Strict Limitation on Interlocutory Appeals under 28 U.S.C. § 1292(b): Federal Insurance Co. v. American Precision Industries, Inc.

Introduction

In Federal Insurance Company v. American Precision Industries, Inc. (2d Cir. Apr. 11, 2025), the United States Court of Appeals for the Second Circuit considered whether to entertain an interlocutory appeal under 28 U.S.C. § 1292(b). American Precision Industries (API) sued its insurers—Federal Insurance Company, Fireman's Fund Insurance Company and North River Insurance Company—seeking a declaration of coverage for defense costs and indemnity in long-tail asbestos lawsuits. The district court held that (1) the insurers have a duty to defend certain non-named insureds; (2) defense costs must be paid on an “all sums” basis; but (3) indemnity need not be allocated on an “all sums” basis. The insurers and API cross-appealed, and the district court certified three controlling questions of law for interlocutory review.

Summary of the Judgment

The Second Circuit, exercising its discretion under § 1292(b), dismissed the interlocutory appeal and remanded for further proceedings. Although the certified questions—(1) the “Named Insured” issue; (2) allocation of defense costs; and (3) allocation of indemnity—were each arguably “controlling” and open to “substantial ground for difference of opinion,” the court concluded that immediate review would not “materially advance the ultimate termination of the litigation.” The panel emphasized the rarity of interlocutory appeals absent exceptional circumstances and refused to depart from the final-judgment rule.

Analysis

Precedents Cited

28 U.S.C. § 1292(b) – Establishes the narrow exception for interlocutory appeals of non-final orders when three conditions are met.
Koehler v. Bank of Bermuda, 101 F.3d 863 (2d Cir. 1996) – Emphasizes that § 1292(b) is a “rare exception” to the final-judgment rule and that the court of appeals retains discretion to deny certification.
Tidewater Oil Co. v. United States, 409 U.S. 151 (1972) – Confirms that interlocutory appeal under § 1292(b) is discretionary even if the district court has certified questions.
In re Flor, 79 F.3d 281 (2d Cir. 1996) – Reinforces that interlocutory certification should be “strictly limited” to exceptional circumstances.
In re Viking Pump, Inc., 27 N.Y.3d 244 (2016) – Defines “all sums” versus pro rata allocation of long-tail pollution or bodily-injury claims under New York law.
Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61 (1991) – Addresses when insurers’ policy obligations may be triggered by third-party suits not naming the insured directly.

Legal Reasoning

The court applied the three-part test of § 1292(b):

Controlling question of law: The district court identified three legal questions of significant import, each capable of disposing of significant aspects of coverage.
Substantial ground for difference of opinion: The panel acknowledged genuine debate over the scope and timing of “named insured” coverage, the mechanics of “all sums” defense cost allocation, and the reach of Viking Pump for indemnity allocation.
Materially advance the litigation: This final prong was decisive. The appeals court found that:
- Even a favorable ruling on the “named insured” issue would not resolve suits naming API directly, which remain pending or possible.
- Theoretical cross-claims among insurers over contribution do not yet exist; the “all sums” defense-cost debate could be litigated after final judgment without causing undue delay.
- An interlocutory appeal risked certifying state-law questions to the New York Court of Appeals, further prolonging resolution rather than expediting it.

The panel stressed that piecemeal review runs counter to the policy favoring final judgments and that § 1292(b) interlocutory appeals should be “strictly limited.”

Impact

This decision reinforces the Second Circuit’s stringent application of § 1292(b). Future litigants must demonstrate not only that certified questions are controlling and contested, but also that immediate review will meaningfully shorten case duration. The ruling:

Limits strategic interlocutory appeals—especially in insurance coverage disputes involving long-tail and allocation questions.
Clarifies that speculative or theoretical benefits of early review do not satisfy the “material advance” requirement.
Signals that complex state-law issues, even if certified, may stall rather than speed a case if certification to a state high court becomes likely.

Complex Concepts Simplified

Interlocutory Appeal: An appeal of a non-final order (i.e., before the case is fully resolved). By default, federal courts discourage these appeals to avoid fragmenting litigation.
28 U.S.C. § 1292(b): The statute allowing interlocutory appeals in three narrow circumstances: (1) a controlling question of law; (2) substantial ground for difference of opinion; and (3) potential to materially advance the case.
All Sums vs. Pro Rata Allocation: In “all sums” allocation, an insurer that issued any policy covering the injury period may be responsible for the full defense or indemnity cost, leaving insurers to sort out contribution among themselves. Under pro rata, each insurer pays only its share based on time on risk.
Named Insured Question: Whether insurers must defend or indemnify party affiliates or successors in lawsuits that do not name the original insured, but where coverage arose from its activities.

Conclusion

Federal Insurance Co. v. American Precision Industries, Inc. stands as a caution: even compelling legal questions will not justify piecemeal appeals absent clear proof that early review will speed resolution. The decision reaffirms the exceptionalism of interlocutory appeals under § 1292(b) and guides litigants to await final judgment when appellate intervention would likely prolong the dispute. The case thus strengthens the final-judgment rule and narrows the pathway for interlocutory review in insurance and other complex coverage litigation.