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A federal court has ordered a Chubb Ltd. unit, which was the primary insurer for a landscaping company involved in a fatal accident, to pay almost $8 million to a Zurich Insurance Group Ltd. unit, which was an excess insurer on the policy, for failing to accept a $2 million pretrial settlement offer, in a case that resulted in a jury verdict of nearly $40 million.
Zurich eventually settled the case for $9.8 million, according to the ruling by the U.S. District Court in Houston in American Guarantee and Liability Insurance Co. v. Ace American Insurance Co. The court issued its ruling in the case Sept. 12 and its final judgment Tuesday.
According to the ruling, Rockville, Maryland-based Brickman Group Ltd.’s insurance coverage included a $500,000 deductible, a $2 million primary auto policy issued by Chubb Ltd. unit Ace, and a $10 million excess policy issued by Zurich unit American Guarantee.
In March 2014, Mark Braswell sustained fatal head injuries when he hit the back of a Brickman landscaping truck while riding his bicycle in Cypress, Texas, according to the ruling.
Mr. Braswell’s family sued Brickman. Ace refused three pretrial settlement offers, the third of which was for $2 million. A jury trial resulted in a verdict of almost $40 million, with Brickman proportioned 68% responsibility for the accident. The court entered judgment for $27.7 million against Brickman.
Zurich ultimately took control of post-verdict settlement negotiations and settled for $9.8 million, of which it paid $7.8 million. Due to the settlement of breach of contact claims, Zurich’s loss because of Chubb’s decision to reject the three settlement offers amounted to $7.3 million in damages.
Zurich filed suit against Chubb. In ruling in Zurich’s favor, the court said Texas law requires an insurer to accept reasonable settlement demand within policy limits.
Chubb did not do so, said the ruling. “Ace acted unreasonably in preparing its valuation of the case,” it said. Its valuation was not in compliance with Texas law principles because it focused on Ace’s policy limits, rather than Brickman’s total potential exposure, it said.
It breached its duty when it rejected the second and third settlement demands, it said. When they were made, “Ace was aware of all the adverse rulings and evidence rulings presented during the trial, including most importantly, the extensive evidence,” which included information about Mr. Braswell’s daughter’s emotional problems after her father’s death.
“A reasonable insurer would have reevaluated the settlement value of the case because, after these rulings, it would have been aware there was little chance that a jury would determine that Mark Braswell was more than 50% liable,” said the decision, in ruling in Zurich’s favor.
The final judgment issued Tuesday was for $7.3 million in damages, $641,000 in prejudgment interest and $21,500 in costs.
Attorneys for Zurich and Chubb had no comment.
Attorneys fees and prejudgment interest incurred in defending litigation that arose out of a software company’s acquisition are covered under the firm’s directors and officers liability coverage, says a Delaware court in denying Chubb Ltd. units summary judgment in the case.