Insured Who Settled Suit Without Insurer’s Consent Lost Indemnity Coverage

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Benecard Services, Inc. is a company that manages prescription drug benefit plans. In 2015, it was sued by its onetime business partner, another company that sponsors such plans under Medicare Part D. The lawsuit included claims for breach of contract and fraudulent misrepresentation. In 2016, the lawsuit settled. In Benecard Services, Inc. v. Allied World Specialty Insurance Company, f/k/a Darwin National Assurance Company; Atlantic Specialty Insurance Company; Rsui Indemnity Company; Travelers Property Casualty Company Of America; Ace Property & Casualty Insurance Company, Allied World Assurance Company (US) Inc v. Benecard Services, Inc., Nos. 20-2359, 20-2360, United States Court of Appeals, Third Circuit (September 8, 2021) it sought  coverage for its defense and settlement costs under various business insurance policies it held. Denials of coverage, and then litigation, followed. In 2020, the District Court granted summary judgment to the insurers in both cases composing this litigation-one case involving Benecard’s directors and officers liability and general liability policies, and another involving its errors and omissions liability policy.

ZALMA OPINION

Insurance protects the insureds against many risks of loss – not every possible loss. It is the duty of the insured to prove that the loss was due to a peril insured against and that it fulfilled the terms and conditions of the policy. One of those conditions required that the insurer consent to any settlement. Since Benecard effected a settlement without requesting the consent of the insurer, it breached the contract condition and was not entitled to any benefits. Its other claims of coverage against three different insurers were not viable and it must now use its own funds to pay the settlement. It is imperative that every insured read, understand and apply the terms and conditions of the policy and act fairly and in good faith in its dealings with its insurers. Failure to do so in this case was very expensive to Benecard.