Waiver Of Coverageshoke2013
Breach Of ‘Consent To Settle’ Provision Relieves Insurer Of Indemnity Obligation
The Georgia Supreme Court – responding to certified questions from the Eleventh Circuit – held that a policyholder who settled securities class action litigation for $4.9 million, without obtaining the consent of its excess carrier, is precluded from seeking recovery from its insurer for the settlement payment.
Piedmont Officer Realty Trust, Inc. (Piedmont) purchased excess coverage from XL Specialty Insurance Company (XL). The XL policy provided $10 million in limits in excess of $10 million in primary limits.
Piedmont was named as a defendant in a federal securities class action suit in which plaintiffs sought damages of over $150 million. Piedmont ultimately won summary judgment and was dismissed from the case, but not before it exhausted its $10 million primary policy and another $4 million of its XL excess policy on defense costs.
While the case was on appeal, Piedmont sought XL’s consent to settle the case for the remaining $6 million in limits. XL agreed to contribute $1 million toward the settlement, but no more. Without obtaining consent from XL, Piedmont settled the claim for $4.9 million, which was approved by the district court. XL refused to provide coverage for the full settlement amount.
Piedmont filed suit against XL for breach of contract and bad faith failure to settle. XL moved to dismiss the complaint. XL argued that it had no obligation to cover the settlement, because the XL policy contained a “consent to settle” clause which states: “No claims expenses shall be incurred or settlement made…or liability admitted…with respect to any claim without the insurer’s written consent, which shall not be unreasonably withheld.” XL also argued that Piedmont, having failed to obtain XL’s consent, was barred from suing XL under the policy’s “no action” clause. The “no action” clause precluded Piedmont from suing XL unless “the insured complies with all of the terms of the policy and the amount of the insured’s obligation to pay is determined by a final judgment against the insured after trial or a written agreement between the claimant, the insured, and the insurer.” The district court agreed with XL and dismissed Piedmont’s complaint.
In response to certified questions from the Eleventh Circuit, the Georgia Supreme Court agreed with the district court that, having not obtained XL’s consent, Piedmont could not maintain a claim against XL. Piedmont argued that its claim against XL was viable, because XL’s refusal to approve the settlement was “unreasonably withheld.” The Georgia Supreme Court disagreed: “In light of [the] unambiguous policy provisions, we hold that Piedmont is precluded from pursuing this action against XL because XL did not consent to the settlement and Piedmont failed to fulfill the contractually agreed upon condition precedent.” The Georgia Supreme Court also acknowledged that, unlike many other jurisdictions, under Georgia law, an insured who settles a lawsuit in violation of the “no action” clause cannot maintain a bad faith claim against the insurer. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co., Case No. S15Q0418 (Ga. S. Ct. April 20, 2015).