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Insurer can’t recover voluntary settlement in death suit: Court

Court ruling

An Argo Group International Holdings Ltd. unit was acting voluntarily when it agreed to pay a settlement in a worker’s death, and was therefore not entitled to indemnification from a Swiss Re Ltd. unit under Mississippi law, says the Mississippi Supreme Court, in a ruling issued Thursday.

In July 2014, an explosion at a facility owned by Houston-based Omega Protein Corp. killed an employee of Moss Point, Mississippi-based Accu-Fab & Construction Inc., according to Thursday’s unanimous ruling by the state’s high court in Jackson in Colony Insurance Co. v. First Specialty Insurance Corp.

Omega was the named policyholder of two third-party insurance policies. Philadelphia-based Ace American Insurance Co. provided a $1 million primary commercial general liability policy to Omega, subject to a $250,000 deductible, while Swiss Re unit First Specialty Insurance Corp., based in Overland Park, Kansas, provided a $10 million excess liability policy.

In addition, Argo Group unit Colony, based in Richmond, Virginia, provided a primary liability policy with a $1 million limit to Accu-Fab. The policy included an additional insured provision.

In 2015, Omega demanded that Accu-Fab and Colony defend and indemnify it from any claims arising from the explosion. Colony filed suit in state court seeking a declaratory judgment on its coverage, but subsequently agreed to fund Omega’s defense, subject to a reservation of rights, although it said it did not believe its policy provided coverage for the incident.

At a settlement conference, Colony agreed to pay its $1 million policy limit in exchange for Omega’s release from the lawsuit. It then demanded First Specialty reimburse it for the full amount it had contributed to the settlement. First Specialty refused.

Litigation between the insurers ensued, with the U.S. District Court in Gulfport, Mississippi ruling in First Specialty’s favor. The case was appealed to the 5th U.S. Circuit Court of Appeals in New Orleans, which asked the Mississippi Supreme Court to decide whether under Mississippi’s voluntary payment doctrine, which provides a voluntary payment cannot be recovered, Colony was precluded from being indemnified.

The issue was whether Colony’s payment was voluntary if it took the position its insured was not covered under its policy, but still paid a settlement demand to avoid potential greater liability, according to the ruling.

“Colony argues that, because it had an interest to protect when it made the settlement payment, it paid under compulsion no matter the extent or quantity of its interest,” said the ruling.

First Specialty contended that “’compulsion’ requires more than a potential lawsuit against the payor” and requires “urgent and immediate circumstances,” the ruling said.

The court agreed with First Specialty. “We decline to adopt Colony’s argument that a payment is not voluntary if the payor is acting under compulsion to protect its own interests,” said the ruling.

 Colony “was not under an immediate and urgent necessity to pay the settlement demand” it said. It “had the option to pursue its declaratory-judgment action” before it paid the settlement, said the ruling, in response to the 5th Circuit’s query.

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