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Excess insurer not liable to pay on wrongful death settlement

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A settlement agreement’s language did not trigger an excess insurance policy, says a federal appeals court, in upholding denial of $5 million of coverage in a wrongful death settlement.

Had it been structured differently, however, an Allianz S.E. unit would have been obligated to contribute the $5 million to the $6 million settlement of litigation in a maintenance worker’s death, said the 1st U.S. Circuit Court of Appeals in Boston in Wednesday’s ruling in Lucia Salvati et al. v. American Insurance Co.

A concurring opinion in the case says the ruling could lead to litigants’ reluctance to settle lawsuits.
Gerardo Salvati died in June 2010 when a sizeable chunk of brickwork fell from a Lovejoy Wharf building in Boston, crashing into him and causing him to fall to his death, according to the ruling.

Mr. Salvati’s wife, Lucia, filed a wrongful death suit against defendants including Mr. Salvati’s supervisor and individuals and limited liability companies who owned the building where the accident occurred.

Underlying defendants had two insurance policies: a primary policy through Western World Insurance Co., a unit of Parsippany, New Jersey-based Western World Insurance Group, which provided $1 million in coverage; and an excess policy through Chicago-based American Insurance, an Allianz unit, that provided $9 million in coverage, according to the ruling. American Insurance refused to defend or indemnify the defendants, the ruling said.

Ms. Salvati and the defendants reached a $6 million settlement in December 2014. In exchange for tendering the full $1 million of the Western World primary policy. The agreement released both it and the underlying defendants from any further liability, and assigned all rights against American Insurance to Ms. Salvati. The agreement, though, was not contingent on the excess coverage’s ultimate availability.

Ms. Salvati filed suit against American Insurance, charging breach of contract, among other charges, and a U.S. District Court in Boston dismissed the case on several grounds.

A three-judge appellate panel upheld the dismissal.

“Although the settlement agreement purported to create a ‘settlement … in the amount of $6 million,’ the only payment it required was a check from Western World for $1 million,” said the ruling. “This reading reflects the plain language of the settlement agreement.”

It adds, however, that “this outcome was not inevitable. A settlement structured differently could have met the requirements of the excess policy by creating a ‘legal obligate(ion)’ on the part of the underlying defendants. 

“In fact, it was possible to structure such a settlement while also achieving the parties’ apparent goal of shielding the underlying defendants from direct exposure to liability,” said the ruling.

“We recognize that (American Insurance’s) denial of coverage has left Salvati in a difficult positon, and that our adherence to the terms of the excess policy may seem unforgiving.

“We cannot, however, rewrite the settlement agreement so that it triggers the excess policy. Nor can we rewrite the language of the excess policy to cover the settlement agreement,” said the majority opinion, in affirming the case’s dismissal.

A concurring opinion states: “While the opinion’s parsing of the relevant contractual term is admirable, the result lays bare several troubling practical consequences that may ultimately decrease the incentives for plaintiffs, defendants and insurers to settle, which in turn may lead to more trials, higher costs, and less effective excess insurance coverage.”