Policyholders and insurers should take note of two recent decisions: one from the U.S. Court of Appeals for the Ninth Circuit in Teleflex Medical Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, 851 F.3d 976 (9th Cir. 2017); and the Oregon Supreme Court in FountainCourt Homeowners’ Association v. FountainCourt Development, LLC, 380 P.3d 916 (Or. 2016).
In Teleflex, the Ninth Circuit applied California law to require an excess insurer, presented with a settlement of underlying claims against its policyholder, to choose between 1) accepting the settlement where it is reasonable and not the product of collusion, 2) rejecting the settlement but taking over the defense of the underlying claims, or 3) rejecting the settlement and refusing to take over the defense, and as a result, facing breach of contract and bad faith claims. Following a settlement in the underlying action conditioned on the receipt of insurance proceeds, the primary insurer, CNA, agreed to tender its full $1 million policy limit to the policyholder. The excess insurer, National Union, however, did not agree to contribute the relevant portion of its $14 million policy limit to fund the remainder of the conditional settlement. Instead, over the next few months National Union requested, and the policyholder provided, additional information regarding potential liability and damages in an effort to determine the reasonableness of the settlement.