Does a ROR Allow an Insured to Settle the Case and Then Pass the Bill to the Insurer? (PA)

The Pennsylvania Supreme Court has agreed to hear arguments on a $95 million radiation injury coverage appeal. The Supreme Court will decide if an insured’s settlement of an underlying and covered claim without the insurer’s consent results in a forfeiture of coverage when the insurer is defending under a reservation of rights, the insurer has not offered any amount in settlement, and the settlement is deemed to be fair and reasonable.

In Babcock & Wilcox Co. et al. v. American Nuclear Insurers, which was decided this past summer, the Superior Court panel vacated a $95 million judgment against ANI and remanded the case for a new trial. The Superior Court held that the trial court applied the wrong standard when determining if Babcock & Wilcox were entitled to reimbursement. The trial court examined whether the settlement was fair and reasonable. The Superior Court held that the focus should have been whether Babcock & Wilcox rejected ANI’s defense of the claim, and furthermore, whether ANI’s failure to participate in settlement negotiations was an act of bad faith.

The original suit was filed by the parents of a woman who allegedly died from exposure to radiation near Babcock & Wilcox’s nuclear fuels plant. Babcock & Wilcox agreed to settle for $80 million and then filed suit against ANI to compel reimbursement. ANI argued that Babcock & Wilcox forfeited its right to coverage when it unilaterally settled the underlying suit against the advice of ANI. The Superior Court, in a break from PA precedent, ruled in favor of Babcock Wilcox.

Now, the Pennsylvania Supreme Court will determine the legal ramifications for an insured who unilaterally agrees to a fair and reasonable settlement against the wishes of the insurer, when there is no evidence of bad faith. The decision could greatly affect the balance of power between insurer and insured in settlement negotiations moving forward.

Special thanks to Eric Clendening for his contributions to this post. For more information, please contact Bob Cosgrove at rcosgrove@wcmlaw.com