Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe

Vol. 7, Iss. 5
June 6, 2018


Insurer Has Right To Settle. Insured Refuses To Sign The Settlement Agreement:
Now What?

It is widely acknowledged that an insurer does not need its insured’s consent to settle a claim under a general liability policy. Professional liability policies can be a different story. But for CGL policies the insurer calls the shots. The insured may not be happy about the settlement, and object to it, but its hands are tied. [I’m sure that people can tell me exceptions, but I’m speaking of the general principle.]

But this can be easier said than done. What happens when the insurer wants to settle a claim and the insured objects. The insurer responds that it can, and will, settle over the insured’s objection. But then what happens when the insured, given its displeasure over the situation, refuses to sign the settlement agreement? Hasn’t the insured just used the back door to obtain a right for which the front door was bolted shut?

This was the situation in McCain v. Promise House, Inc., No. 05-16-714 (Ct. App. Tex. May 2, 2018). In December 2014, Glen McCain sued Promise House, a residential social services care facility, alleging various claims after his eleven-year-old son was physically and sexually abused by an “older male individual” while a resident of the facility.

Promise House had a commercial general liability insurance policy with Arch Insurance that contained a “sexual or physical abuse liability endorsement.” Arch retained counsel to defend Promise House. The following month, counsel for Promise House sent a letter to McCain’s counsel, confirm a $400,000 settlement and stating that the settlement will be memorialized in a final settlement agreement. Counsel for Promise House signed the letter as did McCain’s counsel. This is called a Rule 11 Agreement.

Promise House objected to the settlement and stated that it refused to sign the settlement agreement. McCain’s counsel filed the Rule 11 agreement with the court and asserted breach of contract claims against Promise House and Arch. The trial court found for Promise House.

The Texas appeals court reversed. Putting aside how it got there, the appeals court discussed whether the Rule 11 Agreement was enforceable and held that it was.

Turning to the consent issue, the court stated the widely acknowledged rule that “[w]hen the language of an insurance contract unambiguously vests the insurer with an absolute right to settle third-party claims in its own discretion and without the insured’s consent, we will not engraft any consent requirement onto the contract.” Further, lest there be any doubt about this, the court went on: “[T]he policy did not provide Promise House the right to object to any settlement. By purchasing a policy that did not provide Promise House the right to veto settlement of third-party claims, Promise House gave up the right to complain that any settlement Arch entered somehow damaged Promise House.”

But what about the practical issue -- Promise House refused to sign a formal settlement agreement. This was not necessary, the court concluded, as the Rule 11 Agreement was enough to constitute a final settlement. But what about the fact that Promise House did not sign the Rule 11 Agreement. Also not necessary, the court concluded: “An insurer which, under the terms of its policy, assumes control of a claim, investigates the claim and hires an attorney to defend the insured, becomes the agent of the insured and the attorney becomes the sub-agent of the insured.”

Website by Balderrama Design Copyright Randy Maniloff All Rights Reserved