{"id":177,"date":"2015-07-30T23:14:03","date_gmt":"2015-07-31T03:14:03","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/insurancelaw\/?p=177"},"modified":"2015-07-30T23:23:12","modified_gmt":"2015-07-31T03:23:12","slug":"pennsylvania-supreme-court-holds-that-insured-did-not-forfeit-coverage-by-settling-without-insurers-consent-even-though-insurer-was-defending-under-a-reservation-of-rights","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2015\/07\/30\/pennsylvania-supreme-court-holds-that-insured-did-not-forfeit-coverage-by-settling-without-insurers-consent-even-though-insurer-was-defending-under-a-reservation-of-rights\/","title":{"rendered":"Pennsylvania Supreme Court Holds That Insured Did Not Forfeit Coverage By Settling Without Insurer\u2019s Consent Even Though Insurer Was Defending Under a Reservation of Rights"},"content":{"rendered":"

In an issue of first impression, the Pennsylvania Supreme Court has held that an insured does not forfeit coverage by entering into a fair, reasonable, and non-collusive settlement without the insurer\u2019s consent when the insurer is defending the insured under a reservation of rights and the insurer has declined to settle.\u00a0 Babcock & Wilcox Co. v. American Nuclear Insurers<\/em>, — A.3d — (2015), 2015 WL 4430358, Case No. 2 WAP 2014 (Pa. July 21, 2015).<\/p>\n

The insureds were sued in a class action over alleged bodily injury and property damage caused by emissions from nuclear facilities.\u00a0 Id.<\/em> at *1.\u00a0 The insurer (which issued $320 million in coverage) defended under a reservation of rights, asserting that the policy did not cover damages not caused by nuclear energy hazard, damages in excess of the policy limits, and claims for injunctive relief and punitive damages.\u00a0 Id.<\/em>\u00a0 After an initial verdict against the insureds of $36 million, a retrial was granted.\u00a0 Id.<\/em>\u00a0 The insurer refused consent to any settlement offers, believing the case could be successfully defended.\u00a0 Id.<\/em> at *2.\u00a0 The insured then proceeded to settle with the class action plaintiffs for $80 million.\u00a0 Id.<\/em><\/p>\n

In the ensuing declaratory judgment action, the insurer argued that there was no coverage for the settlement because the insured had violated the consent to settlement clause.\u00a0 Id.<\/em>\u00a0 The insured urged the trial court to adopt United Services Auto. Ass\u2019n v. Morris<\/em>, 154 Ariz. 113 (1987), which held that, when the insurer has reserved rights, it should be liable for an insured\u2019s settlement as long as coverage applies and the settlement is \u201cfair and reasonable\u201d and entered into in good faith.\u00a0 The insurer argued that insurers should only be responsible for such a settlement under Cowden v. Aetna Cas. And Sur. Co.<\/em>, 389 Pa. 459 (1957), which held that an insurer must pay a judgment in excess of policy limits for its bad faith failure to settle below policy limits.\u00a0 The trial court adopted the test advanced by the insureds and a jury determined that the insured\u2019s settlement with claimants was fair and reasonable.\u00a0 Id.<\/em> at *3.\u00a0 On appeal, the intermediate appellate court adopted an entirely different test (requiring the insured to have rejected the insurer\u2019s defense and the insurer to have acted in bad faith in declining to settle) and remanded to the trial court for a new trial on these issues.\u00a0 Id.<\/em> at *5.<\/p>\n

The Pennsylvania Supreme Court granted review to consider this issue of first impression, described as \u201cwhether an insured forfeits the right to insurance coverage when it settles a lawsuit without the insurer\u2019s consent, where the insurer has defended the suit subject to a reservation of rights.\u201d\u00a0 Id.<\/em> at *5.\u00a0 Declining to strictly construe the consent to settlement requirement of the insurance policy and rejecting the test applied by the intermediate appellate court, the court opted for a modified Morris<\/em> standard, holding that the insurer will be on the hook \u201cwhere an insured accepts a settlement offer after an insurer breaches its duty by refusing the fair and reasonable settlement while maintaining its reservation of rights and, thus, subjects an insured to potential responsibility for the judgment in a case where the policy is ultimately deemed to cover the relevant claims.\u201d\u00a0 Id.<\/em> at *16.\u00a0 The court further held that the settlement must be \u201cfair and reasonable from the perspective of a reasonably prudent person in the same position of [Insureds] and in light of the totality of the circumstances.\u201d\u00a0 Id.<\/em>\u00a0 The court therefore reinstated the trial court judgment.\u00a0 Id.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

In an issue of first impression, the Pennsylvania Supreme Court has held that an insured does not forfeit coverage by entering into a fair, reasonable, and non-collusive settlement without the insurer\u2019s consent when the insurer is defending the insured under a reservation of rights and the insurer has declined to settle.\u00a0 Babcock & Wilcox Co. … <\/p>\n

Continue reading “Pennsylvania Supreme Court Holds That Insured Did Not Forfeit Coverage By Settling Without Insurer\u2019s Consent Even Though Insurer Was Defending Under a Reservation of Rights”<\/span><\/a><\/p>\n","protected":false},"author":193,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[297,295,190,69,180],"ppma_author":[423],"class_list":["post-177","post","type-post","status-publish","format-standard","hentry","category-general","tag-forfeit-coverage","tag-la-londe","tag-consent-to-settle","tag-pennsylvania-supreme-court","tag-reservation-of-rights"],"authors":[{"term_id":423,"user_id":193,"is_guest":0,"slug":"jelalonde","display_name":"Jessica E. La Londe","avatar_url":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-content\/uploads\/sites\/12\/2024\/12\/lalondejessica-1-100x100.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/193"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=177"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/177\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=177"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}