Eleventh Circuit Affirms Dismissal of Insured’s Complaint in “Consent to Settle” Case

The United States Court of Appeals for the Eleventh Circuit ruled in favor of Wiley Rein’s client, an insurer, when it affirmed the dismissal of a complaint filed by an insured seeking coverage for amounts paid to settle an underlying lawsuit and alleging bad faith on the grounds that the insured settled the underlying lawsuit without its insurer’s consent. Piedmont Office Realty Trust, Inc. v. XL Spec. Ins. Co., --- F.3d ---- (11th Cir. June 23, 2015).

The insured, a real estate investment trust, exhausted the limits of a primary D&O policy and incurred another $4 million under its excess policy while defending an underlying securities action. The insured prevailed on summary judgment, but the securities claimants appealed, and the insured sought consent from the excess insurer to settle the case for the $6 million remaining under its policy. Based largely on the insured’s counsel’s analysis of the potential exposure, the excess insurer agreed to contribute $1 million toward settlement. Without obtaining the insurer’s consent, the insured entered into a $4.9 million settlement agreement, which was later approved by the district court. The insured then sued the excess insurer in federal district court for breach of contract and bad faith, seeking coverage for the full settlement amount plus statutory interest. The insured claimed, among other things, that the insurer’s consent to the settlement was not required because the insurer withheld its consent unreasonably and in bad faith. Rejecting that argument, the district court granted the insurer’s motion to dismiss. See Insured Cannot Sue Insurer for Amounts Paid to Settle Claim Without Insurer’s Consent. The insured appealed.

The Eleventh Circuit certified questions to the Georgia Supreme Court. In responding to the certified questions, the Georgia Supreme Court summarized its conclusion that the insured’s complaint was properly dismissed:

[T]he plain language of the insurance policy does not allow the insured to settle a claim without the insurer’s written consent. It also provides that the insurer shall only be liable for a loss which the insured is “legally obligated to pay.”  Finally, the policy contains a “no action” clause which stipulates that the insurer may not be sued unless, as a condition precedent, 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 judgment against the insured after a trial or a written agreement between the claimant, the insured, and the insurer. In light of these unambiguous policy provisions, we hold that [the insured] is precluded from pursuing this action against [the insurer] because [the insurer] did not consent to the settlement and [the insured] failed to fulfill the contractually agreed upon condition precedent.

See Georgia Supreme Court Unanimously Holds That Insured Cannot Sue Insurer for Amounts Paid to Settle Claim Without Insurer’s Consent. Upon review of the Georgia Supreme Court’s opinion on the certified questions, the Eleventh Circuit noted that the “definite response” mandated the conclusion that the district court properly dismissed the insured’s complaint. The court therefore affirmed the dismissal in a per curiam opinion.


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