Risk and Recovery

Legal Insights for the Insured

Georgia Supreme Court Complicates Policyholders’ Ability to Settle Claims Brought Against Them

As we previously reported here, the U.S. Court of Appeals for the Eleventh Circuit asked the Georgia Supreme Court to weigh in on the coverage dispute in Piedmont Office Realty Trust, Inc. v. XL Specialty Insurance Co. concerning consent-to-settle and no-action provisions in an excess insurance policy. The state high court’s answer was a disappointing one for policyholders. According to the court, if a policyholder settles a claim brought against it without first obtaining the insurer’s consent, the policyholder may effectively forfeit coverage for the settlement and is barred from later suing its insurer, even if the policyholder believes the insurer unreasonably withheld consent. Companies holding policies governed by Georgia law should proceed carefully when settling claims against them where those policies include consent-to-settle and no-action provisions. Going forward, companies might be wise to avoid such policies altogether.

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Texas Says EPA Administrative Actions under CERCLA Trigger Duty to Defend

As any company facing EPA administrative action under CERCLA knows, the financial risk and defense costs associated with those proceedings can be the same as the risk and costs of an EPA lawsuit under CERCLA. But insurers have argued that administrative actions are very different from suits under standard CGL policies. Those policies, insurers argue, provide defense coverage to costs related to “suits,” not administrative actions. Joining a clear majority of state courts, the Texas Supreme Court recently rejected this narrow interpretation of the duty to defend in McGinnes Indus. Maint. Corp. v. The Phoenix Ins. Co., holding that a CGL insurer must provide a defense in CERCLA administrative actions.

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Third Circuit Finds Insured v. Insured Exclusion Precludes Recovery of Defense Costs

Many corporate executives may be under the impression that the defense costs they incur when sued for actions taken in their role as officers of the company would be covered by a “Management Protection” insurance policy. The name of the insurance policy even suggests this. However, executives are not always covered by such a policy. For example, in Redmond v. Ace American Insurance Company, No. 14-3864, 2015 U.S. App. LEXIS 9392 (3d Cir. June 5, 2015) (unpublished), the Third Circuit held that defense costs incurred in a lawsuit brought against an executive by his former employer were not covered under a Management Protection policy due to an insured versus insured exclusion.

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Pennsylvania Supreme Court Holds That Insured May Settle Tort Claim Without Insurer Consent Under “Fair and Reasonable” Standard

In Babcock & Wilcox Co. v. American Nuclear Insurers, a divided Supreme Court of Pennsylvania, deciding an issue of first impression under Pennsylvania law, recently held that when an insurer defends its insured subject to a reservation of rights, the insured may accept a settlement over the insurer’s refusal where the settlement is fair, reasonable, and non-collusive. This is a significant statement of policyholder rights in an area that regularly generates litigation.

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Montana Joins Majority of Courts Holding That Insurers Must Establish Prejudice to Disclaim Coverage Based on an Insured’s Late Notice

Joining a majority of states that have addressed the issue, the Montana Supreme Court recently held that “an insurer who does not receive timely notice required by the terms of an insurance policy must demonstrate prejudice from the lack of notice in order to avoid the obligation to provide defense and indemnification of the insured.” The case, Atlantic Casualty Insurance Co. v. Greytak, involved a policyholder that provided notice to its insurer over a year after receiving a letter notifying the policyholder of potential claims against it.

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Policyholder Warning: What One Provision Giveth (Defense Costs), Another Provision May Taketh Away

Professional liability insurance policyholders often breathe a sigh of relief when their insurer begins funding the costs of defending against a civil claim or government investigation. That is one of the reasons they bought the insurance in the first place! However, as one policyholder recently learned, just because the insurer advances defense costs doesn’t mean that the policyholder can forever close its books on those costs. In Protection Strategies, Inc. v. Starr Indemnity & Liability Co., after several former executives of the insured pled guilty to criminal charges – triggering various exclusions in the policy – the Fourth Circuit allowed the insurer to recover all of the defense costs it had advanced to its insured.

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Louisiana Supreme Court Holds That Statute May Confer Broad Duties On Insurers

In Kelly v. State Farm Fire & Casualty Co., the Supreme Court of Louisiana recently held that an insurer can be liable for bad faith failure to settle a claim even if it has not received a firm offer to settle the claim. The court also held that the insurer could be liable for misrepresenting any pertinent facts, not only facts relating to coverage. Together, these holdings may cause carriers issuing policies under Louisiana law to consider carefully their claim handling practices.

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