Not a Lexis Advance subscriber? Try it out for free.
LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
On July 21, 2015, the Pennsylvania Supreme Court in The Babcock & Wilcox Company v. American Nuclear Insurers, No. 2 WAP 2014, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], adopted a variation of the test set forth in United Services Auto. Ass'n v. Morris, 741 P .2d 246 (Ariz. 1987), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], permitting an insured to settle over the objections of the insurer. The court was faced with an issue of first impression concerning whether insurance coverage is forfeited when an insured settles a tort claim without its insurer’s consent when the policy is subject to a reservation of rights and the insurer asserts that the claims may not be covered by the policy.
Cowden v. Aetna Cas. and Sur. Co., 134 A.2d 223 (Pa. 1957), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], which “held that an insurer must pay a judgment in excess of policy limits” when it acts “in bad faith in refusing to settle.” Instead, with the Morris decision, the court ruled that where an insurer asserts a reservation of rights and refuses to accept a settlement, the insured may, after showing that the settlement is fair and reasonable as well as covered by the policy, enter into the settlement. The insurer will then be liable for that settlement.
An analysis of the terms of the settlement as well as the “strength of the insured’s defense against the asserted claims” is necessary to determine whether a settlement is fair and reasonable. Also, whether the insured acted fraudulently or collusively should be considered. In light of this decision, questions over whether a reservation of rights is valuable to the insurer are raised.
For more information about LexisNexis products and solutions, connect with us through our corporate site