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A Berkshire Hathaway Inc. unit was entitled to deny coverage in a case in which a settlement was paid without its prior consent, says a federal appeals court in upholding a lower court ruling.
San Diego-based Piveg Inc., which produces “high specification” ingredients for various industries, supplied defective astaxanthin oil to Vista, California-based J&D Laboratories Inc. that were used to make soft gels, according to Thursday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Piveg Inc. v. General Star Indemnity Co.
J&D demanded Piveg reimburse J&D for the purchase price it would have been paid had the soft gels not been rejected, according to the ruling. After some negotiations, the companies agreed Piveg would fully reimburse J&D. Piveg initially paid J&D $5,000 and continued to make payments for several months.
Piveg then tendered a claim to Stamford, Connecticut-based General Star, a Berkshire Hathaway Inc. unit, which denied coverage based on its insurance policy’s “no voluntary payment” provision, according to the ruling.
Piveg filed suit against General Star in U.S. District Court in Pasadena, California, charging breach of contract and related claims. The District Court granted General Star summary judgment dismissing the case, which a three-judge appeals court panel unanimously affirmed.
General Star’s policy excluded payment to resolve third-party claims without the insurer’s consent, said the ruling. Such boilerplate provisions typically secure the insurer’s prerogative to control “‘the defense or compromise of suits or claims’ against the unilateral commitments made by the insureds,” said the ruling, in quoting an earlier decision.
Piveg’s assumption of an obligation to pay J&D “deprived General Star of the ability to control any defense or settlement of the claim,” said the ruling, which concluded, “General Star owed Piveg no benefits under the policy.”
Berkshire Hathaway Inc. units have settled with California regulators over alleged “bait and switch” marketing tactics for workers compensation coverage.