The Georgia Supreme Court has issued a significant decision strengthening the rights of insurers in respect to an insurance policy’s consent clause. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co. (20 April 2015).
In this case, the insured was a defendant in a federal securities class action lawsuit. It exhausted its primary layer of coverage through payment of defense costs. After years of litigation, the insured had $6 million in remaining limits on its first excess policy. The insured demanded the insurer pay the remaining limit to settle the lawsuit. The excess insurer declined, however, and offered $1 million. The insured then entered into a settlement with the plaintiffs for $4.9 million, without the insurer’s consent.
The insured then sued the insurer for breach of contract and bad faith. The insured argued that although the policy wording gave the insurer the right to consent to a settlement, the wording stated such consent “shall not be unreasonably withheld.” The insured argued the insurer’s refusal to consent was a breach of contract and in bad faith.
The Georgia Supreme Court held, unanimously, that the insurer was within its rights to withhold its consent. The Court held that, having failed to obtain consent, the insured failed to fulfill a condition precedent to coverage, and was precluded as a matter of law from bringing a claim for breach of contract and bad faith. The Court also noted the “consent shall not be unreasonably withheld” wording did not restrict the insurer’s right to insist on its consent, because under Georgia law, an insurer’s right to consent must always be exercised reasonably as a matter of law, even without that additional wording.
This decision is significant because it shows that the Georgia Supreme Court enforces an insurer’s consent clause on cases in which it is providing a defense to an insured. The case strengthens the rights of insurers under Georgia law to control settlement decisions.