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(Article from Insurance Law Alert, April 2015)

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The Georgia Supreme Court ruled that a policyholder that violates a "consent to settle" clause is precluded from asserting bad faith refusal to settle against its insurer. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co., 2015 WL 1773620 (Ga. Apr. 20, 2015).

Policyholder Piedmont was sued in a federal securities class action. Piedmont’s defense costs in that case exceeded the limits of a primary policy and exhausted $4 million of a $10 million excess policy issued by XL Specialty Insurance Company. Piedmont sought XL’s consent to settle the claims for the remaining $6 million in policy proceeds. XL agreed to contribute $1 million towards settlement. Without further notice to XL, Piedmont reached a court-approved settlement of the securities suit for $4.9 million. Thereafter, Piedmont sued XL for breach of contract and bad faith failure to settle. A Georgia federal district court dismissed Piedmont’s complaint, citing to Piedmont’s violation of the policy’s consent to settle provision. The Georgia Supreme Court affirmed, stating that "Piedmont is precluded from pursuing this action against XL because XL did not consent to the settlement and Piedmont failed to fulfill the contractually agreed upon condition precedent."