Case Briefs

The Supreme Court of Georgia, applying state law, has ruled in a unanimous decision that a policyholder's complaint against its insurer seeking coverage for amounts paid to settle an underlying lawsuit and alleging bad faith was properly dismissed on the grounds that the policyholder settled the underlying lawsuit without its insurer's consent. Piedmont Office Realty Trust, Inc. v. XL Specialty Insurance Co., No. S15Q0418 (Ga. Apr. 20, 2015). In so holding, the court rejected the policyholder's argument that the insurer's consent was not required because the insurer allegedly withheld such consent unreasonably and in bad faith. The court also rejected the policyholder's argument that court approval of the underlying settlement transformed the settlement into a “legal obligation to pay.”

The policyholder, a real estate investment trust, exhausted the limits of a primary policy by payment of defense costs and incurred another $4 million under its excess policy while defending an underlying securities action. The policyholder prevailed on summary judgment in the underlying action, but the securities claimants then appealed, and the policyholder sought consent from the excess insurer to settle the case for the $6 million limits remaining under its policy. The insurer refused to contribute more than $1 million toward settlement. Without obtaining the insurer's consent, the policyholder entered into a $4.9 million settlement agreement, which later was approved by the district court. The policyholder then sued its insurer for breach of contract and bad faith, seeking coverage for the full settlement amount plus statutory interest. The policyholder 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, and the policyholder appealed.