In Columbia Casualty Co. v. Gordon Trucking Inc. et al., No. 09-CV-05441, 2010 WL 5141865 (N.D. Cal. Dec. 13, 2010), a truck owned by the insured was involved in a severe car accident. The insured had a $5 million primary policy, a $5 million first layer excess policy, a $20 million second layer excess policy, and a $20 million third layer excess policy. After its initial claim review, the first layer excess carrier told the insured that it did not believe its layer would be impacted by the underlying personal injury suit arising from the car accident. Please click here to read the decision.

A year later, during jury deliberations in the underlying case, the insured and the injured plaintiff reached a “high/low” agreement that limited the insured’s liability to $18 million notwithstanding the jury verdict. The jury returned a verdict of $31 million against the insured, which was subsequently reduced to $18 million pursuant to the foregoing agreement. The primary carrier paid its limits, but the first layer excess carrier refused to pay anything on grounds that the insured breached the policy’s “no voluntary payments” (“NVP”) provision by entering into the $18 million agreement without the insurer’s consent. Indeed, the first layer excess carrier was unaware that a trial had even occurred and took no part in negotiating the “high/low” agreement. The second layer excess carrier – which actively participated in the trial and settlement strategy – paid the entire $13 million balance owed to the plaintiff. It then filed a claim against the first layer excess carrier to compel payment.

Applying Washington law, the court granted partial summary judgment to the second layer excess carrier, holding that the first layer excess carrier could not rely on the NVP provision to avoid payment unless, at trial, it could demonstrate actual prejudice. The court also noted that Washington law, which – as set forth above – requires insurers to demonstrate “actual prejudice” before enforcing NVP provisions, differs materially from California law, which generally allows insurers to enforce NVP provisions without demonstrating actual prejudice