On July 21, 2015, the Pennsylvania Supreme Court issued its much-anticipated decision in Babcock & Wilcox Company, et al. v. American Nuclear Insurers, et al., No. 2 WAP 2014 (Pa. July 21, 2015). The court resolved an issue of first impression that is critical for Pennsylvania policyholders: When an insurance carrier is defending its insured under a reservation of rights, can the insured enter into a reasonable settlement without the insurer's consent and still preserve coverage for the settlement amount? Reed Smith filed an amicus brief in the case urging the court to adopt a "reasonable settlement" standard that would allow insureds to enter into a reasonable settlement without forfeiting coverage. The court adopted that standard.
Babcock's holding balances the rights and interests of the parties in a way that is fair and favorable to Pennsylvania policyholders. Under Babcock, policyholders now can protect their interests in a settlement context where those interests may diverge from their insurers' interests. When an insurer is defending under a reservation of rights, coverage is uncertain. The decision permits policyholders to enter into a reasonable settlement over the insurer's objection, rather than risk a substantial and adverse verdict at trial, without forfeiting coverage. At the same time, it allows insurers to contest coverage for a settlement that is unreasonable or one that is not covered under the terms of the policy. The court's "reasonable settlement" standard is a strong and fair statement of Pennsylvania law that protects and preserves policyholders' rights and interests at the critical settlement stage of underlying litigation.
Reed Smith's Insurance Recovery Group has unmatched experience in advising and assisting policyholder clients in all aspects of insurance law. If you are facing a challenge by your insurance carriers to coverage, please contact the authors of this Alert; the Reed Smith Insurance Recovery Group's Global Practice Group Leader, Douglas E. Cameron; or any Reed Smith coverage attorney with whom you routinely work, for assistance or with questions.
For the second year in a row, U.S. News-Best Lawyers "Best Law Firms" named Reed Smith its "National Law Firm of the Year" in Insurance Law (2014-2015). In addition, the group is named among the best policyholder coverage practices by Chambers USA, Chambers UK, Legal 500 US and Legal 500 UK. American Lawyer Media's Legal Intelligencer named Reed Smith's Insurance Recovery Group one of Pennsylvania's "Litigation Departments of the Year" for 2014 – the only policyholder-focused firm recognized in the Pennsylvania-based publication – and The National Law Journal named the Chicago Insurance Recovery team the 2014 and 2015 "Chicago Litigation Department of the Year: Insurance."
This article is presented for informational purposes only and is not intended to constitute legal advice.
