Insurer not liable in case settled without its consent
- The GA Supreme Court ruled that XL was not obligated to contribute to a settlement that they did not consent to
- This is out of line with most similar cases because the burden is on the insurer to show it was prejudiced by the lack of consent
- This case will have a big impact on GA suits where consent is an issue but should not be a big deal outside of Ty Cobb’s home state
Johns Creek, Georgia-based Piedmont Office Realty Trust Inc. had purchased two liability insurance policies, a $10 million primary policy issued by Liberty Surplus Insurance Co., a unit of Boston-based Liberty Mutual Insurance Group, and a $10 million excess policy issued by Stamford, Connecticut-based XL Specialty Insurance Co., according to Monday's unanimous ruling by the Georgia Supreme Court in Atlanta in Piedmont Office Realty Trust Inc. v. XL Specialty Insurance Co.
XL's excess policy provided that XL would only pay for a loss that Piedmont became legally obligated to pay as a result of a securities claim, and also contained a “consent to settle” clause that said no settlements would be made without the insurer's written consent, according to the ruling. The policy also included a “no action” clause that provided no action would be taken against the insurer unless there had been full compliance with the policy's terms.
Piedmont was named as a defendant in a federal securities class action in which damages of more than $150 million were sought, according to the ruling. Plaintiffs and Piedmont eventually agreed to mediate the claim, according to the ruling. By that time, Piedmont had already exhausted its primary policy coverage limit as well as another $4 million of its excess policy “simply by defending itself,” according to the ruling.
Anticipating a settlement, Piedmont sought XL's consent to settle the claim for the remaining $6 million under the excess policy, but XL agreed to only contribute another $1 million towards the settlement.
Without further notice to XL or obtaining its consent, Piedmont then agreed to settle the underlying lawsuit with plaintiffs for $4.9 million. Piedmont then demanded XL provide coverage for the full settlement amount, which XL refused to do.
Piedmont then filed suit against XL for breach of contract and bad faith failure to settle. The federal District Court in Atlanta dismissed the case, and eventually the 11th U.S. Circuit Court of Appeals in Atlanta asked the George Supreme Court to consider the case.
The state high court agreed the case against XL should be dismissed. “In sum, absent XL's consent to the settlement, under the terms of the policy, Piedmont could not sue XL for bad faith refusal to settle the underlying lawsuit in the absence of a judgment against Piedmont after an actual trial. It follows that the District Court didn't err in dismissing Piedmont's complaint,” said the ruling.