Opinion ID: 1448289
Heading Depth: 1
Heading Rank: 10

Heading: Is NPIC Bound by the Settlement Agreement Between Plaintiffs and Americold?

Text: We view the impact of the Americold settlement agreement on NPIC through the procedural lens of summary judgment. Are there material issues of fact remaining concerning the reasonableness and good faith of the agreement? The answer is, Yes. NPIC is an excess carrier. National Union provided primary coverage. Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. [Citation omitted.] An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. [Citation omitted.] In a situation in which there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. [Citations omitted.] In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess insurer thus greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy. Union Indem. Ins. Co. v. Certain Underwriters, 614 F. Supp. 1015, 1017 (S.D. Tex. 1985). Simply stated, the primary policy provides `first dollar' liability coverage up to the limits of the policy. Marick, Excess Insurance: An Overview of General Principles and Current Issues, 24 Tort & Ins. L.J. 715, 716 (1989). The primary insurance carrier is obligated not only to pay on behalf of the insured settlements and judgments, but also owes its insured a duty to defend under most policies. Marick, 24 Tort & Ins. L.J. at 716. Primary coverage is much more expensive than excess coverage. (The annual premium for NPIC's $25 million excess coverage was $121,500; for National Union's $1 million primary coverage, it was $232,077.) Before National Union tendered its policy limits, NPIC was not obligated to defend Americold or to take charge of settlement efforts on behalf of Americold. National Union had assumed Americold's defense. However, an excess insurer owes an implied good faith obligation regarding settlement negotiations. See Diamond Heights Homeowners Assn. v. National American Ins. Co., 227 Cal. App.3d 563, 277 Cal. Rptr. 906, (1991), rev. denied May 16, 1991. Even when it has not assumed the defense or control of settlement negotiations, an excess insurer has the right under the policy to consent to any settlement reaching its coverage level. The excess insurer has an implied obligation to exercise that right in good faith. See 1 Windt, Insurance Claims & Disputes § 5.26, p. 350 (3d ed. 1995) (The duty [of an excess insurer] to settle exists independently of the duty to defend.). See also Ashley, Bad Faith Actions Liability and Damages § 6.21 (1992) (When an insured has both primary and excess liability insurance coverage, he can expect the excess carrier to respond to settlement offers with the same good faith required of primary carriers. [Citing Kelley v. British Coml. Ins. Co., 221 Cal. App.2d 554, 34 Cal. Rptr. 564 (1963)]). We discussed the scope of an insurer's settlement duty to the insured in Bollinger v. Nuss, 202 Kan. 326, Syl. ¶¶ 1-4, 449 P.2d 502 (1969). Bollinger is neither an excess carrier nor a coverage denial case. It concerned a claim against a liability insurer that refused to settle a third-party claim within policy limits before trial. The verdict against the insured was over the policy limits. We found neither negligence nor bad faith in refusing to settle. Here we are concerned with more complex events. NPIC refused to settle within the policy limits because of coverage denial. Coverage denial was followed by an agreement between third-party claimants and Americold for consent judgments against Americold over policy limits, coupled with a covenant not to execute against Americold. Although Glenn v. Fleming, 247 Kan. 296, 799 P.2d 79 (1990), did not involve a prejudgment settlement between the insured and third-party claimant, we approved of such settlements: A nonjury verdict judgment may be enforced against an insurer contingent upon proving bad faith or negligence in a refusal to settle. The assignment/covenant not to sue may be utilized if the judgment is reasonable in amount and entered into in good faith. 247 Kan. at 318. We cautioned: We do express concern over the reasonableness of assignment/covenants in which the amount of the judgment assigned has been determined by agreement of the parties. 247 Kan. at 318. The test in Griggs v. Bertram, 88 N.J. 347, 368, 443 A.2d 163 (1982), was adopted to address that concern. 247 Kan. at 318-19. We decided in Glenn that the offer to settle for policy limits was unreasonable, so we did not need to address whether the excess judgment was enforceable against the insurer. We reasoned: Emphasis should be placed on the recognition that an insurer may avoid liability for bad faith by acting in good faith and, consequently, will sustain no excess judgment responsibility. The personal injury plaintiff or assignee will carry the burden of proof in proving to the trier of fact that the insurer exercised bad faith in refusing to settle within the policy limits. 247 Kan. at 319. In deciding that material issues of fact still exist in this case, we now examine several aspects of the circumstances surrounding the Americold settlement agreement.