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(Article from Insurance Law Alert, October 2018)

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The Ninth Circuit ruled that a policyholder relinquished its right to coverage under a liability policy by settling claims without the insurer’s consent.  Amco Ins. Co. v. Morfe, 2018 WL 4520952 (9th Cir. Sept. 20, 2018).

The policyholder sought defense and indemnity from his insurer for tort claims asserted against him.  After tender of the defense but before the insurer rendered a coverage decision, the policyholder reached a settlement without the insurer’s consent.  The insurer sought a declaration that it had no duty to defend or indemnify the claims.  A California federal district court granted the insurer’s partial summary judgment motion, and the Ninth Circuit affirmed.

The Ninth Circuit ruled that the policyholder’s breach of the policy’s no voluntary payments provision resulted in a forfeiture of coverage.  The policyholder argued that an exception to the no voluntary payments provision was warranted because: (1) the insurer abandoned the policyholder by failing to respond to the tender of defense; (2) the policyholder executed the settlement under duress; and (3) the insurer breached its duty to provide an immediate defense.  The court rejected these assertions, finding that an abandonment exception applies only when an insurer denies coverage altogether and refuses to provide a defense.  The court also noted a lack of factual support for the duress argument.  Finally, the court held that the insurer’s failure to defend for twelve weeks following the policyholder’s tender did not constitute a breach of the duty to provide an immediate defense.