PASADENA, Jan. 19 – The Ninth Circuit Court of Appeals has ruled that a professional liability insurer had no obligation to fund a settlement agreed to by the insured, which did not obtain the insurer’s consent to the deal, as required in the policy.
In One West Bank, FSB v. Houston Casualty Co., Houston Casualty wrote a professional liability policy requiring the insured to seek prior written consent before resolving any covered claim by way of settlement.
The insured, One West, was sued for failure to properly administer loans it was servicing. One West reached an agreement to settle with the plaintiff in the underlying case, but it neither sought or obtained Houston Casualty’s written consent to the terms prior to executing the term sheet. Applying California law, the 9th Circuit Court ruled that One West breached prior written consent provision of the policy, thereby relieving Houston Casualty of its obligation to fund or cover the settlement.
In the ruling, while the Court recognized that an insured could be relieved of the consent obligation for economic necessity, insurer breach, or other extraordinary circumstances, it affirmed the district court’s finding that no such circumstances existed.
Also, while One West alleged that Houston Casualty breached the insuring agreement and its common law obligation of good faith, the Court affirmed dismissal of those claims, ruling that there was no evidence that Houston Casualty withheld any benefits due under the policy, in light of the consent provision.
One West Bank, FSB v. Houston Casualty Co., 676 Fed.Appx. 664, 2017 WL 218900 (9th Cir., filed January 19, 2017).
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