Another Qualcomm Case Increases Settlement Anxiety:

Settlement with a primary insurer for less than full limits forever precludes access to excess coverage:

A Washington Appellate Court found that a policyholder that settles with its primary investment management insurer cannot access its excess insurance, even if it assumes the remainder of the primary’s limits.  The case involved a fraudulent $240 million tax shelter.  The policyholder settled with its primary insurer for $5 million of the $10 million limits and then tried to access its $30 million of excess coverage.  The court held that it was a clear requirement of the excess coverage that their limits were accessible “only after” the exhaustion of the underlying primary coverage by the “actual payment” of claims by the primary insurer.  As this had not happened, the court refused to consider the policyholder’s agreement to pay the remaining limits as sufficient to trigger the excess coverage.  Quellos Group LLC v. Federal Insurance Co. et al., No. 68478-7-I (Wash. Ct. App. Nov. 12, 2013).  This is yet another case applying the above rationale, despite its harsh and arguably inequitable consequences. The issue has become known as the Qualcomm settlement problem due to the fact it was most famously applied in a case involving that company and its resultant disincentive to settle in multi-party cases involving primary and excess policies. A policyholder that wants to settle a multi-year, multi-policy case must be careful not to settle any policy with an excess policy above it or it risks losing all of the excess coverage in that year.  The law in this area is split, with a majority of cases rejecting the Qualcomm approach, but with a significant minority of courts applying the above court’s rationale.

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