Consent to settle/incur defense costs

The Massachusetts Supreme Judicial Court has held that consent-to-settle clauses in professional liability policies that give the insured absolute discretion regarding settlement do not inherently conflict with the state’s unfair insurance settlement practices statute, Mass. G.L. ch. 176D § 3(9)(f).  Rawan v. Continental Casualty Company, 136 N.E.3d 327 (Mass. Dec. 16, 2019).  The case had attracted considerable attention from amici concerned about potential disruption of the professional liability insurance market in Massachusetts if such consent-to-settle clauses were deemed impermissible.

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Applying Delaware law, a federal court in New York has held that where an insured waited more than a year to report a lawsuit to its insurer and during that period incurred more $3.5 million in legal fees, the insurer had no obligation to pay pre-tender defense costs, without regard to whether the insurer could show prejudice from the delay in notice.  Abrams v. RSUI Indem. Co., 2017 WL 3433108 (S.D.N.Y. Aug. 10, 2017).

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Applying New York law, a New York intermediate appellate court has held that insurers’ unreasonable delay in addressing an insured’s claim and their repeated insistence that several policy provisions barred coverage for the claim alleviated the insured’s obligation to seek the insurers’ consent to settle.  J.P. Morgan Securities Inc. v. Vigilant Ins. Co., 2017 WL 2744405 (N.Y. App. Div. June 27, 2017).

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The United States District Court for the Southern District of New York, applying New York law, has held that two judgment creditors of an insured were not entitled to insurance policy proceeds where the insured had breached the terms of the policy by allowing a default judgment to be entered against it.  XL Specialty Ins. Co., v. Lakian, 2017 WL 1063451 (S.D.N.Y. March 20, 2017).  The court further held that the insurer had not waived its policy defenses by writing a letter to the broker informing it of the insured’s duty to defend the action or by filing an interpleader action without naming the judgment creditors.  The court also concluded that a third judgment creditor for an insured person had no rights to the policy because it had no claim under the policy at the time the interpleader action was filed, and because the policy was not property of the insured person.  Wiley Rein represents the insurer.

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The United States Court of Appeals for the Ninth Circuit, applying California law, has held that an insured breached the consent-to-settle provision of its professional liability insurance policy by executing a settlement term sheet prior to seeking or obtaining the consent of its insurer and therefore was not entitled to coverage under the policy.  Onewest Bank, FSB v. Houston Cas. Col., 2017 WL 218900 (9th Cir. Jan. 9, 2017).

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The United States Court of Appeals for the Eleventh Circuit, applying Florida law, has held that a thirty-day statutory deadline to deny coverage did not apply to an insurer’s refusal to reimburse the insured for its pre-tender defense costs because this refusal did not constitute a “coverage defense” within the meaning of the statute. Embroidme.com, Inc. v. Travelers Property Cas. Co. of Am., 2017 WL 74694 (11th Cir. Jan. 9, 2017).

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The United States Court of Appeals for the Sixth Circuit, applying Michigan law, has held that a policy provision requiring an excess insurer’s written consent before entering into a settlement was not ambiguous and therefore barred coverage under the excess policy.  Stryker v. National Union Fire Ins., 2016 WL 6818853 (6th Cir. Nov. 18, 2016).

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The United States Court of Appeals for the Eleventh Circuit, applying Florida law, has held that an insurer’s breach of the duty to defend did not render it liable for a consent judgment where the insured did not consider the reasonableness of the settlement amount.  Sidman v. Travelers Cas. & Sur., 2016 WL 6803034 (11th Cir. Nov. 17, 2016).

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A California intermediate appellate court has held that an insurer is liable for bad faith failure to settle, even though it had made a timely offer to settle for its full policy limits, where the insurer declined to agree to release terms proposed by the claimants to which the insured refused to agree. Barickman v. Mercury Cas. Co., 2016 WL 4274674 (Cal. Ct. App. July 25, 2016).
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