A federal court in Georgia held that an insured’s unilateral agreement with a claimant to settle a liability claim without its insurer’s consent precludes coverage. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co., 2014 WL 1292667 (N.D. Ga. Mar. 28, 2014). 

The insured had a primary policy and an excess liability policy. In litigation against the insured, the parties agreed to mediate the claim. The primary policy’s limits were exhausted. The excess insurer agreed to contribute less than policy limits toward a settlement against a demand far in excess of policy limits. Without seeking the excess insurer’s consent, the insured agreed to settle for the amount remaining under the excess policy’s limits, and sought the settlement funds from the excess insurer. The excess insurer asserted that it was not obligated to cover the settlement because it did not consent to the settlement. The insured sued the excess insurer for breach of contract, and the excess insurer moved to dismiss the complaint. 

The district court dismissed the insured’s lawsuit, holding that the insured’s unilateral agreement to, and voluntary payment of, the settlement precluded coverage because Georgia law unequivocally states that a voluntary agreement to settle a dispute without an insurer’s consent does not constitute a legal obligation to pay and the policy provided coverage only for claims which the insured had a legal obligation to pay. The insured argued that the consent requirement should be waived because the excess insurer unreasonably withheld consent to settle the claim. The court was not persuaded because the insured knew that the excess insurer did not consent when it entered into the settlement and the insured’s argument ignored binding Georgia law.