Insured Must Get Excess Insurer’s Permission Before Settling Claim

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Excess Insurer Owes Nothing Until Primary Insurer’s Limits Are Exhausted

Vizio, Inc. appealed the district court’s order granting Arch Insurance’s motion to dismiss. Arch issued an insurance policy to Vizio and provided coverage excess to Navigators Insurance’s primary policy. The Arch Policy “followed form” to Navigators’ policy, so it has the same terms except for those specifically contradicted by the Arch Policy. Vizio also had a separate line of general liability coverage with Chubb.

In VIZIO, INC. v. ARCH INSURANCE COMPANY, et al., No. 22-55755, USCA, Ninth Circuit (October 30, 2023) Vizio sought coverage from an excess insurer after reaching a settlement with plaintiffs in a class action suit without first getting permission from the excess insurer.

FACTS

After consumers filed class action lawsuits against Vizio in connection with its Smart TV products (the “Smart TV Litigation”).

About two years later, without seeking or receiving Arch’s consent, Vizio settled the Smart TV Litigation for $17 million. 

Vizio Failed To Comply With The Consent Provision Before Settling. 

First, Vizio admitted that it did not obtain Arch’s consent prior to settling the Smart TV Litigation.

ANALYSIS

Insurance contracts in the state of California incorporate the terms of California’s insurance regulations which require resolution within 40 days but Section 2695.7(b) only applies after an insurer receives a “proof of claim.” 

Vizio had an obligation to obtain Arch’s consent to any settlement, notwithstanding Arch’s alleged breach. 

Under California law, without a breach of the insurance contract, there can be no breach of the implied covenant of good faith and fair dealing and without a breach of the insurance contract, there can be no bad faith.

As a general rule, there is no contribution between a primary and an excess carrier.

ZALMA OPINION

The Ninth Circuit read the two policies: the primary and the following excess policy. Both policies required that the insured advise the insurers of their intent to settle, obtain permission from the insurer, or lose the right to indemnity. The failure to seek the participation and consent of Arch cost Vizio any possibility of obtaining contribution from Arch.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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