Royal Surplus Lines Insurance Company, the plaintiff’s predecessor, assumed the liabilities and acquired the related assets of an insurer that provided a one-year general liability policy to Equity Residential (“Equity”). Employers Reinsurance Company, the defendant’s predecessor, reinsured this policy until it terminated the reinsurance agreement on August 18, 2000. In this action, the plaintiff, Arrowood Surplus Lines Insurance Company (“Arrowood”), sought reimbursement for a settlement payment to Equity and claim expense in connection with losses occurring between December 15, 2000 and December 15, 2002, and the defendant, Westport Insurance Corporation (“Westport”), moved for judgment on the pleadings, arguing that Westport has no liability for losses after December 15, 2000. Arrowood argued that the Equity settlement was covered under the reinsurance agreement under the “follow the fortunes” clause.
The court, however, found that the losses under the Equity policy were outside of the reinsurance agreement, which stated that a policy issued for a period of more than one year shall be considered as “becoming effective” on the policy’s anniversary date while the policy is in force. Even if the runoff option was exercised, the policy would only be in effect until the anniversary date. Therefore, the reinsurance coverage period was limited to one year at a time, regardless of the length of the underlying insurance contract. Losses after the anniversary date would not be covered because the Equity policy could not “become effective” under a terminated reinsurance agreement. Moreover, the “follow the fortunes” clause only applies to a reinsurance contract in force. The court thus granted Westport’s motion for judgment on the pleadings. Arrowood Surplus Lines Ins. Co. v. Westport Ins. Corp., Case No. 08-1393 (USDC D. Conn. Jan. 5, 2010).