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Continental Casualty Co. v. ACE American Insurance Co

March 31, 2009

CONTINENTAL CASUALTY COMPANY, PLAINTIFF,
v.
ACE AMERICAN INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION & ORDER

Plaintiff Continental Casualty Company ("Continental") seeks a declaratory judgment against Defendant ACE American Insurance Company ("ACE") that Continental is not liable on an insurance policy (the "Policy") between the parties. Continental agreed to insure ACE for losses related to ACE's claims handling on behalf of its insured clients. In 2004, one of ACE's insured clients, Pilgrim's Pride Corporation ("Pilgrim's Pride"), sued ACE in Texas state court alleging bad faith claims handling. ACE settled the lawsuit and sought reimbursement from Continental pursuant to the Policy, which Continental refused to provide.

Continental moves for summary judgment, arguing that it is not liable to ACE for its settlement with Pilgrim's Pride because: (1) ACE did not adhere to the Policy's "consent-to-settlement" provision before settling the Pilgrim's Pride lawsuit; and (2) the Policy requires allocation of the settlement amount between insured and uninsured loss, and once uninsured losses are deducted, the total insured loss for which Continental would be liable is less than the Policy's $10 million deductible.

ACE cross-moves for summary judgment, claiming that it adhered to the consent-to-settlement provision and that the entire settlement amount comprises insured loss, meaning that the Court need not engage in an allocation of insured and uninsured loss to determine Continental's liability.

For the reasons that follow, Continental's motion for summary judgment is GRANTED and ACE's cross-motion for summary judgment is DENIED.

BACKGROUND

I. Facts*fn1

Continental issued the Policy to ACE in July 1999. Under the terms of the Policy, Continental agreed to provide coverage to ACE for losses from lawsuits alleging bad faith in its claims handling.

Four provisions of the Policy bear on the present motions. First, claims were subject to a $10 million deductible. (See Compl. Ex. A ("Policy") at 2.) Second, the Policy contained a consent-to-settlement provision, under which ACE agreed that it would not: admit liability, consent to any judgment, agree to any settlement or make any settlement offer without [Continental's] prior written consent, such consent not to be unreasonably withheld. [Continental] shall not be liable for any Loss incurred by [ACE] admitting liability, consenting to any judgment, agreeing to any settlement or making any settlement offer without [Continental's] prior written consent. (Id. Ex. A at 8.) Third, the Policy defined "loss" as: damages, settlements, judgments (including any award of pre-judgment and post-judgment interest) and Defense Costs..Loss shall not include (i) criminal or civil fines or penalties imposed by law..Loss shall include punitive damages, exemplary damages, and the amount of any multiplied damage award which is in excess of the damage award so multiplied, if insurable to the fullest extent permitted by any applicable law. (Id. Ex. A at 33.) Finally, the Policy contained an allocation provision stipulating that if a claim "includes both covered and uncovered matters..there may be an allocation between insured and uninsured loss. [ACE and Continental] shall exert their best efforts to agree upon a fair and proper allocation between insured and uninsured loss.." (Id. Ex. A at 9.)

In 2004, Pilgrim's Pride sued ACE in Texas state court, alleging that ACE unjustifiably refused to pay a significant portion of coverage owed to Pilgrim's Pride as the result of a listeria outbreak at one of Pilgrim's Pride's food processing plants. ACE informed Continental of the lawsuit by letter shortly after it was filed.

ACE and Pilgrim's Pride attended mediation on March 21, 2005, but were unable to reach an agreement. The mediator then solicited confidential settlement offers from both parties and, on March 22, sent the parties a proposal under which ACE would pay Pilgrim's Pride $11.68 million in exchange for a release of Pilgrim's Pride's remaining claims. The parties reviewed the proposal on March 23 and ACE made certain changes, which it returned to the mediator. During a conference call on March 24, ACE informed Continental of the mediator's proposed settlement agreement. Continental requested additional information, which ACE provided in letters dated March 29 and April 15. Continental sent a letter to ACE denying coverage for the settlement on June 16.

II. Cross-Motions for Summary Judgment

Both Continental and ACE move for summary judgment. The issues presented by these motions are: (1) whether ACE satisfied the Policy's consent-to-settle provision; and (2) whether, pursuant to the Policy, ACE's settlement with Pilgrim's Pride must be allocated between insured and uninsured loss and, if so, whether there are any insured losses beyond the $10 million deductible for which Continental would be liable.

With respect to the consent-to-settle provision, Continental claims that, as of March 23, 2005, the mediator's proposal constituted a binding agreement under Texas law because it memorialized ACE's and Pilgrim's Pride's agreements on the essential terms of settlement, i.e. the amount of consideration to be paid and the release of all outstanding claims. (Pl. Mem. in Support of Summ. Judg. ("Pl. Mem.") at 18-19.) Continental argues that ACE entered into this settlement without Continental's ...


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