Michael Best Partner Eric G. Barber was quoted in the Law360 article "Colo. Ruling May Force Policyholders Into Litigation" on April 26, 2016.
Law360, Los Angeles (April 26, 2016, 7:50 PM ET) -- The Colorado Supreme Court's Monday ruling that policyholders that settle presuit claims without an insurer's permission can't win coverage even if they show the carrier wasn't prejudiced will deter insureds from entering into unauthorized deals, potentially forcing them to litigate those claims, experts say.
In a 4-3 opinion, the Colorado high court reversed a lower court's decision putting Travelers Casualty Co. of America on the hook for a deal that its policyholder, concrete company Stresscon Corp., reached with a general contractor without the insurer's consent. The deal, which was struck out of court, resolved the contractor's claims against Stresscon stemming from project delays due to a fatal construction accident.
The majority of the Colorado Supreme Court refused to require Travelers to show that it had suffered prejudice because of Stresscon's unauthorized settlement in order to deny coverage based on the concrete company's violation of a "no-voluntary-payments" clause in its policy, which bars the policyholder from settling claims without the insurer on board.
According to the majority opinion, Colorado's notice-prejudice rule, which requires liability insurers to show that they suffered prejudice from late notice of a claim before they can deny coverage on that basis, does not extend to such no-voluntary-payments clauses.
Eric G. Barber of Michael Best & Friedrich LLP, who represents policyholders, called the decision "a pretty stark outcome" for policyholders that cannot obtain their insurers' written consent for settlements, noting that it may often be in an insured's best interest to try to resolve a claim before litigation is filed.
"If the insured is put in a situation where it needs to settle a claim within the policy limits, and the insurer is not an active or reasonable participant in the process, the insured should be free to do that and then seek indemnification later without worrying about whether the jurisdiction categorically excludes such payments from coverage," Barber said.
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