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Superior Court Holds D&O Insurer's Consent Was Required For Settlement

By Morris James LLP

Federal Ins. Co. v. Hilco Capital, LP, 2008 WL 3021109 (Del. Super. Ct. Aug. 5, 2008).

This coverage dispute arises out of the settlement of an underlying breach of fiduciary duty action. The plaintiffs and defendants (insureds) in that underlying action, along with the first-layer D&O carrier, reached a settlement agreement without the consent of the excess liability carrier, despite the settlement implicating that policy. 

 

The excess liability carrier objected to the settlement arrangement and refused to consent. The plaintiffs informed the insureds that it would not seek to recover any part of the judgment from them if they agreed to the settlement, despite the excess liability carrier’s lack of consent. 

When the defendants consented to judgment in an amount above the first-layer coverage, and then assigned their rights under their policies to the plaintiffs, the excess liability carrier brought this action seeking a declaration that coverage is barred. Considering cross motions for summary judgment in the declaratory judgment action, the Superior Court held that the policy gave the excess liability carrier the option to participate in settlement discussions at its sole discretion. And, the court held that the policy required the excess liability carrier’s consent for any settlement that implicated its policy. 

The court did not dispose of the case, though, noting that it was up to the jury to decide whether the excess liability carrier unreasonably withheld its consent.  

Note: the decision applies Missouri law.

 

Full post as published by Delaware Business Litigation Report on August 21, 2008 (boomark / email).