News - Tharpe & Howell - Litigation and Transaction Lawyers

CAN INSURED SETTLE CLAIM WITHOUT CARRIER'S CONSENT?

The case of Aerojet-General Corp. v. Commercial Union [9/13/07] concerns the issue of whether an insured can settle with a claimant without consent from the insurer and obtain reimbursement of the money the insured agreed to pay in settlement from the insurer. While this action dealt with an environmental pollution claim and excess insurers, the ruling applies generally to any liability claim under a policy having the standard language as to "damages" and a "voluntary payment" provision.

In this action, the insured agreed to pay money to settle a pollution claim without obtaining the approval of the several excess insurers on the risk. The policies all stated the insurers would indemnify the insured for "all sums which the assured shall become legally obligated to pay....to any person as damages." The "no voluntary payments" clauses in the policy required the insurer's written consent before it would indemnify the insured for any costs.

Upon argument, the Court held the settlement costs were not "damages" because they were not ordered by a court against the insured. It noted that "damages" means only money ordered by a court to be paid. Athough the Court did not directly address the effect of the "no voluntary payment" clause, there was an inference that if the insured and the claimant parties had sought for the terms of the settlement agreement to be entered as Judgments ordered by the Court in the lawsuits - possibly the settlement costs might have been found to be "damages" payable under the policy. However, the insured would likely still have been denied recovery by a breach of the "no voluntary payment" provision in the policy.

Related Attorney(s):
Soojin Kang
Timothy D. Lake

Related Practice Area(s):
Bad Faith and Coverage