Opinion ID: 531234
Heading Depth: 3
Heading Rank: 1

Heading: Policy Provisions

Text: 12 On appeal, Plaintiffs argue that Underwriters are bound by the agreed judgment because the insurance certificates unambiguously cover the liability sued for in the state court action that was resolved by the agreed judgment, and the proceeds of the policy are thus subject to garnishment to satisfy the judgment. Under Mississippi law, insurance policy proceeds are properly subject to garnishment. Briggs v. Benjamin, 467 So.2d 932, 934 (Miss.1985). Therefore, it would appear at first glance that any proceeds due under the two certificates could be subject to garnishment by Plaintiffs to satisfy the agreed judgment. Indeed, the kinds of damages claimed by Plaintiffs and awarded to them in the agreed judgment fall under the unambiguous language of Section C of the insurance certificates, covering damages caused by seepage, pollution, and contamination. Other parts of Section C of the certificates, however, read in conjunction with the agreed judgment, preclude Underwriters' liability for these damages. 13 First, in section 1(a), quoted above, Underwriters agreed to pay on behalf of Tomlinson all sums that Tomlinson is liable to pay; in other words, Tomlinson's personal liability is a condition precedent to coverage. The terms of the agreed judgment itself provide, however, that Tomlinson and the other defendants are not legally obligated to pay it: 14 [T]his Agreed Judgment shall not constitute a lien or encumbrance against the Estate in Bankruptcy of Tomlinson Interests, Inc., [or] Gary J. Knostman (individually or as Trustee of said Estate) ... for their personal assets or properties (real or personal) but shall constitute only a lien and encumbrance against any insurance coverages available to said Defendants which are applicable to the claims made in these causes, for which execution, garnishment, and other legal process may issue. 15 Because Tomlinson is not personally liable under the agreed judgment, Underwriters cannot be liable to Plaintiffs under Section C of the insurance certificates. See Putman v. Insurance Co. of N. Am., 673 F.Supp. 171, 177 (N.D.Miss.1987), aff'd, 845 F.2d 1020 (5th Cir.1988) (under Mississippi law, a stipulation that removed the personal liability of the insured for any judgment in excess of $100,000 also removed the obligation of the insurer, where the insurance policy provided coverage only if the insured was liable). 16 Second, Underwriters may also rely on the Cost and Appeals Clause of Section C of certificates 35120 and 34595: 17 No settlement of losses by agreement shall be effected by the Assured without the consent of Underwriters where the Assured's final gross claim will exceed the retention of the Assured. 18 It is undisputed that, contrary to this provision's requirement, Underwriters did not consent to the agreed judgment. Neither did Underwriters participate in settlement negotiations. Plaintiffs' list of the persons who negotiated the agreed judgment confirms Underwriters' absence. In fact, neither Tomlinson nor Hartford ever notified Underwriters that settlement negotiations were being held, nor did Tomlinson ever seek Underwriters' consent before the settlement was executed and the agreed judgment was entered. Rather, Plaintiffs pursued the limits of coverage under Hartford's policies. 19 Generally, when an insured makes a settlement without the insurer's previous consent as required by the policy, the insured is not entitled to reimbursement from the insurer because the insured has breached a condition of coverage. See 7C J. Appleman, Insurance Law and Practice 4714 at 521 (1979). Therefore, by the very terms of the insurance certificates, Tomlinson's failure to obtain the participation and consent of Underwriters in the negotiation and execution of the agreed judgment would appear to release Underwriters from any liability under the agreed judgment. 20 Underwriters thus may avoid liability under the agreed judgment by relying on the insurance policy requirements of (1) the insured's personal liability and (2) Underwriters' consent to settlement. The only circumstance in which Underwriters can be bound by the agreed judgment is if they waived the right to rely on these policy provisions by breaching a defense obligation to Tomlinson, their insured. See Putman, 673 F.Supp. at 177. In Coblentz v. American Sur. Co. of N.Y., 416 F.2d 1059 (5th Cir.1969), a stipulation relieving the insured of personal liability (like the agreed judgment in the present case) did not preclude the insurer's liability. Despite language in the insurance policy requiring that the insured be personally liable, the insurer was held liable because it had breached a duty to defend its insured. Coblentz, 416 F.2d at 1063 (applying Florida law). 21 Similarly, whether Underwriters can enforce the Cost and Appeals Clause depends upon whether they breached any defense obligation to Tomlinson. An insurer that unjustifiably refuses to defend its insured will be liable for the amount of any settlement even if the applicable policy requires the insurer's consent to any settlement agreed to by the insured. Martin v. Travelers Indem. Co., 450 F.2d 542, 550 (5th Cir.1971) (applying Mississippi law). See also Greenville Shipbuilding Corp. v. Hartford Accident & Indem. Co., 334 F.Supp. 1228 (N.D.Miss.1971), aff'd, 460 F.2d 1063 (5th Cir.1972) (a Mississippi court would prohibit an insurer from invoking its policy provision requiring consent to settlement, if the insurer unjustifiably denied liability); Mavar Shrimp & Oyster Co. v. United States Fidelity & Guar. Co., 187 So.2d 871, 875 (Miss.1966) (if an insurer unjustifiably refuses to defend a suit, the insured may make a reasonable settlement, for which the insurer will be held liable). 22 These cases indicate that unjustifiably denying liability or breaching a duty to defend will preclude an insurer from relying on policy provisions that deny coverage. Therefore, if Underwriters breached a duty to defend Tomlinson, Underwriters can be held liable under the agreed judgment despite the requirement of Tomlinson's personal liability and the Cost and Appeals Clause.