Settlement allocations of long-tail losses like pollution claims have long been a source of disputes between cedents and reinsurers. Often the allocation of the underlying settlement depends on the allocation methodology used based on the law of the relevant jurisdiction. The issue becomes more complicated where the reinsurance contract is governed by the law of a different jurisdiction that may not use the same allocation methodology. In a recent case, the United States Circuit Court for the Second Circuit addressed this issue where the cedent claimed back-to-back reinsurance and the reinsurer rejected the allocation methodology.
