monies" it had paid into these "orphan share periods"-policy years "above the primaries where Goulds did not have an umbrella policy." (T. 1175). In February 2003, Utica notified Goulds that "[t]here was no umbrella coverage purchased from Utica prior to 1964" and that it would "be billing Goulds" for the orphan share periods.

(Ex. P-8, at A-0003509-10). Utica further advised that: (i) the 1964 to 1976 umbrella policies contained "ultimate net loss provisions" ("UNL" provisions), meaning that they "included the cost of expense within the available limit of umbrella coverage" (expense-inclusive) and that "future payments made for expense associated with defending these claims will erode the policy limits for these policies"; and (ii) the 1977 to 1987 umbrella policies "had a defense provision in addition to policy limits" (expense-supplemental), meaning that "[t]he proportionate allocation of the defense costs allocated to those policies would not erode." (Ex. P-8, at A-0003510).

C. California and New York Declaratory Judgment Actions

In March 2003, Utica learned that Goulds had filed a lawsuit in California seeking, among other things, declaratory judgment against a number of its insurers, including Utica. (Ex. P-57, at F-0307918; T. 1192-93; Ex. P-237). The issues included choice of law (New York or California), the orphan share allocation, and whether Utica was entitled to control the defense. (T. 1194; Dkt. No. 450-1, ¶ 16). By April 2003, Utica was aware that Goulds was also claiming that certain primary policies (those issued in 1978, 1979, 1980, and 1982) contained a limit of liability for each occurrence but no aggregate limit. (Ex. D-279, at D-0014772). Utica believed the absence of aggregates from the 1978-82 policies was a "mere 'scrivener's error' "-"a simple oversight in policy processing" that neither it nor Goulds "intended." (Ex. D-76, at R-0040027). It recognized, however, that if the court were to find that California law applied and that one or more of the primary policies had no aggregate limit, under the "all sums approach" Goulds could select a primary policy without an aggregate limit to apply to all asbestos claims. (Ex. D-76, at R-0040027). Utica further recognized that this would "effectively create an unlimited supply of coverage" under the primary policies, which would never exhaust or trigger the umbrella layer of coverage, and "eliminate reinsurance recovery for all of these claims." (Ex. D-76, at R-0040027). With over 80,000 asbestos claims at that point, such a result would be devastating for Utica. (T. 403; Ex. D-598, at D-0014157-58).

In October 2003, Utica filed a declaratory judgment action against Goulds in New York because it believed New York was "the more appropriate jurisdiction" "for a lawsuit between a New York insurer, [and] New York based insured, Goulds Pumps," involving contracts that "were issued in New York." (T. 1194). Utica sought a declaration that: (i) it had "exhausted its obligations under the Primary Utica Policies;" and (ii) it had no duty to pay defense costs or indemnity attributable to periods of time for which Goulds had no insurance (the orphan share issue), Goulds was responsible for such amounts, and Goulds must reimburse Utica for amounts it paid "due to Gould Pumps' failure to obtain or pursue insurance." (Ex. P-238, at R-0075798-99).

D. Utica's Negotiations and Settlement with Goulds

As part of the litigation effort, Utica attempted to identify all policy documents it had for the Goulds policies. (T. 425). Utica pieced the policies together from microfiche documents, archived documents, documents Goulds had kept, and documents from the brokers that placed the coverage for Goulds with Utica. (T. 425-27). In January 2004, Utica sent Goulds more than 2,500 pages of underwriting material regarding the primary and umbrella policies. (Exs. D-281; D-584). Among these documents was the 1973 defense endorsement purporting to modify the 1973 Umbrella mid-policy term from an expense-inclusive policy to an expense-supplemental policy. (Ex. D-584, at UMU 00133-34).

On February 9, 2004, Goulds' coverage counsel, Michael Horton, wrote a letter to Utica's coverage counsel, Ron Robinson, concerning coverage issues. (Ex. D-61, at R-0029475). Horton wrote that one of the "more pertinent issues" concerning Goulds' approach to defense and indemnity costs was the "supplemental duty to defend under some or all of the umbrella policies by way of endorsement." (Ex. D-61, at R-0029475). Horton noted that Utica had "acknowledged" that its 1977 to 1985 umbrella policies "contain a supplemental duty to defend," but that Goulds believed "that additional Umbrella Policies, issued prior to January 1, 1977, may also contain a supplemental defense obligation." (Ex. D-61, at R-0029478). In a February 20, 2004 letter to Horton, Robinson requested "these endorsements and policies and any other documentation that supports your positions." (Ex. D-263, at D-0025871).

Robinson wrote Kristen Martin, a Utica staff attorney, on April 4, 2004, advising her that he had spoken with Horton about the "alleged [pre-1977] Utica policy endorsement" that Goulds claimed turned Utica's "ultimate net loss (wasting limit) umbrella policies into supplementary defense policies," but that Horton "appeared to be willing to waive this argument after he consults with his client." (Ex. D-14, at R-0028405, -08). There is no evidence that Goulds sent the defense endorsement to Utica; the virtual policy folio that Utica's coverage counsel assembled in 2005 for the 1973 Umbrella, however, contains a copy. (Dkt. No. 449-1, ¶ 7.b; Ex. P-100, at R-0000164-65).

As noted above, Utica believed it was obligated under the umbrella policies to defend the Goulds claims and was paying for "a hundred percent of the defense." (T. 403). Utica had determined that the umbrella policies issued prior to 1977 were expense-inclusive. (Dkt. No. 449-1, ¶ 4). The 1973 Umbrella, for example, defined the "Ultimate Net Loss" for which Utica was liable as:

the total sum which the Insured, or any company as his insurer, becomes obligated to pay by reason of personal injury or property damage claims, either through adjudication or compromise, and all sums paid for expense , including premiums for attachment or appeal bonds, in respect to litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder, excluding only the salaries of employees and office expenses of the named Insured or of any underlying insurer or any other expenses which are recoverable through any other valid and collectible insurance.

(Ex. P-100, R-0000152) (emphasis added). In contrast, Utica had determined that it was obligated to provide a defense and pay defense costs supplemental under the umbrella policies issued in 1977 and after, based on its interpretation of the "occurrence not covered by language" in the supplemental defense provisions of those policies. (Dkt. No. 449-1, ¶ 4 (Response); T. 441). This is the same language at issue in the 1973 defense endorsement.

At trial, Martin explained that, when Utica "looked at the 'not covered by' language, policy exhaustion to us equaled not covered by, so we believed those policies owed the defense." (T. 441). Bernard Turi, a Utica staff attorney and vice president who was involved in the Goulds claims, testified that he also understood, based on his training at Utica, that Utica's umbrella policies provided a defense following exhaustion of the primary policy, and that Utica always "handled" its umbrella policies in this manner and viewed them as owing a defense. (T. 1187-88). John Griffin, who worked at Utica as an underwriter and manager from 1974 to 2015, (Dkt. No. 350-12, at 4), testified that he understood from his training as an underwriter and experience with umbrella policies that the umbrella policies Utica issued to Goulds obligated Utica to defend after the primary policies exhausted. (Dkt. No. 350-12, at 161-62). Griffin further stated that he understood throughout his career that Utica's umbrella policies obligated it to provide a defense. (Dkt. No. 350-12, at 164-65). In addition, Utica believed that, if it disclaimed the defense obligation under the umbrella policies, the insured (Goulds) would control the defense. (T. 1189-90).

Utica conducted no research in making this determination and twice declined offers from coverage counsel to research its obligation to provide a defense under the "occurrence not covered by language." (T. 1540 (William Robinson, former Utica coverage counsel, discussed the "occurrence not covered by" provision with Utica in 2003 but was "told that the decision had been made and there was no need ... to research or analyze it."); T.1651-52 (William Savino, former Utica coverage counsel, testified that in December 2005 he noted the "not covered by language" in the umbrella policies issued after 1977 and raised it with Utica as a potential issue, but "learned that" Utica had already "analyzed the language and had concluded that their provision of the defense to their policyholder was appropriate.") ). Turi explained that Utica would not "instruct counsel to do research on something we had already decided and understood." (T. 1541).

None of the Utica employees who opined on the meaning of "occurrence not covered by" provided any further explanation of their interpretation of "occurrence not covered by" within the context of the umbrella policies, including the provisions concerning retained limits. The Court notes that one of Utica's experts, Paul Feldsher, who testified in support Utica's interpretation of "occurrence not covered by," did address the retained limit provision. Feldsher testified that, under his reading of the policy, to access indemnity under the 1973 Umbrella (and supplemental defense expense coverage), Goulds had to pay a $ 10,000 self-insured retention for each claim. (T. 868, 930, 945-947, 961, 1028). There is no evidence that Utica asked Goulds to pay, or believed Goulds was required to pay, a self-insured retention on any claim under the 1973 Umbrella. (T. 1535-36).

In December 2005, Utica and Goulds engaged in mediation. (Dkt. No. 450-1, ¶ 23). By then, Utica had paid approximately $ 12 million in indemnity and $ 8.8 million in expense under the primary policies, all of which it had deemed exhausted (a point Goulds disputed based on its aggregate-limits argument) and $ 21.7 million in indemnity and $ 14.4 million in expense under the umbrella policies. (T. 416; Ex. D-346-A, at R-0062463). It had allocated $ 25,241,110.80 as the orphan share. (Ex. D-344, at F-0120699). In total, by the end of December 2005, Utica had paid more than $ 80 million on Goulds' behalf. (T. 416; Ex. D-344, at F-020699). On December 14, 2005, the parties reached a tentative agreement and executed a term sheet specifying that: there was $ 325 million in "[a]vailable remaining insurance from Utica"; "defense and indemnity will erode 'available insurance' "; "[p]ast expenditures/claims against" Goulds, i.e., orphan shares, were "waived"; and, with one exception as to a third party, "all primary coverage is deemed exhausted and all such policies shave [sic] aggregate limits." (Ex. D-272, at R-0065724).

After executing the term sheet, the parties worked toward a final settlement and began circulating a settlement agreement. (See Exs. D-34, D-81). In correspondence, Goulds indicated that it "would be willing to set aside" its claims that, among other things, Utica "[i]ssued ... primary policies that have no aggregate limits" and "seven umbrella policies that provide for an unlimited supplemental defense" and that "[a]ll of these agreements and concessions were made by [Goulds] in exchange for the simplicity of Utica making $ 325,000,000 in limits available." (Ex. D-81, at R-0013557-58). According to a draft of the settlement agreement, Goulds proposed the following provision: "The parties stipulate and agree that as of the Effective Date, the limits of liability of the Goulds Primary Policies have been exhausted for Product Liability Claims including (without limitation) the Goulds asbestos suits." (Ex. D-34, at R-0037160). Next to that provision, Turi wrote "i.e. the policies all have agg," meaning aggregates. (D-34, at R-0037160; T. 1245). Turi "wanted to make it very clear that the policies weren't just exhausted but that they had aggregate limits." (T. 1245). Turi also circled the word "stipulate" and wrote "-delete." (Ex. D-34, at R-0037160). Turi proposed deleting "stipulate" because he was concerned it would imply that Utica had "bargained for" the exhaustion of the primary policies and aggregate limits, and he "didn't want that" because Utica "had aggregate limits" and Goulds "agree[d] that we did and always had, and there was documentation to support, so [he] felt like stipulation was almost cheapening the issue." (T. 1245-46). Although the settlement agreement indicates that the "primary policies have ... an aggregate limit of liability," (Ex. 60, at F-0058717), the Court does not find credible Turi's testimony that the aggregate limits were not "bargained for" as part of the settlement. Not only was his testimony inconsistent on this point, (T. 1417 (Turi testifying that Goulds' agreement to aggregate limits had value to Utica) ), but other evidence in the record demonstrates that a finding that any of the primary policies lacked aggregate limits would have been devastating for Utica, (Ex. D-598, at D-0014157-58).

On February 22, 2007, Goulds and Utica entered a Defense and Indemnity Agreement in settlement of their claims. (Ex. D-2). The settlement agreement states that Utica had paid defense and indemnity costs on Goulds' behalf under the primary and umbrella policies, "and in doing so has: (i) exhausted the limits of liability ... of the Goulds Primary Policies; [and] (ii) impaired certain limits of liability of the Goulds Umbrella Policies." (Ex. D-2, at F-0080485). The settlement was structured so that Utica would pay Goulds on a claim-by-claim basis, rather than a "lump sum." (T. 479 (Martin explaining that "the claims still needed to come in, they needed to be defended, they needed to be reviewed, we had to make sure it was an asbestos product and [Utica] would pay that money out over a long period of time") ). The settlement agreement contains a chart showing the "umbrella policies of insurance issued by Utica Mutual with the following combined Aggregate Limits of Liability for Personal Injury and Property Damage":

Policy Period Personal Injury/Property Policy Number Retained Limit Damage (combined) Aggregate Limits 7-1-64/65 $2,000,000 1010 GLU $25,000 7-1-65-5/31/66 $5,000,000 1113 GLU $25,000 7-1-66/67 $10,000,000 1297 GLU $25,000 7-1-67/68 $10,000,000 1495 GLU $25,000 7-1-68/69 $10,000,000 1690 GLU $25,000 7-1-69/70 $10,000,000 1930 GLU $25,000 7-1-70/71 $10,000,000 2074 GLU $25,000 7-1/71/72 $10,000,000 2252 GLU $25,000 7-1-72/73 $10,000,000 2252 GLU $25,000 7-1-73/74 $25,000,000 2252 GLU $25,000 7-1-74/-8-31-75 $25,000,000 2252 GLU $25,000 1-1-77/78 $3,000,000 LU 4799 $25,000 1-1-78/79 $48,333,332 LU 4799 $25,000 1-1-79/80 $48,333,332 LU 4799 $25,000 1-1-80/81 $48,333,332 LU 4799 $25,000 1-1-81/82 $25,000,000 LU 4799 $25,000 1-1-82/83 $25,000,000 LU 4799 $25,000

(Ex. D-2, at F-0080500). Though Utica had deemed the primary policies exhausted and was allocating indemnity and expense to the umbrella policies prior to settlement, (T. 416; Ex. D-346-A, at R-0062463), for Goulds, Utica reset the umbrella policies' available limits to zero as of the effective date of the settlement, January 1, 2006, (Ex. D-2, at F-0080490, F-0080501 (providing that the "Available Limits" of liability "afforded under the Goulds Umbrella Policies" is $ 325 million and that these limits were available as of the "Effective Date" of the settlement agreement, January 1, 2006); T. 716). Goulds did not reimburse Utica for the approximately $ 25 million in orphan share payments made before January 1, 2006 but reimbursed Utica approximately $ 7.2 million for orphan shares following the settlement. (T. 590-91). Utica assigned none of the claims it paid under the $ 325 million settlement amount to its primary policies, (T. 705), because "[t]he primary policies had been exhausted by asbestos payments" and Utica was not "going to pay twice," (T. 1264).

E. Utica's Notification to Munich

By June 2001, Utica had begun corresponding with Munich about the asbestos claims being filed against Goulds. (Ex. P-116, at MRAG 0149 (June 27, 2001 letter from Utica claims attorney to Munich advising that, "[a]s previously reported, reinsurance for the Gould's [sic] Pumps's umbrella policies was procured through your company for certain years" from 1960 to 1987, and that Utica had decided "to distribute asbestos losses evenly across all available years of confirmed coverage for" Goulds) ). At that time, Utica also sent Munich declarations pages from the 1974 and 1977 Certificates. (Ex. P-116, at MRAG 0150-52). A Utica staff attorney sent Munich another update in a letter dated February 6, 2002 and advised that Utica was "in the process of allocating asbestos payments to those claims." (Ex. P-112, at MRAG 0140). The Utica staff attorney attached a list of Gould's umbrella policies, policy years, and each policy's liability limit, the same reinsurance declaration pages it had sent previously, and a copy of a page from the 1975 Certificate. (Ex. P-112, at MRAG 0142-44).

Thomas Miller, a claims handler in Munich's environmental mass tort claims unit, (T. 1732), first received notice regarding "asbestos" claims involving Utica and Goulds in 2004, (T. 1734). Miller exchanged correspondence with Utica in an effort to obtain "an explanation of the potential exposure." (T. 1736). In a letter to Miller dated September 28, 2004, a Utica staff attorney, Alicia Atik, provided "an update as to the status of asbestos-related liabilities" for Goulds. (Ex. D-138, at MRAG 0313). Although Atik was aware that Goulds was claiming that certain primary policies lacked aggregate limits and were therefore not exhausted, (T. 526), she wrote to Munich that Goulds' primary policy limits ($ 11.1 million) had "been exhausted by claim payments," (Ex. D-138, at MRAG 0313). Atik advised that Goulds had "umbrella coverage with Utica" and that the "umbrella policies from 1964 to 1976 were written on an ultimate net loss basis such that loss and expense erode the limits." (Ex. D-138, at MRAG 0313). Atik also informed Munich that in March 2003 Goulds had "joined [Utica] in a Declaratory Judgment action" "against 31 insurers and reinsurers" in California, that the action had been stayed, and that there were ongoing "negotiations on a Coverage Agreement." (Ex. D-138, at MRAG 0313-14). The letter does not mention Goulds' contention about the absence of aggregate limits. (Ex. D-138).

In a letter dated July 26, 2005, Kristen Martin, then a Utica associate claims attorney, advised Miller that Utica had identified four additional Goulds primary policies ($ 1.2 million) and that it would reallocate "where required." (Ex. D-143, at MRA77 123). Martin referenced the "coverage litigation regarding" Goulds Pumps, informed Miller that there was a "parallel litigation" in New York, and stated that the issue in both actions concerned "how asbestos bodily injury settlements and defense costs will be allocated to periods in which Goulds failed to procure umbrella coverage and the underlying Utica primary policy has been exhausted." (Ex. D-142, at MRA77 124). Miller did not try to find out more about the coverage litigation but relied on the information Martin provided. (T. 1802-03). Martin acknowledged that she "did not go into all the specifics as to what was at issue in the lawsuit" in her July letter to Miller but believed that, if Munich had been interested in information about the coverage action, it should have asked for more information. (T. 541). Further, Martin viewed the aggregate issue "as something that Goulds was raising and that it was a dispute, but Utica was confident that they would resolve the issue with aggregate limits on their policies." (T. 530). She felt that, because the orphan share issue could have "material impact on billings," it was important to let Munich know about that issue. (T. 541).

In an October 25, 2006 letter update to Munich, Martin wrote that the "coverage action[s]" were still pending, that Utica had "asked that the court declare various Utica policies exhausted," and that the parties were engaged in settlement negotiations. (Ex. D-149, at R-0039201). Martin advised that Utica had allocated approximately $ 19 million in indemnity payments and $ 15 million in loss adjustment expenses to Goulds and that, though it had not yet billed those amounts to its reinsurers, depending on the litigation outcome, Utica "may" allocate those amounts "to years of available/unexhausted Utica coverage and thus will impact the potential future liabilities of our reinsurers." (Ex. D-149, at R-0039201).

In a July 10, 2007 letter, Martin notified Munich that Utica and Goulds had reached a settlement, "in which both parties compromised their respective claims." (Ex. D-153, at MRA77 021). Martin enclosed a copy of the settlement agreement and indicated that Utica was "in a position to allocate the remaining unallocated indemnity and [loss adjustment expense] payments in relation to the Goulds' asbestos claims" and that Utica would allocate and bill these amounts to its "reinsurers consistent with the terms of the settlement agreement and the respective reinsurance agreements." (Ex. D-153, at MRA77 021).

F. Utica's Reinsurance Billings to Munich

In November 2007, Munich received its first bills from Utica under the 1973 and 1977 Certificates. (Ex. D-154, at MRA73 03447). In a letter, Utica notified Munich that it had "completed the allocation of the indemnity and [loss adjustment expense] payments consistent with the settlement and order" and that Utica "planned on billing those amounts to our reinsurers consistent with the terms of the respective reinsurance agreements, the settlement agreement and court order." (Ex. D-154, at MRA73 03448). The bill under the 1973 Certificate indicated that Utica had paid, under the 1973 Umbrella, $ 4,007,347.69 in direct loss and $ 2,656,812.64 in direct expense, which, calculated on an expense-inclusive basis, totaled: $ 6,664,160.33, passing the $ 5 million mark that triggered the 1973 Certificate. (Ex. D-154, at MRA73 03449). The bill indicated the "Total Reinsurance Due" from Munich was $ 1,664,160.33. (Ex. D-154, at MRA73 03449). The bill under the 1977 Certificate indicated that Utica had paid, under the 1977 Umbrella, calculated on an expense-supplemental basis, $ 3 million in direct loss and $ 2,194,104.63 in direct expense. (Ex. D-154, at MRA73 03450). According to the bill, the "Total Reinsurance Due" under the 1977 Certificate was $ 1,731,368.21 ($ 1,000,000 in loss and $ 731,368.21 in expense). (Ex. D-154, at MRA73 03450).

Miller, who had previously established a loss-and-expense reserve in connection with the 1977 Certificate, (T. 1743-45; Ex. D-152, at MRA77 263), was under the "impression" that the 1977 Umbrella covered defense costs in addition to limits based on information from Utica indicating that "pre-'77 ... certificates had expense as part of loss, and ... that post-'77 ... policies had expense in addition" to limits. (T. 1744-45). Miller, however, had not seen any policy documentation confirming his impression. (T. 1745).

1. Munich's Requests for Policy Documentation and Payment of Billings Under the 1977 Certificate

Miller spoke with Martin on December 6, 2007 to obtain clarification on the reinsurance billings. (Ex. D-157, at MRA73 00065). They discussed "the treatment of expense under the [settlement] agreement" because the settlement chart, (Ex. D-2, at F-0080500), called for all umbrella policies to pay on an UNL (expense-inclusive) basis, and it appeared Utica was billing Munich differently. (Ex. D-157, at MRA73 00065). Martin explained that "as part of the settlement, the parties agreed to additional limits under the umbrella policies,"-the available loss limits under the umbrellas totaled $ 255 million and the settlement stated there were $ 325 million "in umbrella limits"-and "[i]n return for the additional limits," the umbrella policies would be treated as UNL. (Ex. D-157, at MRA73 00065). Martin further explained that the settlement agreement, however, had "no effect" on "how reinsurers are billed" and that "Utica will continue to allocate loss and expense to all triggered policies pursuant to the terms of their policies and will be [sic] reinsurers pursuant to the terms of their reinsurance contracts." (Ex. D-157, at MRA73 00065). Miller requested "available policy documentation," "a spreadsheet showing the allocation across all years," and the "most current claim statistics so that [Munich could] update [its] reserve analysis for the additional fac certs." (Ex. D-157, at MRA73 00065). Miller believed that, when he asked for "available policy documentation," Utica would send him everything that was still available regarding the policies. (T. 1752-53).

Martin was aware that Utica had reconstructed policy files for both the 1973 and 1977 Umbrellas. (T. 560). These files contained the pertinent language concerning defense expenses. (T. 560; Exs. P-92, P-100). However, rather than going "to the policy folders that the attorney and other people at Utica had recreated to fully represent the year," (T. 560), which were in a "unit where" she "no longer worked," Martin "grabbed" what she had "on [her] hard drive" and sent it to Miller via email on December 7, 2007, (T. 560; Ex. D-488). The documents included what appear to be excerpts from the 1973 Umbrella, (Ex. D-488, at MRA73 03455-58), and miscellaneous documents concerning 1974, 1975, 1977, and 1978 umbrella policies, (Ex. D-488, at MRA73 03459-66). None of the documents Martin sent to Miller, however, contained the pertinent policy language. (See generally D-488).

On December 10, 2007, Miller requested a spreadsheet showing the "paid loss and expense for all of the Utica primary and umbrella policies over all the years." (Ex. D-160, at MRA73 03469). Miller explained that he needed the spreadsheet in order "to document our file that the allocation across all the years is ... based on the terms of the settlement agreement" and "to make reserve projections." (Ex. D-160, at MRA73 03469). Martin forwarded the spreadsheet on December 11, 2007. (Ex. D-160, at MRA73 03469).

On December 12, 2007, Miller notified Munich's accounting department that he anticipated approving a claim to Utica "by the end o [sic] week in the approximate amount of $ 1,750,000." (Ex. D-161, at MRA73 03472).

On December 14, 2007, Miller notified Martin via email that Munich was "in good shape on the bill for the 1977 policy" and that he had requested management approval to pay the claim. (Ex. P-162, at R-0074003 ). The same day, Miller requested authority to pay Utica "a loss of 1,000,000.00 and pay an expense of 731,368.21" as the "payment of facultative share of asbestos products loss and expense," which exhausted the $ 1 million 1977 Certificate limit. (Ex. D-118). Miller's supervisor, Thomas O'Kane, approved payment, noting, "We have confirmed paid claims have properly exhausted the entire 3M umbrella policy limit and our loss and exp payment is in order." (Ex. D-118). Though he did not have the specimen terms and conditions for the 1977 Umbrella and knew Martin's explanation of coverage was "inconsistent with the settlement agreement" but "consistent with what [Martin] had explained" to him about "the intent of the settlement agreement," Miller accepted Martin's explanations. (T. 1766-67). Miller and Munich management felt comfortable paying the 1977 Umbrella. (T. 1771). Munich paid Utica $ 1,731,368.21 in connection with the 1977 Certificate.

2. Utica's Rediscovery of the 1973 Defense Endorsement and Withdrawal of the Billings Under the 1973 Certificate

In his December 14, 2007 email, Miller sought more information from Martin about "the treatment of expense under the policies and the settlement agreement." (Ex. P-162, at R-0074003; T. 1761). Miller informed Martin that he was checking to "make sure we have received all available documentation from our underwriting files" but that Munich had "requested a full search when [they] first received these claims" and he doubted they would find additional support. (Ex. P-162, at R-0074003). Miller asked Martin to send "specimen copies of the umbrella coverage form that Utica would have been using at the time the 1973 was issued," as well as an "explanation of how it was determined that the 1973 policy treated expense as part of loss." (Ex. P-162, at R-0074003).

This time, in response to Miller's request, Martin "pull[ed] the coverage file materials" for the 1973 Umbrella that had been recreated by coverage counsel. (Ex. D-352, at R-0074340). In the file, she found the 1973 defense endorsement, which she believed "changed the policy from an ultimate net loss to defense outside the limits." (Ex. D-352, at R-0074340). In Martin's opinion, this made Utica's settlement with Goulds "even better" because, if Utica or Goulds had "realized" that there was another umbrella policy that provided "defense outside the limits," Goulds could have asked for "a higher cap" during settlement. (Ex. D-352, at R-0074340; T. 564).

In a telephone call on December 19, 2007, Martin told Miller "that [Utica's] umbrella policies always included expense as part of loss until the forms were changed in 1976 or 1977, which is why the settlement was negotiated based on that assumption." (Ex. D-119, at MRA73 00077). Martin also told Miller that, when she reviewed "the folios that were created by coverage counsel for each policy, she discovered that the relevant language was actualy [sic] endorsed off of the 1973 policy that [Munich] reinsure[d], meaning that the policy treats expense as supplemental." (Ex. D-119, at MRA73 00077). Martin advised Miller that Utica would be withdrawing the current bill on the 1973 Certificate and sending a revised billing statement reflecting treatment of expense as supplemental. (Ex. D-119, at MRA73 00077). Miller asked Martin to send a copy of that endorsement and expected that she would send it based on her representation that it "changed the way the policy responded." (T. 1762). There is no evidence that Martin sent the endorsement. On December 20, 2007, Miller received a revised billing from Utica on the 1973 Certificate indicating that current amount due was zero-reflecting that Utica was billing on an expense-in-addition-to-limits basis. (T. 1763).

In August 2008, Miller emailed Martin to request updates on claim statistics, loss, and expense for "all the files" and again requested a copy of the 1973 defense endorsement. (Ex. P-163, at R-0074036). There is no evidence that Martin sent the 1973 defense endorsement; Martin testified it was no longer her job at that point-she was "filling in for someone"-and "just forgot to do it." (T. 570). The Court credits Martin's testimony and does not find any intentional misrepresentation or deliberate concealment. Miller did not receive the 1973 defense endorsement and left the claims department in October 2008. (T. 1765).

3. Utica's New Billings Under the 1973 Certificate and Commencement of Utica I

On June 15, 2011, Utica sent Munich a bill under the 1973 Certificate reflecting reinsurance due in the amount of $ 8,310,331.71 ($ 5,000,000 in loss and $ 3,310,331.71 in expense). (Ex. P-280-11, at MRA73 02180). In an August 17, 2011 email from Richard Hill, a Munich employee, to Michael Evolo, a Utica employee, Hill noted that Utica was treating expenses as supplemental under the 1973 Umbrella and requested "documentation in support." (Ex. D-121, at R0072141). Evolo emailed back on August 18, 2011 and attached the 1973 defense endorsement. (Ex. D-121, at R0072143-44). There is no evidence Munich had received this endorsement before August 18, 2011. (T. 220). The endorsement was not in Munich's underwriting file; Munich believed that Utica had never provided it. (T. 220; Ex. P-460 (underwriting file) ).

On September 7, 2011, Hill emailed Evolo: "Since you were able to email me the documentation to suggest that expenses are supplemental, I will have to reallocate the payments to reflect expenses as supplemental in our system." (Ex. P-207, at R-0072175).

Hill notified Leah Spivey, head of Munich's environmental mass tort group, that there was a billing "on the Goulds matter" and that Utica was billing beyond Munich's $ 5 million "share of the policy amount." (T. 218-19). When Spivey read the 1973 defense endorsement, her opinion was that it "would provide defense coverage only in the case where the underlying policy did not provide coverage for specific ... losses that would not be covered under [a] typical primary policy." (T. 221). Spivey further believed that the 1973 defense endorsement changed the "ultimate net loss clause in the policy to ... indicate that no expenses should be paid under the policy." (T. 222). Munich also flagged Utica's billing for "unallocated expenses," which Spivey knew "were often declaratory judgment expenses"; Munich wanted to confirm the nature of those expenses because its "facultative certificates do not respond to declaratory judgment expenses." (T. 224).

In a September 15, 2011 email, Hill alerted Evolo that Munich had reviewed the 1973 defense endorsement and found it was "not clear as to the treatment of defense cost." (Ex. D-17, at MRA73 02391). He explained that it "appeared that Utica Mutual has a duty to defend with respect to any occurrence not covered by the underlying policy(ies)," which did "not appear to be the case in this loss," and that Munich would need a complete copy of the 1973 Umbrella and "any coverage opinion that address [sic] the treatment of defense." (Id. ). In addition, Hill provided a copy of the 1973 Certificate in an effort to obtain an explanation from Utica "as to the nature of the 'unallocated expenses' " reflected in the reinsurance billings. (Ex. D-17, at MRA73 02391).

On September 16, 2011, Daniel Hammond, an associate claims attorney at Utica, responded to Hill, quoting language from the reinsurance certificate, including the provision that states that the "Reinsurer shall be liable for its proportion of allocated loss expenses incurred by the Company in the same ratio that the Reinsurer's share of the settlement or judgment bears to the total amount of such settlement or judgment under the policy reinsured." (Ex. D-357, at MRA73 02403-04). Hammond wrote that the certificate "make[s] clear that Munich Re is responsible for the Goulds ... expenses." (Ex. D-357, at MRA73 02404). Hammond stated that those expenses "are coverage litigation and expenses for outside counsel" and also "relate to a declaratory judgment action pending in" California. (Ex. D-357, at MRA73 02404). With respect to defense costs under the 1973 Umbrella, Hammond asserted that Utica had a duty to defend under the "occurrence not covered by" provision in the 1973 defense endorsement because "after exhaustion of the primary coverage, the occurrence is 'not covered by the underlying policy(ies).' " (Ex. D-357, at MRA73 02405). Hammond cited Zurich Insurance Co. v. Raymark Industries, Inc. , 118 Ill.2d 23, 55-56, 112 Ill.Dec. 684, 514 N.E.2d 150 (1987), concerning the obligations of a primary insurer following the exhaustion of primary coverage. (Ex. D-357, at MRA73 02405).

Spivey sent a September 30, 2011 email to Utica indicating that Munich may want to conduct "an onsite audit of the claim" and repeating Munich's request for a coverage opinion. (Ex D-97, at R-0072283). On October 5, 2011, Hammond responded to Spivey's email with a specimen copy of the 1973 Umbrella and asked for clarification regarding "what issue of coverage and time period of [coverage] opinion you are requesting." (Ex. D-99, at R-0071911). Spivey replied that Munich was requesting "all of the coverage in chronological order," but that the "area of concern" was Utica's "interpretation and reason for citing the Zurich v. Raymark case." (Ex. D-99, at R0071911). On October 10, 2011, Turi responded to Spivey's email and asserted that Munich's request for "every coverage opinion" was "unreasonable" and a delay tactic but that Munich was "welcome to audit the file on site." (Ex. P-58, at MRA73 02738). Turi explained that Utica had cited Zurich Insurance Co. for the "proposition that an insurer does not have an obligation to defend under a policy after the policy has exhausted" and, since the primary policy was exhausted, it "no longer covered the outstanding claims" and required the 1973 Umbrella to respond. (Ex. P-58, at MRA73 02738).

In an October 21, 2011 email to Turi, Spivey noted that Munich had consistently responded to Utica's "cessions on the 1973-1974 policy under its facultative certificate in accordance with how the original policy was written, treating expenses as part of ultimate net loss." (Ex. D-106, at R-0072330). Spivey informed Turi that Munich had "searched and has not found any notice of the endorsement, which you recently provided, that changes the expense treatment," and requested documentation showing that Munich "had been notified of this major change in coverage." (Ex. D-106, at R-0072330). Spivey reiterated that Munich did not interpret the endorsement "as changing the policy from UNL to supplemental in this instance," and again requested the "coverage opinion upon which [Utica] relied in order to change [its] handling of expense." (Ex. D-106, at R-0072330). Spivey also requested information on "how the expenses were allocated to the various layers of coverage in the 1973-1974 policy year" and "a breakdown of expenses paid under the 1973-1974 policy, when they were paid compared to the loss dollars paid, to which reinsurance layer they were allocated, and why." (Ex. D-106, at R-0072330).

In an email to Spivey on December 29, 2011, Turi wrote to again dispute Munich's reasons for not paying the billings under the 1973 Certificate and also asserted that Munich's obligations "are governed by Munich Re's certificate," which "provides that Munich Re will pay 'its proportion of allocated loss expenses incurred by Utica.' " (Ex. P-111, at R-00724391-92). This, however, did not "make any sense" to Spivey "because the facultative certificate only provides the coverage that the policy provides.... [I]t doesn't provide any independent or broader coverage than is provided by the policy itself." (T. 241). On January 27, 2012, Utica filed this action. (Dkt. No. 1). Utica seeks judgment in the amount of $ 2,760,533.96 and entry of declaratory judgment. (Dkt. No. 1).

4. Munich's Commencement of Utica II

Subsequently, Munich's attorneys "were granted access to Utica Mutual's underwriting files for various primary and umbrella policies issued to Goulds," including the 1977 Umbrella. (Ex. D-110, at MRA77 1308). There is no evidence that Munich had seen the 1977 Umbrella policy terms until then. Upon learning that the 1977 Umbrella contained the same "occurrence not covered by" language as the 1973 defense endorsement, Spivey, in a letter to Turi dated November 27, 2012, requested a refund of $ 789,813.47-the expenses Munich paid in addition to the $ 1 million liability limit under the 1977 Certificate. (Ex. D-110, at MRA77 1308). Spivey wrote:

Since the asbestos bodily injury claims asserted against Goulds were covered by Utica Mutual's January 1, 1977 primary policy issued to Goulds-and in fact Utica Mutual has represented that its primary policy limits were exhausted by payments made for those claims-the defense coverage provision of the 1977 umbrella policy is inapplicable. Moreover, Utica Mutual has no legal liability to pay defense costs to or for the benefit of Goulds in excess of its January 1, 1977 umbrella policy limit. Nor, to Munich Re's knowledge, does Utica Mutual's Settlement Agreement with Goulds obligate Utica to pay defense expenses in addition to the loss limit of its January 1, 1977 umbrella policy.

(Ex. D-110, at MRA77 1308-09). On January 10, 2013, Munich filed Utica II , alleging breach of contract based on Utica's alleged billing Munich "for more than the [1977] Certificate's $ 1 million limit" and refusal to refund to Munich the amount of its alleged overpayment-$ 789,813.47. (Utica II , 6:13-cv-743, Dkt. No. 1). Munich seeks declaratory judgment and damages in the amount of $ 789,813.47. (Utica II , 6:13-cv-743, Dkt. No. 1).

G. General Conditions in the 1973 Certificate

In the 1973 Certificate, Munich agreed to reinsure $ 5 million excess of $ 5 million on Utica's 1973 Umbrella, "subject to" certain general conditions. (Ex. P-4, at MRA 10181). These included the following:

1. The Reinsurer agrees to indemnify the Company against losses or damages which the Company is legally obligated to pay under the policy reinsured, resulting from occurrences taking place during the period this Certificate is in effect, subject to the reinsurance limits shown in the Declarations. The Company warrants the copy of the policy forwarded to the Reinsurer to be a true copy of the said policy and the whole thereof, and agrees to notify the Reinsurer promptly of any changes made therein.

2. The Company shall settle all claims under its policy in accordance with the terms and conditions thereof. If the reinsurance hereunder is pro rata, the Reinsurer shall be liable for its pro rata proportion of settlements made by the Company. If the reinsurance hereunder is excess, the Reinsurer shall be liable for its excess proportion of settlements made by the Company after deduction of any recoveries from pro rata reinsurance inuring to the benefit of the Reinsurer.

3. The Reinsurer shall be liable for its proportion of allocated loss expenses incurred by the Company in the same ratio that the Reinsurer's share of the settlement or judgment bears to the total amount of such settlement or judgment under the policy reinsured. The term "allocated loss expense" means all expenses incurred in the investigation, adjustment and litigation of claims or suits, but excluding the office expenses of the Company and the salaries and expenses of all employees of the Company. It also includes court costs and interest on any judgment or award provided the Reinsurer's prior consent to trial court proceedings has been obtained.

4. The Company shall advise the Reinsurer promptly of any claim and any subsequent developments pertaining thereto which in the opinion of the Company may involve the reinsurance hereunder. The Company has the obligation to investigate and defend claims or suits affecting this reinsurance and to pursue such claims or suits to final determination. The Company, when so requested, will afford the Reinsurer an opportunity to be associated with the Company at the expense of the Reinsurer in the defense or control of any claim, suit or proceeding involving this reinsurance and the Company and the Reinsurer shall cooperate in every respect in the defense and control of such claim, suit or proceeding.

....

6. The Company shall furnish proof that payment of a loss and loss expense has actually been made by the Company and payment by the Reinsurer of its proportion thereof shall be made promptly

....

(Ex. P-125).

III. CONCLUSIONS OF LAW

A. Breach of Contract

New York law applies to this diversity action. Utica Mut. Ins. Co. v. Munich Reins. Am., Inc. , 594 F. App'x 700, 704 (2d Cir. 2014). To establish breach of contract under New York law, the plaintiff must show: "(i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages." Nick's Garage, Inc. v. Progressive Cas. Ins. Co. , 875 F.3d 107, 114 (2d Cir. 2017) (quoting Johnson v. Nextel Commc'ns, Inc. , 660 F.3d 131, 142 (2d Cir. 2011) ).

B. Following Provisions

The 1973 Certificate does not contain a follow-the-settlements or a follow-the-fortunes provision. In its summary judgment ruling, the Court rejected Utica's argument that the doctrines should be implied, as a matter of law, into the reinsurance certificates. Utica Mut. Ins. Co. v. Munich Reins. Am., Inc. , No. 6:12-cv-00196, 2018 WL 1737623, at *21-22, 2018 U.S. Dist. LEXIS 107997, at *63-70 (N.D.N.Y. Mar. 20, 2018). The Court noted that Utica had not sought to imply the term based upon industry custom and practice, and addressed that issue in a motion in limine ruling. (Dkt. No. 391). In view of caselaw indicating that a provision may be implied into a contract in extremely limited circumstances, the Court allowed Utica "to present evidence at trial as to whether the doctrines of follow the fortunes or follow the settlements were, at the time the parties agreed to the Certificates, so 'fixed and invariable' in the reinsurance industry as to be part of the Certificates." (Dkt. No. 391, at 3). The Court explained,

"[T]he burden of proving a trade usage has generally been placed on the party benefiting from its existence." British Int'l Ins. Co. v. Seguros La Republica, S.A. , 342 F.3d 78, 83 (2d Cir. 2003) (quoting Putnam Rolling Ladder Co. v. Mfrs. Hanover Tr. Co. , 74 N.Y.2d 340, 348, 547 N.Y.S.2d 611, 546 N.E.2d 904 (1989) ). "Under New York law ... custom and usage evidence must establish that the omitted term is 'fixed and invariable' in the industry in question." Hutner v. Greene , 734 F.2d 896, 900 (2d Cir. 1984) (quoting Belasco Theatre Corp., v. Jelin Prods., Inc. , 270 A.D. 202, 205, 59 N.Y.S.2d 42 (1st Dep't 1945) ). "One who seeks to use trade usage to ... annex a term to a contract must show either that the other party to the contract is actually aware of the usage, or that the existence of the usage in the business to which the transaction relates is so notorious that a person of ordinary prudence in the exercise of reasonable care would be aware of it." Reuters Ltd. v. Dow Jones Telerate, Inc. , 231 A.D.2d 337, 343, 662 N.Y.S.2d 450 (1st Dep't 1997). "The trade usage must be 'so well settled, so uniformly acted upon, and so long continued as to raise a fair presumption that it was known to both contracting parties and that they contracted in reference thereto.' " British International , 342 F.3d at 84 (quoting Reuters , 231 A.D.2d at 343-44, 662 N.Y.S.2d 450 ).

(Id. at 5).

Utica argues that a follow-the-fortunes term should be implied into the Reinsurance Certificates based upon the custom and practice in the industry. The follow-the-fortunes doctrine

"binds a reinsurer to accept the cedent's good faith decisions on all things concerning the underlying insurance terms and claims against the underlying insured: coverage, tactics, lawsuits, compromise, resistance or capitulation." This doctrine insulates a reinsured's liability determinations from challenge by a reinsurer unless they are fraudulent, in bad faith, or the payments are "clearly beyond the scope of the original policy" or "in excess of [the reinsurer's] agreed-to exposure." ... It is well-established that a follow-the-fortunes doctrine applies to all outcomes, including settlements and judgments.

N. River Ins. Co. v. Ace Am. Reins. Co. , 361 F.3d 134, 139-40 (2d Cir. 2004) (alteration in original) (first quoting British Int'l Ins. Co. , 342 F.3d at 85 ; then quoting Christiania Gen. Ins. Corp. of N.Y. v. Great Am. Ins. Co. , 979 F.2d 268, 280 (2d Cir. 1992) ). " '[F]ollow the settlements doctrine ... is the follow-the-fortunes doctrine in the settlement context." Travelers Cas. & Sur. Co., v. Gerling Global Reins. Corp. of Am. , 419 F.3d 181, 186 n.4 (2d Cir. 2005). "[T]he main rationale for the doctrine is to foster the 'goals of maximum coverage and settlement' and to prevent courts, through 'de novo review of [the cedent's] decision-making process,' from undermining 'the foundation of the cedent-reinsurer relationship.' " N. River Ins. Co. , 361 F.3d at 140-41 (alteration in original) (quoting N. River Ins. Co. v. CIGNA Reins. Co. , 52 F.3d 1194, 1206 (3d Cir. 1995) ).

While Utica argues that the Court should imply a follow-the-fortunes provision into the 1973 Certificate, Munich argues that if anything, it should be a follow-the-settlements provision, and the experts generally discussed the two doctrines together. (Dkt. No. 431, at 17; Dkt. No. 430, at 29). The Court has therefore included a discussion and analysis of both concepts. Having considered all the evidence, the Court concludes that Utica has failed to prove that follow the fortunes or follow the settlements was so fixed and invariable at the time the parties agreed to the 1973 Certificate that it is implied in their agreement.

At trial, Utica presented expert testimony by Paul Feldsher, Debra Roberts, and Andrew Maneval, all of whom testified that follow the fortunes and follow the settlements were industrywide concepts that did not need to be stated in reinsurance certificates to apply. (See T. 916 (Feldsher testifying that in the 1970s there was "an industry-wide belief that reinsurers would follow the claims handling decisions of their cedents" and would not "second-guess the underwriting process" or "how the claims would be resolved, as long as they were decisions that were reasonable in terms of determining whether the claim fell within the scope of the policy"); T. 1611 (Roberts opining that follow the fortunes and follow the settlements are "foundational concept[s] in the industry" and do not need "to be explicitly stated in the contracts for the industry to follow this concept"); T. 1975-76 (Maneval testifying that, in his opinion, it was the universal view that reinsurance contracts entered into in the 1970s were governed by the follow-the-fortunes and follow-the-settlements concepts and that the "overall purpose" of these concepts "is to assure that the insurance and reinsurance industry can work effectively and commercially and prudently by requiring and expecting reinsurers to defer to reasonable good faith settlement decisions or payment decisions or interpretations of their own policies") ). The Court finds this testimony credible to the extent that it shows that cedents and their reinsurers, in general, endeavor to work together and that reinsurers, whenever possible, will defer to reasonable determinations by cedents in interpreting policies and paying or settling claims.

The testimony by Miller and O'Kane, both Munich employees, in handling Utica's billing under the 1977 Certificate-paying the billing promptly, without requiring policy documents based on the representation by Utica employees-exemplifies this concept. Miller testified that, when he requested the authority to pay the 1977 billings, he did not have the terms and conditions of the 1977 Umbrella, but he nevertheless believed that the policy covered defense in addition to limits based on Martin's "explanation of coverage" and indicated that even though the defense expense allocation was "inconsistent with the settlement agreement ... it was consistent with what [Martin] explained to [him] and how [Martin] explained the intent of the settlement agreement." (T. 1766-77). O'Kane, who approved the payment, stated that Munich paid the 1977 claim because it believed it "owed a loss and supplemental expense based on representations to us, or in this case Tom Miller in his management of the case." (T. 1944). O'Kane testified that, although there are no following provisions in the certificates, when Munich handles claims, it has "been supportive" of paying them when it finds that "the claim is covered" and "the settlement value was reasonable" and made in good faith. (T. 1940). While this is conduct evidencing Munich's attempt, in this instance, to operate in good faith, implement the following concepts in handling the 1977 billings, and defer to Utica's explanations, it does not establish that Munich considered itself contractually bound to do so absent an express provision in the reinsurance certificate. Indeed, Munich clearly believed that it was entitled to challenge Utica's coverage determinations. After Munich received the June 15, 2011 billings under the 1973 Certificate and noticed the treatment of expense as supplemental, it decided to request the defense endorsement rather that defer to Utica's representations, (Ex. P-280-11, at MRA73 02180; Ex. D-121, at R0072141), and upon review challenged Utica's coverage determination. (Ex. D-18, at MRA73 02391).

While Feldsher, Roberts, and Maneval credibly testified that reinsurers generally operated under the concepts of follow the settlements and follow the fortunes in their relationships with the insured, both Feldsher and Maneval acknowledged that not all reinsurers included these provisions in their reinsurance certificates. Feldsher testified that in the 1970s the number of reinsurers that included following provisions in their certificates "varied;" "most" did not include followi