Ace American Insurance Company (“Ace”) made claim for coverage from its reinsurer, Continental Casualty Company (“Continental”), for an $11.68 million settlement it entered into with its underlying insured in a first party coverage case which included bad faith claims against Ace. Continental declined coverage and instituted a declaratory action seeking a determination that it owed no coverage because (1) Ace settled the case without Continental’s approval as required under the consent to settle provision, and (2) given Ace’s $10m deductible, uninsured losses would have reduced the claim to less than the deductible.

The Court agreed with Continental, finding that an oral agreement to settle in principal, even though not consummated, was entered into by Ace prior to any attempt to obtain Continental’s consent thereto. The Court found this breach of the consent-to-settle provision dispositive, but also noted its agreement with Continental’s other claim that certain of the losses pertained to Ace’s exposure to non-covered punitive damages, which losses would have reduced the claim to less than the amount of Ace’s deductible. Continental Cas. Co. v. Ace American Ins. Co., Case No. 07-958 (USDC S.D.N.Y. May 31, 2009)