British Insurance Company of Cayman v. SAFETY NATIONAL CASUALTY Appeal from the United States District Court for the…

PRECEDENTIAL
Filed July 3, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-3632
BRITISH INSURANCE COMPANY OF CAYMAN,
Appellant
v.
SAFETY NATIONAL CASUALTY
Appeal from the United States District Court
for the District of New Jersey
(Civ. No. 99-cv-03343)
District Judge: Hon. William G. Bassler
Argued: July 15, 2002
Before: McKEE, WEIS and DUHE,*
Circuit Judges.
(Filed: July 3, 2003)
* The Honorable John M. Duhe, Jr., Senior Circuit Judge, United States
Court of Appeals for the Fifth Circuit, sitting by designation.

-- 1 of 15 --

SHAWN L. KELLY, ESQ. (Argued)
THOMAS J. PERRY, ESQ.
CAROLINE BRIZZOLARA, ESQ.
Riker, Danzig, Scherer, Hyland &
Perretti, LLP
One Speedwell Plaza
Morristown, New Jersey 07962
Attorneys for Appellant
JOHN C. SULLIVAN, ESQ. (Argued)
BARBARA S. MAGEN, ESQ.
Post & Schell, P.C.
Adams Place — Suite 3
701 White Horse Pike
Vorhees, New Jersey 08043
Attorneys for Appellee
OPINION OF THE COURT
McKEE, Circuit Judge.
British Insurance Company of Cayman appeals the
district court’s grant of summary judgment to Safety
National Casualty Corporation in this reinsurance dispute
between the two insurance companies. The dispositive issue
is whether, under New Jersey law, a reinsurer must show
prejudice in order to prevail on a late notice defense
asserted against its reinsured. This issue has yet to be
considered by the New Jersey Supreme Court. As it was
required to do, the district court predicted that the New
Jersey Supreme Court would hold that a reinsurer is not
required to show prejudice in order to succeed on a late
notice defense. However, we disagree and predict that the
New Jersey Supreme Court would require a reinsurer to
demonstrate prejudice in order to prevail. Therefore, we will
reverse and remand for proceedings consistent with this
opinion.
I.
American Centennial Insurance Company, the
predecessor-in-interest to British Insurance Company of
2

-- 2 of 15 --

Cayman, issued an insurance policy to May Department
Stores that provided excess workers’ compensation and
employer liability coverage from February 1, 1982 to
February 1, 1983 (the “Excess Policy”). The Excess Policy
provided $10,000,000 in workers’ compensation coverage in
excess of a $250,000 self-insured retention (“Retention”).
The Retention required that May pay the first $250,000
before American Centennial would have any obligation
under the Excess Policy.
American Centennial then entered into a reinsurance
contract with Safety National Casualty Company through a
Certificate of Facultative Reinsurance (“Facultative
Certificate”). Pursuant to the terms of the Facultative
Certificate, Safety National agreed to indemnify American
Centennial for any losses in excess of the $250,000
Retention up to $750,000, and to indemnify American
Centennial up to $5,000,000 for any losses in excess of
$5,250,000. The Facultative Certificate contains a notice
provision which provides, in relevant part:
The Company shall advise Reinsurer promptly of any
claim and any subsequent developments pertaining
thereto which, in the opinion of the Company, may
involve the reinsurance hereunder. . . . The Company,
when so requested, will afford the Reinsurer an
opportunity to be associated with the Company, at the
expense of the Reinsurer, in the defense or control of
any claim, suit or proceeding involving this
reinsurance, and the Company and the Reinsurer shall
cooperate in every respect in the defense and control of
such claim, suit or proceeding.
App. at 82.
Pursuant to an Assumption Reinsurance Agreement
dated August 29, 1996, American Centennial assigned the
Facultative Certificate to British Insurance. Thereafter,
British Insurance assumed the Facultative Certificate
pursuant to an Assumption Reinsurance Agreement dated
November 30, 1998.
On March 18, 1982, Anthony Kirtos, a truck driver
employed by May in Ohio, suffered back and neck strain
while carrying a sofa in the course of his employment.
3

-- 3 of 15 --

Kirtos filed a workers’ compensation claim against May,
and May arranged for Central Regional Claims Corporation
(“Adjuster”) to administer Kirtos’ claim. The Adjuster, by
letter dated March 15, 1985, reported the Kirtos claim to
May’s insurance broker, Marsh & McLennan (“Marsh”).
Marsh notified American Centennial of the Kirtos claim by
letter dated April 9, 1985. In the March 15, 1985 letter, the
Adjuster stated that its submission of the claim “does not
necessarily indicate a belief that the excess coverage will be
involved, but is rather, an interpretation of the carrier’s
wishes to be notified.”
The Claims Summary Report, which was included in the
materials provided to American Centennial, advised
American Centennial that as of April 9, 1985, May had paid
only $42,582.28 in medical and indemnity payments from
the date Kirtos filed his claim. The Report also advised
American Centennial that as of August 15, 1984, Kirtos
was receiving temporary and total disability benefits and
estimated that the temporary and total disability benefits
would continue for 127 weeks. The Report informed
American Centennial that the Adjuster estimated May’s
reserves at $81,605 for indemnity and $14,000 for medical
payments, for a total estimated reserve of $95,605. Finally,
the Report advised that May’s total paid losses plus its
estimated reserve equaled $138,187.28.
On April 24, 1985, after receiving notice of the Kirtos
claim, American Centennial opened a claims file. However,
it closed that filed the same day, or shortly thereafter, after
determining that the Kirtos claim “won’t reach American
Centennial layer.” App. at 145. American Centennial did
not provide notice to Safety National or take any action on
the Kirtos claim from at least May 1985 until April 1992.
During that time, May continued to administer the Kirtos
claim. Among other things, the Adjuster retained counsel
and contested Kirtos’ claim in workers’ compensation
administrative proceedings in Ohio.
On April 9, 1992, at the Adjuster’s request, Marsh
advised American Centennial that the Kirtos claim was still
active. American Centennial responded by informing the
Adjuster that it had closed its file on the Kirtos claim, but
4

-- 4 of 15 --

it nonetheless offered to continue communicating with the
Adjuster about the claim.
By letter dated June 11, 1992, the Adjuster sent its
Kirtos file (dating back to 1989) to American Centennial
and informed American Centennial that it was continuing
to investigate the claim in order to evaluate exposure for
permanent total disability benefits. There is a dispute
between the parties as to whether the June 11, 1992 letter
disclosed that Kirtos had filed an application for Permanent
and total disability benefits that was then pending.
However, the June 11, 1992 letter did provide American
Centennial with a summary of the amounts spent as of that
date and the Adjuster’s reserve analysis for the Kirtos
claim. The letter also informed American Centennial that
over $152,000 had been paid as temporary and total
disability benefits, that more than $17,000 had been paid
in medical expenses with $8,564 incurred but not yet paid,
and that over $18,000 had been paid in other expenses.
The letter informed American Centennial that May had
established a total reserve of $350,900 for the Kirtos claim.
That reserve was $100,000 over May’s $250,000 Retention.
The Adjuster acknowledged in its June 11, 1992 letter
that any money paid out in excess of May’s Retention would
need prior approval from American Centennial. British
Insurance claims that an American Centennial claims
examiner spoke to May personnel on more than one
occasion and was told that May did not expect that the
Kirtos claim would exceed the Retention. Safety National
disputes British Insurance’s claim and contends that there
is no documentation in the claims file of any such contact
between American Centennial and the Adjuster. Safety
National claims that American Centennial did not
undertake any activity on the Kirtos claim between August
1992 and March 1994. For its part, British Insurance only
says that American Centennial’s claims file does not
include any documentation of activity between the Adjuster
and American Centennial.
Kirtos was awarded Permanent and total disability
benefits by the Industrial Commission of Ohio on August
17, 1993. The Commission found that Kirtos was
5

-- 5 of 15 --

“permanently and totally disabled,” that he was prevented
from “obtaining useful employment skills,” and that
compensation for his disability was “to continue without
suspension unless future facts and circumstances should
warrant the stopping of payment.” Supp. App. at 116-117.
British Insurance claims that on or about March 1, 1994,
the Adjuster told American Centennial that Kirtos had been
awarded permanent and total disability benefits; however,
Safety National disputes that claim. In any event, it is clear
from a memorandum dated March 23, 1994 from American
Centennial’s claims examiner to American Centennial’s Vice
President and Counsel that at least by that date American
Centennial knew that Kirtos had been awarded permanent
and total disability. In that memorandum, American
Centennial’s claims examiner recommended to American
Centennial’s Vice President and Counsel that American
Centennial set an indemnity reserve of $100,000. That
reserve was posted on April 1, 1994. American Centennial
had not previously established any reserve for the Kirtos
claim.
Theoretically, whenever a reserve is set on a claim,
American Centennial’s “ReBus” computer system
automatically generates a Reinsurance Loss Advice (“RLA”).
When a Loss advice is generated, American Centennial’s
established practice is to send the Loss advice to the
reinsurer providing the reinsurer with, inter alia, notice of
the loss for which the reserve was set. British Insurance
claims that the Loss advice on the Kirtos claim was
generated on May 11, 1994 and sent to Safety National
together with a cover letter dated May 11, 1994. However,
the Loss advice is dated May 13, 1994. Not unexpectedly,
Safety National contends that American Centennial could
not, on May 11, 1994, have mailed a Loss advice that was
not printed until May 13, 1994. In addition, Safety National
claims that it has no record of having received the Kirtos
Loss advice at any time in 1994 and further claims that
there was no communication from American Centennial
about the Kirtos claim between May 1994 and July 1997.
In May 1997, May submitted its first bill to British
Insurance for $8,535.26 in excess of the $250,000
Retention. British Insurance paid May and adjusted the
6

-- 6 of 15 --

reserve for the Kirtos claim to $91,464.74. British
Insurance claims that it also generated another Loss advice
which it forwarded to Safety National in July 1997.
However, that Loss advice was returned to British
Insurance by the postal service because of an incorrect
address. British Insurance and Safety National dispute
when the Loss advice was sent to Safety National again. On
August 12, 1997, Safety National responded to the Kirtos
notice of loss.
On December 3, 1998, British Insurance advised Safety
National that it was increasing its reserve on the Kirtos
claim to $200,000 to reflect the estimated cost of a
$127,962 annuity to provide lifetime income and a medical
annuity to Kirtos. On December 10, 1997, Safety National
responded by issuing a reservation of rights letter. Safety
National has since refused to indemnify British Insurance.
II.
On June 9, 1999, British Insurance filed suit against
Safety National in the Superior Court of New Jersey, Trial
Division. Safety National removed the suit to the United
States District Court for the District of New Jersey on July
14, 1999, pursuant to 28 U.S.C. § 1441.1 In its complaint,
British Insurance sought recovery of the reinsurance
balances it alleged are due under the Facultative
Certificate. It also sought a declaration that Safety National
is obligated to pay the ongoing amounts billed to Safety
National for losses incurred under the Facultative
Certificate.
After the close of discovery, British Insurance and Safety
National filed cross motions for summary judgment. Safety
National argued that it is not obligated to indemnify British
Insurance because British Insurance’s predecessor,
American Centennial, failed to give it timely notice of the
1. The district court had diversity jurisdiction under 28 U.S.C. § 1332.
British Insurance is a Cayman Island corporation and maintains a
principal place of business in Wilmington, Delaware. Safety National is
a Missouri corporation and maintains a principal place of business in St.
Louis, Missouri.
7

-- 7 of 15 --

Kirtos claim as required by the terms of the Facultative
Certificate. British Insurance countered by contending that
it did give timely notice, but it also argued that even if its
notice was untimely, it was nevertheless entitled to
summary judgment because Safety National could not
demonstrate that it suffered any prejudice as a result of the
purportedly delinquent notice. The district court, applying
New Jersey law,2 found that American Centennial failed to
provide timely notice of the Kirtos claim to Safety National
as required by the Facultative Certificate, and that New
Jersey law does not require a showing of prejudice in order
to prevail on a late notice defense in a reinsurance case.
Accordingly, on June 1, 2001, the district court denied
British Insurance’s motion and granted Safety National’s
cross-motion for summary judgment. British Ins. Co. of
Cayman v. Safety Nat’l Cas. Corp., 146 F.Supp.2d 585
(D.N.J. 2001). This appeal followed.
III.
As we noted in our prefatory remarks, the dispositive
issue before us is whether, under New Jersey law, a
reinsurer must show prejudice in order to prevail on a late
notice defense asserted against its reinsured.3 This issue
2. At oral argument in the district court on the motions for summary
judgment, British Insurance and Safety National agreed that New Jersey
substantive law applies to this issue.
3. The district court found that American Centennial should have given
notice of the Kirtos claim to Safety National as early as 1985 or,
alternatively, as late as 1992. 146 F.Supp.2d at 592. It also found that
the earliest American Centennial provided notice was 1994. Id. at 593.
Therefore, it held that the notice was untimely. Id. British Insurance
argues that by finding that notice should have been given as early as
1985 or as late as 1992, the district court rejected British Insurance’s
version of the facts and accepted Safety National’s. Consequently, British
Insurance submits that the district court improperly resolved disputed
issues of fact in its summary judgment analysis.
However, we need not address British Insurance’s timeliness argument
because British Insurance concedes that the prejudice issue is
dispositive. See British Insurance’s Br. at 25 (“Whether Safety National
must show prejudice in order to establish late notice is dispositive in this
case.”).
8

-- 8 of 15 --

has never been considered by the New Jersey Supreme
Court. Indeed, it appears that this issue has never been
considered by any New Jersey court. Therefore, because the
New Jersey Supreme Court has yet to consider this issue,
it was the duty of the district court to predict how the New
Jersey Supreme Court would rule if faced with the issue.
See Nationwide Mutual Ins. Co. v. Buffetta, 230 F.3d 634,
637 (3d Cir. 2000). Our review of the district court’s
prediction is plenary. Id. “In predicting how the highest
court of the state would resolve the issue, we must consider
relevant state precedents, analogous decisions, considered
dicta, scholarly works, and any other reliable date tending
convincingly to show how the highest court in the state
would decide the issue at hand.” Id. (citation and internal
quotations omitted).
The district court began it analysis by acknowledging
that under New Jersey law, a primary insurance carrier can
prevail on a late notice defense only if it can show the
likelihood of prejudice as a result of the late notice. 146
F.Supp.2d at 593 (citations omitted). However, it predicted
that the courts of New Jersey would not apply this
prejudice requirement to reinsurance contracts. It reasoned
that this requirement is needed to protect the interests of
individual policyholders who have executed insurance
contracts which are contracts of adhesion. Id. However, the
district court reasoned that reinsurance contracts are not
contracts of adhesion because they involve two
sophisticated business parties who are familiar with the
reinsurance business and who negotiate at arms-length for
the terms of the reinsurance contract. Id. Accordingly, the
district court concluded that there was no corresponding
reason to protect individual reinsurers, and the terms of
the reinsurance contract therefore ought to govern. The
district court also noted that reinsurance contracts are not
contracts of insurance as much as they are contracts of
indemnity. Id. Given these considerations, the district court
determined that the rule requiring prejudice did not apply
to the policy of reinsurance at issue here.
However, we believe the district court’s analysis failed to
properly consider the role of notice in reinsurance
contracts. Admittedly, there are significant differences
9

-- 9 of 15 --

between primary insurance and reinsurance. In a primary
insurance contract, the primary insurance company agrees
to indemnify the insured from losses up to a specified limit
upon the happening of specified events. Unigard Security
Ins. Co., Inc. v. North River Ins. Co., 594 N.E.2d 571, 574
(N.Y. 1992). In a reinsurance contract, one insurance
company (the “ceding insurer” or the “reinsured”), cedes all
or part of the risk that it has underwritten pursuant to an
insurance policy or polices to another insurer (the
“reinsurer”), in return for a percentage of the premium.4 Id.;
Unigard Sec. Ins. Co., Inc. v. North River Ins. Co., 4 F.3d
1049, 1053 (2d Cir. 1993). A reinsurance contract confers
no rights on the insured. Unigard Sec. Ins. Co., 594 N.E.2d
at 574. In fact, the reinsurer is not directly liable to the
insured. Unigard, 4 F.3d at 1054. The reinsurer’s only
obligation is to indemnify the ceding insurer on the risk
transferred. Id.; Christiania Gen. Ins. Corp. of New York v.
Great American Ins. Co., 979 F.2 268, 270 (2d Cir. 1992).
Moreover, “[r]einsurers do not examine risks, receive notice
of loss from the original insured, or investigate claims. In
practice, the reinsurer has no contact with the insured.”
Unigard, 4 F.3d at 1054.
Reinsurance serves two important purposes — it
diversifies the risk of loss and reduces the need for required
insurance reserves. Id. at 1053. As the Court of Appeals for
the Fourth Circuit has noted:
Spreading the risk prevents a catastrophic loss from
falling upon one insurer. By reducing the legal reserve
requirement, the ceding insurer then possesses more
capital to invest or to use to insure more risks.
Id. at 1053 (citation omitted).
However, despite the differences between primary
insurance contracts and reinsurance contracts, reinsurance
4. There are two types of reinsurance — facultative and treaty.
Christiania Gen. Ins. Corp. of New York v. Great American Ins. Co., 979
F.2d 268, 271 (2d Cir. 1992). “Facultative reinsurance covers only a
particular risk or a portion of it, which the reinsurer is free to accept or
not.” Id. (citations omitted). “Treaty insurance obligates the reinsurer to
accept in advance a portion of certain types of risks that the ceding
insurance company underwrites.” Id. (citations omitted).
10

-- 10 of 15 --

contracts are obviously still contracts. See Christiania Gen.
Ins. Corp., 979 F.2d at 271 (“Simply put, reinsurance is a
contract by which one insurer insures the risks of another
insurer.”)(citations, internal quotations and brackets
omitted). Accordingly, “[a] reinsurance contract is governed
by the rules of construction applicable to contracts
generally.” Id.
We begin our analysis by acknowledging the well-settled
New Jersey rule that a primary insurance carrier must
show a likelihood of appreciable prejudice to prevail on a
late notice defense asserted against its insured. Cooper v.
Government Employees Ins. Co., 237 A.2d 870, 874 (N.J.
1968); Pfizer, Inc. v. Employers Ins. of Wausau, 712 A.2d
634, 644 (N.J. 1998). Prejudice in a late notice defense is
determined by examining (1) whether substantial rights
have been irretrievably lost and (2) the likelihood of success
of the insurer in defending against the victim’s claim. Baen
v. Farmers Mut. Fire Ins., 723 A.2d 636, 641
(N.J.Super.App. Div. 1999) (citation omitted). The insurer
seeking to avoid coverage has the burden of demonstrating
prejudice for late notice. Cooper v. Government Employees
Ins. Co., 237 A.2d at 874.
In Pfizer, the New Jersey Supreme Court noted that most
primary liability insurance contracts contain provisions
requiring that policyholders give “prompt notice of an
occurrence that gives rise to coverage under the policy.”
712 A.2d at 643. Significantly, the New Jersey Supreme
Court opined that “[u]nder traditional contract-law
principles, breach of such a contractual condition would
excuse the aggrieved parties’ performance only if a party
was actually prejudiced by the delay.” Id (Emphasis added).
It then concluded that the purpose of the New Jersey rule
requiring the showing of prejudice “is to protect the
interests of policy holders because [primary] insurance
contracts are contracts of adhesion and policyholders
should not lose the benefits of coverage unless the delay
has prejudiced the insurance company.” Id. at 644. The
district court recognized that contracts of reinsurance do
not bear all the indicia of adhesion endemic in contracts for
primary coverage. However, this does not negate the New
Jersey Supreme Court’s concern that an insured not forfeit
11

-- 11 of 15 --

the insurance benefits it has paid for absent sound reasons
for denying the coverage. See also Cooper, 237 A.2d at 874
(“The [primary] insurance contract not being a truly
consensual arrangement and being available only on a
take-it-or-leave-it basis, and the subject being in essence a
matter of forfeiture, we think it appropriate to hold that the
[primary insurance] carrier may not forfeit the bargained for
protection unless there is both a breach of the notice
provision and a likelihood of appreciable prejudice.”)
(emphasis added).
Reinsurance contracts are clearly more in the nature of
indemnity agreements between two sophisticated insurance
companies than contracts of adhesion. However, as noted
earlier, they are nevertheless governed by the rules of
contract construction. Thus, we find no reason to conclude
that the New Jersey Supreme Court would refuse to extend
the general contract law principle it referenced in Pfizer,
requiring prejudice as a condition precedent to forfeiting
insurance benefits based upon late notice, to reinsurance
contracts as well as contracts for primary coverage. The
New Jersey Supreme Court clearly frowns upon literal
interpretation of notice provisions in situations where it
results in the insured forfeiting coverage it has already paid
for absent some countervailing consideration (such as
prejudice) on the part of the insurer that has accepted
premiums in return for offering coverage. We therefore
conclude that the New Jersey Supreme Court would require
the reinsurer to demonstrate prejudice where, as here, the
reinsurer relies upon late notice as a defense against the
otherwise legitimate claims of its reinsured.5
Our conclusion is consistent with, and reinforced by, the
differences in the contractual undertakings of primary
insurers and reinsurers because notice provisions are
significantly less important to the reinsurer than a primary
5. Other courts have held that a reinsurer is required to show prejudice
to prevail on a late notice defense. See Christiania Gen. Ins. Corp. 979
F.2d at 274; Unigard Sec. Ins. Co., 594 N.E.2d at 573; Ins. Co. of the
State of Pennsylvania v. Associated Int’l Ins. Co., 922 F.2d 516, 523 (9th
Cir. 1990). Although none of these decisions involved the application of
New Jersey Law, they are consistent with our view of how the New
Jersey Supreme Court would resolve this dispute.
12

-- 12 of 15 --

insurer. “The purpose of notice and proof of loss clauses in
primary insurance contracts is to afford the insurer an
opportunity to form an intelligent estimate of its liabilities,
to afford it an opportunity to investigate the claim while
witnesses and facts are available, and to prevent fraud and
imposition upon it.” Security Mut. Cas. Co. v. Century Cas.
Co., 531 F.2d 974, 978 (10th Cir. 1976). We elaborated
upon this in Trustees of the Univ. of Pennsylvania v.
Lexington Ins. Co., 815 F.2d 890 (3d Cir. 1987), where we
stated that the purpose of including a prompt notice of
claim provision in a primary insurance contract is
to give the insurer an opportunity to acquire, through
an adequate investigation, full information about the
circumstances of the case, on the basis of which, it can
proceed to disposition either through settlement or
defense of the claim.
Thus, a reasonable notice clause is designed to protect
the insurance company from being placed in a
substantially less favorable position that it would have
been if timely notice had been provided, e.g., being
forced to pay a claim against which it has not had an
opportunity to defend effectively.
Id. at 897 (quoting Brakeman v. Potomac Ins. Co., 371 A.2d
193, 197 (Pa. 1977).
However, a reinsurer’s contractual undertakings are
significantly different from a primary insurer’s.
A reinsurer is not responsible for providing a defense,
for investigating the claim or for attempting to get
control of the claim in order to effect an early
settlement. Unlike a primary insurer, it may not be
held liable to the insured for a breach of these duties.
Settlements, as well as the investigation and defense of
claims are the sole responsibility of the primary
insurer; and settlements made by the primary insurer
are, by express terms of the reinsurance certificate,
binding on the reinsurer.
Unigard Sec. Ins. Co., 594 N.E.2d at 574. Since a reinsurer
is not obligated to investigate, litigate, settle or defend
claims, the “failure to give the required prompt notice is of
13

-- 13 of 15 --

substantially less significance for a reinsurer than for a
primary insurer.” Id. Consequently, prompt notice is not as
critical to a reinsurer as it is to a primary insurer, and
ritualistic adherence to prompt notice clauses in
reinsurance contracts in the absence of prejudice to the
reinsurer does little more than provide the reinsurer with a
convenient and inequitable avenue to escape from its
obligations under its policy with its reinsured.
We are, of course, aware that the Facultative Certificate
here gave Safety National the right to associate with
American Centennial in the defense of the Kirtos claim. A
“right to associate” is the right of the reinsurer “to consult
with and advise the reinsured in its handling of the claim.”
Unigard Sec. Ins. Co., 594 N.E.2d at 575. However, even if
it is assumed for argument’s sake that a reinsurer’s right to
associate can be impaired by a late notice from the
reinsured, that risk of impairment is not sufficiently serious
to allow us to predict that the New Jersey Supreme Court
would abandon the prejudice rule here. The basis for this
conclusion is twofold. First, reinsurers rarely exercise their
right to associate. See 14 Appleman on Insurance: Law of
Reinsurance, § 105.7 at 384 (2d ed. 2000) (“[A]lthough
reinsurance contracts commonly reserve the reinsurer’s
right to associate with the ceding insurer in the defense or
control of claims involving the reinsurance, reinsurers
rarely involve themselves in the defense or investigation of
the underlying claims.” ); Unigard Sec. Ins. Co., 594 N.E.2d
at 575 (“Indeed, it has been noted that reinsurers seldom
have occasion to exercise their right to associate.”)
(citations omitted). Second, and more importantly, however,
the primary exposure of the reinsured gives it as much, if
not more, reason to ensure that a claim is properly
investigated and defended. See Security Mut. Cas. Co., 531
F.2d at 978.6
6. However, by saying this, we do not mean to suggest that a reinsurer
can never demonstrate prejudice based upon the impairment of its right
to associate. We simply note that there has been no such showing here.
14

-- 14 of 15 --

IV.
Accordingly, for all of the above reasons, we hold that the
New Jersey Supreme Court, if faced with the issue, would
rule that, under New Jersey law, a reinsurer must show the
likelihood of appreciable prejudice in order to prevail on a
late notice defense asserted against its reinsured.
Accordingly, we will reverse the district court’s grant of
summary judgment to Safety National and remand for
proceedings consistent with this opinion.7
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
7. Safety National claims in its brief that even if we predict that the
prejudice rule applies to this appeal, that it has been prejudiced.
However, that determination involves findings of fact that are properly
left to the district court in the first instance.
15

-- 15 of 15 --