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Pennsylvania Permits Insureds Being Defended under a Reservation of Rights to Settle Without Their Insurer's Consent

07/29/2015

A standard provision in the commercial general liability policy and many other liability policies precludes voluntary payments—settlements—by the insured without the insurer’s consent. The Supreme Court of Pennsylvania’s decision in The Babcock & Wilcox Company v. American Nuclear Insurers, No. 2 WAP 2014 (Pa. July 21, 2015), potentially vitiates that provision when the insurer has reserved its right to deny coverage and will not consent to a settlement.

In a three-to-two decision addressing the question “whether an insured forfeits insurance coverage by settling a tort claim without the consent of its insurer, when the insurer defends the insured subject to a reservation of rights, asserting that the claims may not be covered by the policy,” the court adopted “a variant” of the minority position set forth in United Services Auto. Ass’n v. Morris, 741 P.2d 246 (Ariz. 1987).

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