iStock_000007180596_MediumConsent to settle clauses are fairly typical in insurance policies. Basically, a typical consent to settle clause provides that “no claims expenses shall be incurred or settlements made, contractual obligations assumed or liability admitted with respect to any claim without the insurer’s written consent, which shall not be unreasonably withheld.” So what happens if the insured goes ahead and incurs claims expenses and enters into a settlement without obtaining the insurer’s consent? Given the long-standing trends in the courts to find coverage and preclude insurers from avoiding coverage on so-called technicalities, the natural reaction to this question is that the court will find a way to make the insurer pay. Not in Georgia.

The Georgia Supreme Court, on a series of questions certified to it from the United States Court of Appeals for the Eleventh Circuit, has held that an unambiguous consent to settle clause means what is says and that the federal district court did not err in dismissing the policyholder’s complaint. Piedmont Office Realty Trust, inc. v. XL Specialty Ins. Co., No. S15Q0418, 2015 GA. LEXIS 247 (Ga. Apr. 20, 2015). Here, the policyholder had a primary and an excess policy. The excess policy had the consent to settle clause quoted above, which also included a provision that stated “the insurer shall not be liable for any claims expenses, settlement, assumed obligation or admission to which it has not consented.” The excess policy also had a clause that precluded the policyholder from taking any action against the insurer unless, as a condition precedent, “there shall have been full compliance with all of the terms of this policy, and the amount of the insured’s obligation to pay shall have been finally determined either by judgment against the insureds after actual trial, or by written agreement of the insureds, the claimant and the insurer.”

The court found all of these provisions unambiguous. The policyholder exhausted its primary limit and ate into its excess policy defending itself. It asked the excess carrier to consent to settle at policy limits, but the excess carrier agreed to contribute only an additional $1 million. According to the court, without further notice and without obtaining the carrier’s consent, the policyholder settled and sought to compel the excess carrier to cover the full settlement amount.

The policyholder brought a breach of contract and bad faith case, which was dismissed by the federal district court and appealed to the 11th Circuit, where the certified questions were sent to the Georgia Supreme Court. In essentially affirming the dismissal in favor of the excess carrier, the Georgia Supreme Court found that the plain language of the excess policy did not allow the policyholder to settle without the excess insurer’s written consent. It also found that the no-action clause precluded the policyholder from suing the excess carrier.

While agreeing that the carrier could not unreasonably withhold its consent to settle, the court found that the excess carrier did not refuse to cover the claim and, in fact provided coverage and a defense throughout the underlying proceeding. What the court made clear, however, was that the policyholder could not settle without consent, in breach of the excess policy, and then after breaching the contract, claim that the underlying court’s approval of the settlement imposed upon the excess carrier a distinct legal obligation to pay the settlement.

In other words, when the policy says the carrier has to consent to settle that is exactly what the policy means and it cannot be circumvented by the policyholder settling anyway and getting the underlying court to approve the settlement.