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Because New York law does not impose “a rule of construction or a strong presumption that a reinsurance certificate’s liability limit caps the reinsurer’s liability with respect to both indemnity losses and defense costs regardless of whether the underlying policy being reinsured is understood to cover defense costs in excess of the policy’s liability limit,” Menashi wrote for the panel. (Credit: sirtravelalot/Shutterstock.com) Because New York law does not impose “a rule of construction or a strong presumption that a reinsurance certificate’s liability limit caps the reinsurer’s liability with respect to both indemnity losses and defense costs regardless of whether the underlying policy being reinsured is understood to cover defense costs in excess of the policy’s liability limit,” Menashi wrote for the panel. (Credit: sirtravelalot/Shutterstock.com)

The U.S. Court of Appeals for the Second Circuit on Tuesday found that the “Bellefonte rule” capping reinsurers’ liability is no longer the law in the circuit, more than two decades after the rule was laid out in the circuit’s 1990 ruling in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co.

In Tuesday’s ruling, the three-judge panel upheld U.S. District Judge Lorna G. Schofield of the Southern District of New York’s finding that Global Reinsurance Corporation of America must pay its share of Century Indemnity Company’s defense costs in excess of the reinsurance certificates’ liability limits.

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