Consent-to-settle clauses still require insurer’s approval before settling

A recent decision by the Supreme Court of Georgia is an important reminder to businesses and individuals whose policy contains a “consent-to-settle” clause – make sure you have the insurer’s approval before proceeding with a settlement; otherwise the insurer can deny coverage and refuse to pay the settlement amount on your behalf.

The case is Piedmont Office Realty Trust, Inc. v. XL Specialty Insurance Company, 2015 WL 1773620 (2015), in which Piedmont Office Realty Trust filed suit against its insurer alleging breach of an excess insurance policy and bad faith for refusing to pay the full amount of a settlement Piedmont had agreed to in a separate matter. Piedmont had an excess policy that provided an additional $10 million in coverage beyond its primary policy’s limits.

The excess policy was issued to Piedmont by XL Specialty Insurance Company, and included a “consent to settle” provision that required Piedmont to obtain XL’s consent for the settlement of any securities claim that Piedmont became “legally obligated” to pay. According to the clause, XL’s consent could “not be unreasonably withheld.” The policy also contained a “no action” provision, which precluded Piedmont from suing XL unless it was in “full compliance with all of the terms” of the policy.

Piedmont was named as a defendant in a federal securities class action suit in which the plaintiffs sought damages exceeding $150 million. Ultimately, the plaintiffs and Piedmont agreed to mediate the claim, but by that time, Piedmont had already exhausted its primary policy’s coverage limits and another $4 million of its excess policy from XL. Before entering mediation, Piedmont sought XL’s consent to settle the claim for the remaining $6 million under the excess policy. XL agreed to contribute $1 million towards the settlement, but no more.

Without further notice to XL and without obtaining XL’s consent, during the mediation Piedmont agreed to settle the underlying lawsuit for $4.9 million, or $3.9 million more than what XL had authorized. The district court approved the settlement and Piedmont demanded that XL provide coverage for the full settlement amount under the excess policy. XL refused to provide coverage because the settlement amount was more than the $1 million it had approved.

Piedmont sued XL for breach of contract and bad-faith failure to settle. The district court dismissed Piedmont’s claim, and Piedmont appealed to the 11th Circuit Court of Appeals, which in turn certified questions to the Georgia Supreme Court.

Writing for a unanimous court (with one justice not participating), Chief Justice Thompson upheld the dismissal of Piedmont’s claim. Noting that the policy’s provisions were “unambiguous,” the court found that Piedmont’s failure to obtain XL’s consent before agreeing to the settlement precluded it from bringing a bad faith action against the insurer. Thus, as a result, Piedmont had failed to fulfill one of the agree-upon conditions of the policy.

The court further noted that, despite having been approved by the district court, the consent to settle clause precluded Piedmont from entering into the settlement without XL’s consent in the first place, and thus the court’s approval could not be used to force XL to pay an amount that only Piedmont had agreed to. Finally, the court rejected Piedmont’s estoppel argument, noting that XL had not “wholly abandon[ed]” Piedmont and instead had provided Piedmont with coverage and a defense throughout the underlying litigation.

Although the court recognized that other jurisdictions do allow a policyholder to bring a bad faith claim against an insurer when the policyholder has settled a lawsuit in violation of the policy’s “no action clause,” the court expressly reminded insureds that this was “not the law in Georgia.”

If you would like assistance in addressing your company’s commercial insurance questions, or in reviewing your company’s current insurance coverages, please feel free to contact Anna Z. Skelton, Esq. an associate of Shapiro, Sher, Guinot & Sandler, P.A.’s Insurance Practice Group, at 410-385-4229, or by email at