Ninth Circuit: Insurer Had No Coverage Obligation for Insured’s Settlement in Absence of Insurer’s Prior Written Consent

February 21, 2017 | Insurance Coverage

The U.S. Court of Appeals for the Ninth Circuit has ruled that an insurer had no obligation to cover its insured’s agreement to settle a lawsuit where the insurer had not given its prior written consent to the settlement as required by the policy.

The Case

Assured Guaranty Municipal Corporation sued OneWest Bank, FSB, for its alleged failure as a loan servicer to mitigate or avoid losses on mortgage loans for which Assured had guaranteed principal and interest payments.

OneWest and Assured subsequently agreed to settle; their agreement was memorialized in a settlement term sheet, which OneWest and Assured executed.

OneWest, however, had not sought or obtained the written consent of its professional liability insurer before it had executed the term sheet. After signing the term sheet, OneWest informed its insurer of its settlement negotiations in the underlying lawsuit and sought coverage under the policy.

The insurer denied coverage, OneWest sued, and the insurer moved for summary judgment.

The U.S. District Court for the Central District of California granted the insurer’s motion, and OneWest appealed to the Ninth Circuit.

The Ninth Circuit’s Decision

The Ninth Circuit affirmed.

In its decision, the circuit court explained that the policy prohibited OneWest from “admit[ing] or assum[ing] any liability,” or “enter[ing] into any settlement agreement” without the insurer’s prior written consent. The circuit court declared that this language was “unambiguous.”

It then found that the settlement term sheet provided all the relevant terms of a settlement agreement. Under applicable California law, the circuit court added, OneWest and Assured had intended to enter into a final and binding settlement agreement when they executed the term sheet.

Consequently, the Ninth Circuit ruled, the district court had correctly applied California law to determine that OneWest had breached the insurance policy by failing to request or obtain its insurer’s written consent before executing the term sheet with Assured. As such, the Ninth Circuit concluded, the insurer had no coverage obligation for OneWest’s settlement with Assured, given that no exception to the policy’s prior written consent provision applied.

The case is OneWest Bank, FSB v. Houston Cas. Co., No. 15-55579 (9th Cir. Jan. 19, 2017).

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  • Robert Tugander

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