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Ironshore charges CNA's intransigence in settlement cost it millions

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A federal court is permitting the continuation of bad-faith litigation filed by an Ironshore Inc. unit against a CNA Financial Corp. unit over its alleged refusal to reach an early settlement in a medical malpractice case, which led to a much higher jury award.

In June 2012, a medical malpractice action was filed against Rhode Island Hospital in Providence by Carl and Elizabeth Beauchamp after Mr. Beauchamp suffered “a severe and permanent brain injury” at the hospital, according to the May 19 decision by the U.S. District Court in Providence, Rhode Island, in Columbia Casualty Co. vs. Ironshore Specialty Insurance Co. The ruling was publicized Friday.

At the time, Rhode Island Hospital, as a member of the Providence-based Lifespan network of nonprofit hospitals, was the named insured under three insurance policies totaling $32 million in coverage.

The first $6 million was self-insured by Lifespan, while Columbia, a unit of Chicago-based CNA, provided the first excess layer of up to $15 million and Ironshore Specialty Insurance, a unit of Hamilton, Bermuda-based Ironshore Inc., provided a second excess layer of up to $11 million. The Beauchamps sought the full policy limits of $32 million, according to the ruling.

Although the hospital's defense counsel had advised the case could be settled for about $15 million, Columbia initially refused to authorize more than $500,000 of its $15 million limit, then later refused to offer more than $1.25 million, according to the ruling.

Ironshore has said it repeatedly demanded Columbia “satisfy its duty of good faith” by settling the case within its policy limits, but Columbia refused, according to the ruling.

A jury eventually awarded the Beauchamps $25.59 million plus prejudgment interest, which left Columbia liable for $15 million and Ironshore for $11 million of the total $31.5 million that was due to the Beauchamps, according to the ruling.

Ironshore demanded reimbursement from Columbia of the $11 million it said it had paid toward the judgment. Columbia then sought a declaration it had no obligation to pay Ironshore's share, and Ironshore responded with counterclaims including those of bad faith against Columbia Casualty.

Judge Mary M. Lisi refused to grant Columbia's request for a judgment. “The facts asserted by Ironshore in its counterclaims are sufficient to withstand Columbia's … motion,” she said.

Last year, the Georgia Supreme Court ruled that an insurer was not liable for refusing to indemnify a policyholder that settled a case without the insurer's permission, which observers said is out of step with the vast majority of comparable cases around the country.