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Second Circuit Rules that Limitation of Liability in Endorsement Is Not An Exclusion, So No Heightened Proof Requirements Apply

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Catlin Specialty Ins. Co. v. QA3 Financial Corp., No. 14-2773-cv, 2015 WL 6684207 (2d Cir. Nov. 3, 2015). Following and applying prior authority by the New York Court of Appeals, the Second Circuit ruled that a limitation of liability contained in an endorsement is not an exclusion, and therefore the insurer was not subject to any heightened burden of proof at trial. The insurer, Catlin, had prevailed at a jury trial on the effect on limits of an “Amended Definition of Securities” Endorsement which contained an aggregate limit relating to private placements. The jury considered extrinsic evidence and the Judge issued an instruction that Catlin bore the burden of proving its interpretation by a “preponderance of the evidence.” The insured appealed, arguing that any limitation of liability on the nature and extent of coverage constituted the functional equivalent of an exclusion, and therefore Catlin should have been required to prove that there was “no other reasonable interpretation” than the one Catlin put forth. The Second Circuit rejected this argument and affirmed the trial court decision. It applied the rule, originally established in Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire Ins. Co. of Pittsburgh, 21 N.Y.3d 139 (2013), that issues concerning the extent of alleged liability do not bar coverage or implicate policy exclusions.