This case focused on whether the entire amount of a $3.2 million settlement of medical malpractice claims that was reached in an arbitration was covered by a primary insurance policy issued by Texas Farmers Insurance. The determining factor was whether the claim occurred during a policy period in which there was $5 million in primary coverage, or during a renewal period in which there was $1 million in primary coverage and $10 million in excess coverage. Lexington Insurance had issued a “following form” facultative reinsurance policy to the excess insurer.
The court held that the loss occurred while the $5 million limit was in effect. Even though Lexington had not provided reinsurance for that policy year, and never reinsured Texas Farmers, Texas Farmers sought to recover from Lexington, as reinsurer, based upon the “follow the settlements” doctrine. The District Court denied this recovery, holding that the doctrine did not apply, and the Court of Appeals agreed, finding that Lexington was not Texas Farmer’s reinsurer. Texas Farmers Insurance Co. v. Lexington Insurance Co., No. 08-55835 (9th Cir. May 21, 2010).