Insurer’s Consent to Settle Not Required Following Effective Denial of Coverage

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).

An insured bank sought coverage for an investigation by the Securities and Exchange Commission.  The bank’s insurance carriers asserted that the investigation did not constitute a claim under the applicable policies, and additional coverage issues may apply to bar coverage for any settlement.  Thereafter, the bank settled the claim with the SEC and sought coverage for the settlement.

In the ensuing coverage litigation following the carriers’ refusal to cover the settlement, the carriers argued that the bank violated the policies’ consent-to-settle requirement.  The court disagreed, finding that the carriers’ “unreasonable delay in dealing with [the bank’s] claims” and their consistent position that the investigations raised several dispositive coverage issues constituted a “repudiation of liability” for the bank’s claims that excused the bank from its obligation to seek the insurers’ consent prior to entering into a settlement with the SEC.