The United States District Court for the Northern District of California has refused to grant declaratory relief to a ceding company concerning its reinsurer’s obligations under the reinsurance agreement because the ceding company had not yet made a payment to the primary insured. In Tall Tree Insurance Company v. Munich Reinsurance America, Inc., Tall Tree alleged that it owed its insured pursuant to the underlying policies for certain litigation defense costs, but that Munich had denied any obligation to reimburse Tall Tree because Munich claimed the underlying policies were not covered by the reinsurance agreement. Tall Tree sought a declaration by the court that Tall Tree’s obligation to reimburse the primary insured gave rise to Munich’s obligation under the reinsurance agreement to reimburse Tall Tree for amounts paid in good faith to the primary insured.

Notwithstanding Tall Tree’s allegation that Munich had denied any obligation to reimburse Tall Tree, the court dismissed the complaint, reasoning that “until [Tall Tree] has paid a claim that [primary insured] has submitted or may in the future submit, or until a determination is otherwise made that [Tall Tree] is obligated to pay any such claim, [Tall Tree]’s request for declaratory relief is premature, because defendant has not yet been put in a position where it can decide if plaintiff has paid a claim in good faith.” In other words, although California recognizes the “follow the fortunes doctrine,” the ceding company’s “fortunes” were yet to be known inasmuch as Tall Tree had made no act (i.e., payment to the primary insured) for Munich to assess and “follow.”