So You Think You Know the Law

June 2018

True or False?
The “no action” and “no voluntary payment” clauses create absolute rights for excess insurers to veto settlements.

(FALSE) – Under California law as held by the Ninth Circuit, “no action” and “no voluntary payment” clauses do not give an excess insurer absolute rights to veto settlements and if an excess insurer does not agree to either pay a reasonable settlement invading the excess layer, or take over the defense, the insured may move to finalize the settlement.

True or False?
An excess insurer has no duty to indemnify under a Settlement Agreement it does not agree to because only a judgment can “legally obligate” a party to pay “damages.”

(FALSE) – According to the First Circuit, a settlement agreement that imposes upon the insured a legal obligation to pay an amount in excess of the primary policy may meet the terms of the indemnification provision and “legally obligate” a party to pay “damages.”

True or False?
When a primary insurer and the insured propose a settlement that includes payment by the excess insurer, the excess insurer must agree and pay the settlement.

(FALSE) – Under California law as held by the Ninth Circuit, the excess insurer has three choices: (1) approve the proposed settlement, (2) reject it and take over the defense, or (3) reject it, refuse to take over the defense, and face a lawsuit by the insured seeking contribution toward the settlement

True or False?
A primary insurer must exhaust the full limits of its coverage before an excess insurer can be required to contribute to a compromise settlement or judgment.

(TRUE) Excess policies generally provide that an excess insurer will only pay loss in excess of the underlying insurance coverage.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.