Excess Insurer can be Sued by Policyholder for Failure to Cover a Claim

Jul 5, 2017

The Ninth Circuit rejects an excess insurer’s arguments that it’s not liable for a claim against the insured and the primary insurer.

It is accepted that insurers will examine the contractual language of their policies and the underlying facts surrounding a “coverable” incident before agreeing to either defend a claimant or provide coverage if the claimant is found liable.

But, as Joan Cotkin explains in an article in NOSSAMAN’S Insurance Recovery Report, insurance companies must act in good faith.

Ms. Cotkin reviews Teleflex Medical Inc. v. National Union, Case No. 14-56366, in which the Ninth Circuit “affirmed a $6+ million judgment against AIG subsidiary National Union, who was [the] excess [insurer carrier for] a primary policy issued by CNA.” This is not a construction case but it is a reminder that courts do place limits on how “recalcitrant” an insurer can act when refusing to defend a claim.

Teleflex Medical purchased a primary policy from CNA and an excess coverage policy from National Union to cover “disparagement claims.”

CNA represented Teleflex Medical in a lawsuit that the insured, CNA, and the claimant eventually agreed to settle for an amount “that would require about $3.75 million from the $14 million National Union excess policy.”

National Union rejected the settlement and “refused to undertake the defense of the Insured.” Teleflex Medical sued National Union demanding that the insurance company cover the amount the claimant was owed in excess of the policy limits of the primary insurer.

National Union countered that the insured did not have legal standing to file suit against them. The court disagreed, finding “the Insured was entitled to sue National Union for breach of contract and bad faith and was entitled to the rebuttable presumption that the settlement was reasonable because National Union failed to undertake the defense when it refused to consent to the settlement.”

The jury found the “original settlement was reasonable and National Union [was] liable for breach of contract and bad faith.” They awarded Teleflex Medical $6 million. The Ninth Circuit upheld their verdict.

As Ms. Cotkin states—“this is an excellent result for policy holders, and a warning to recalcitrant insurers.”

Source

Ninth Circuit Reaffirms Policyholder Right to Sue Recalcitrant Excess Insurer, Joan Cotkin, NOSSAMAN INSURANCE RECOVERY REPORT, March 22, 2017.