Bank settlement not covered by professional liability insurer
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A Tokio Marine HCC unit is not obligated to provide coverage for a settlement under the professional liability policy it issued to a bank because, contrary to a policy provision, the bank had failed to get the insurer’s prior approval for the deal, says an appellate court, in upholding a lower court ruling.
Pasadena, California-based IMB HoldCo L.L.C. and Tokio unit Houston-based Houston Casualty Co. negotiated a professional lability policy that provided a $10 million liability limit and included a $2.5 million self-insured retention provision, according to last week’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in OneWest Bank FSB v. Houston Casualty Co.
Section 8 of the policy provided that settlement agreements must be approved by Houston Casualty, according to the ruling.
In August, 2012, New York-based Assured Guaranty Municipal Corp. sued Pasadena-based IMB unit OneWest for its alleged failure as a loan servicer to mitigate or avoid losses on mortgage loans for which Assured had guaranteed the principal and interest payments, according to the ruling.
After extensive settlement negotiations, OneWest and Assured agreed to a settlement, said the ruling, which did not reveal its terms. However, OneWest did not seek or obtain Houston’s prior written consent to the settlement, and Houston denied coverage based on OneWest’s alleged breach of Section 8, according to the ruling. OneWest then sued Houston charging breach of contract and breach of the implied covenant of good faith and fair dealing.
A unanimous three-judge appellate court upheld a summary judgment ruling by the U.S. District Court in Pasadena that dismissed the case.
“Houston had no coverage obligation for OneWest’s settlement with Assured unless an exception to Section 8’s prior written consent provision applies. The district court properly concluded that no such exception applies,” said the panel, in upholding the lower court’s ruling.
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