Strict Enforcement of Final-Judgment Rule: Limiting Interlocutory Appeals under 28 U.S.C. §1292(b) in Insurance Coverage Litigation

Introduction

In Fed. Ins. Co. v. Am. Precision Indus., Inc., the Second Circuit considered whether to entertain an interlocutory appeal under 28 U.S.C. §1292(b) from a district-court order in a declaratory judgment action concerning asbestos-related insurance coverage. The underlying dispute arose from American Precision Industries, Inc.’s (“API”) obligation to defend non-named insurers and the extent to which defense costs and indemnity must be allocated among successive policies. The district court certified three questions: (1) the “Named Insured Question”; (2) the “Allocation of Defense Costs Question”; and (3) the “Allocation of Indemnity Question.” The Insurers sought immediate appellate review, while API argued that piecemeal appeals would only delay final resolution. The Second Circuit ultimately declined to decide any of the certified questions and remanded for further proceedings.

Summary of the Judgment

On April 11, 2025, a motions panel of the Second Circuit dismissed the interlocutory appeal and remanded the case. The court held that, even assuming the three certified questions involved controlling questions of law with substantial grounds for difference of opinion, an interlocutory appeal would not materially advance termination of the litigation. The court emphasized that §1292(b) is a “rare exception to the final-judgment rule” and should be used sparingly. It declined to weigh in on whether:

Insurers’ duty to defend non-named insureds was triggered;
Defense costs must be allocated on an “all sums” or pro rata basis; and
Long-tail claims with “death at any time” language preclude pro rata indemnity allocation.

Analysis

Precedents Cited

Koehler v. Bank of Bermuda (101 F.3d 863, 2d Cir. 1996): Established that §1292(b) interlocutory appeals are a “rare exception” and stressed the importance of avoiding piecemeal litigation.
Tidewater Oil Co. v. United States (409 U.S. 151, 1972): Confirmed the discretionary nature of §1292(b) appeals in the Supreme Court and cautioned against granting appeals that would delay resolution.
In re Flor (79 F.3d 281, 2d Cir. 1996): Emphasized that only “exceptional circumstances” justify interlocutory review under §1292(b).
In re Viking Pump, Inc. (27 N.Y.3d 244, 2016): Defined allocation rules for indemnity among successive insurers, particularly for “long-tail” environmental and asbestos claims.
Fitzpatrick v. American Honda Motor Co. (78 N.Y.2d 61, 1991): Addressed the “named insured” trigger for coverage when an insured retains liability for harms in suits naming subsidiaries or affiliates.

Legal Reasoning

The Second Circuit engaged in a three-part inquiry under §1292(b): (1) whether the order presented a controlling question of law; (2) whether there was substantial ground for difference of opinion; and (3) whether immediate appeal would materially advance ultimate termination of the litigation. Although the district court had certified all three prongs as satisfied, the appellate panel exercised its inherent discretion to decline review.

Key points in the court’s reasoning included:

The declaratory nature of the proceeding meant that even a successful interlocutory appeal on the “Named Insured Question” would not resolve suits naming API directly, thus failing to terminate litigation.
Theoretical cross-claims among insurers over “all sums” allocation were not sufficiently concrete to justify interlocutory review.
Potential certification to the New York Court of Appeals on state-law issues (Fitzpatrick, Viking Pump) could introduce further delay, defeating the purpose of §1292(b).

Impact

This decision reinforces the strong federal policy against piecemeal appeals. Its immediate impacts include:

Lower courts in the Second Circuit will be less inclined to certify interlocutory appeals in complex insurance coverage disputes absent an unequivocal demonstration that an appeal will expedite final resolution.
Insurers and insureds must prepare to litigate coverage, defense and indemnity allocation issues as part of a single, consolidated proceeding to avoid the risk of interlocutory dismissal.
State courts may see fewer certifications from federal benches, shaping the development of New York coverage law on named-insured triggers and allocation principles.

Complex Concepts Simplified

Interlocutory Appeal (28 U.S.C. §1292(b)): An appeal before final judgment, allowed only if a district judge certifies and the appellate court consents that (a) a legal issue is controlling, (b) there is a substantial basis for disagreement, and (c) immediate review would speed up the case’s end.
All Sums vs. Pro Rata Allocation: Under “all sums,” any insurer on the risk during the injury period may bear the entire defense or indemnity cost, subject to contribution among insurers later. Under “pro rata,” each policy pays only the fraction corresponding to its time on the risk.
Long-Tail Claims: Claims (e.g., asbestos, environmental) where the injury occurs over many years, triggering coverage across multiple policy periods.
Named Insured Trigger: The point at which an insurer must defend or indemnify—in this case, whether suits that do not name the named insured but involve its liabilities can trigger coverage.

Conclusion

Fed. Ins. Co. v. Am. Precision Indus., Inc. underscores the Second Circuit’s firm adherence to the final-judgment rule and its reluctance to entertain piecemeal interlocutory appeals in insurance coverage disputes. Even when a district court identifies controlling legal questions and acknowledges genuine dispute, the appellate court will decline review if immediate appeal does not materially advance ultimate resolution. This decision will guide litigants and courts toward efficient, consolidated adjudication of coverage issues, reducing procedural detours and delays.