A California appellate court recently affirmed a lower court decision that had concluded that an insured’s failure to obtain consent from its excess insurer barred it from recovering insurance proceeds from that insurer.  In 2001, a lawsuit was filed by residents of a Missouri town seeking damages against the insured relating to alleged contamination from a lead and cadmium smelting operation.  Zurich Insurance Company was the primary liability insurer and had agreed to provide a defense of the action.  Fidelity & Casualty of New York (“F&C”) was an excess carrier and had received notice of the underlying litigation.  The matter was resolved during a mediation and the insured agreed to settle the residents' claims for $55 million.  However, F&C was not notified of the settlement until a month later. 

The insured sued both its primary and excess carriers seeking coverage for its $55 million settlement.  In response to the lawsuit, F&C pointed to a consent clause in its excess insurance policy that required the insured to seek consent from its insurer prior to settling any potential covered claim.  F&C argued that since its insured had not sought F&C’s consent prior to settling the lawsuit, it had no coverage obligation.  In response, the insured argued that it had notified F&C of the mediation session and that F&C could have participated in said session but elected not to do so.  The court rejected that argument, noting that not only had the insured  not sought authority from F&C but it also had not notified F&C of the time and place of  the mediation.  Instead, the court concluded that “the holder of a liability policy cannot present to a liability insurer a fait accompli in the form of a done-deal settlement of a case in contravention of an insurance policy’s consent clause.  Doing so forecloses the liability insurer from the ‘opportunity’ of disputing the amount of damages.”  Please click here to read the court’s opinion.