A California federal court recently held that the consent provision in an insurance policy obligates the insured to notify the insurer and obtain its consent before settling, offering to settle or otherwise incurring a contractual obligation. Crowley Maritime Corp. v. Federal Ins. Co., No. C-08-00830 (SI) (N.D. Cal. Dec. 1, 2008).

In Crowley, the insured was sued by its shareholders in a securities action. Although the insured had notified its primary D&O carrier and its first and second level excess carriers of the suit, the insured negotiated a settlement with the underlying claimants and entered a settlement agreement without first notifying the insurers of the settlement negotiations and seeking their consent. The primary insurance policy, however, contained a consent provision, obligating the insured to obtain the insurer’s prior written consent before agreeing or offering to settle any claim, assuming any contractual obligation or admitting any liability.

Citing California law, the Court found that consent requirements in an insurance policy “typically prohibit the insured from voluntarily making payments, assuming obligations, or incurring expenses without the insurer’s consent.” Because it was undisputed that the settlement negotiations had concluded and a settlement agreement had been executed before the insurer had any knowledge of them, the insurers had no obligation to indemnify the insured for losses incurred or obligations assumed in violation of the policy’s consent provision.

For a copy of the opinion, please click here.