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Allocation of claim payments and the follow the fortunes doctrine


Robert Diubaldo

Two recent cases have resulted in important decisions by courts, which have ramifications on the way cedants allocate claim payments to their reinsurers post settlement. Robert W. Diubaldo explores the implications of the cases.

It is not uncommon for ceding companies and their reinsurers to become embroiled in disputes concerning the manner in which a claim or settlement payment is allocated to the reinsured policies or applicable reinsurance contracts.

This article discusses two recent noteworthy decisions that illustrate both the deference accorded to, and the limitations placed on, ceding companies’ allocations of claim payments to their reinsurers.

The first case, Travelers Casualty & Surety Co. v. Insurance Co. of North America, involved a settlement between Travelers and its insured to resolve, among other things, breast implant and chemical products claims. Travelers Casualty (Travelers) allocated the settlement amount ($137 million) among three tiers of insurance that provided coverage for those claims.

Reinsurance, Claims, Legal, Ace America Reinsurance Company, Travelers

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