Condition Precedent Must be Fulfilled
Every liability insurance policy requires the insured to promptly report losses and to keep the insurer advised about settlement negotiations and attempts at settlement. Each requirement is a common law condition precedent to indemnity under a policy of liability insurance.
In Baltazar Ortiz v. MeadWestvaco Corp., 18-869, State of Louisiana Court of Appeal, Third Circuit (June 5, 2019) employees of JV Industrial Companies, Ltd. (JVI) sued MeadWestvaco Corporation (MWV) for personal injuries arising from their alleged exposure to a high concentration of H2S gas and other dangerous chemicals while working in a MWV refinery. After settling these personal injury claims, MWV sued JVI and its insurers, Steadfast Insurance Company (Steadfast) and AIG Specialty Insurance Company (ASIC), seeking contractual indemnity and insurance coverage for the claims asserted against and settled by MWV.
The trial court granted summary judgment in favor of JVI, Steadfast, and ASIC, finding no contractual indemnity or insurance coverage, and dismissed MWV’s claims against JVI and its insurers.
MWV operates a tall oil refinery and chemical manufacturing facility in DeRidder, Louisiana, where pine tree oil is fractionated into fatty acids and rosins, which are used as feedstocks for specialty chemicals. As part of a multi-million dollar Refinery Expansion Project, JVI was selected to perform weld overlay work in some of the refinery columns. In August 2007, MWV and JVI entered into a Construction Agreement (agreement) for the welding work to be performed by JVI at the refinery. From January 1, 2008 to January 1, 2009, JVI was insured by Steadfast pursuant to a Commercial General Liability Coverage policy and by ASIC pursuant to a Contractor’s Pollution Liability Policy. Under both policies, JVI was the Named Insured.
On March 13, 2009, Baltazar Ortiz, a JVI employee, filed suit against MWV, among other defendants, alleging that on or about April 27, 2008, Mr. Ortiz was exposed to a high concentration of H2S gas and other dangerous chemicals during the course of JVI’s work at the refinery. Seven other JVI employees filed similar suits against MWV and its insurers. These plaintiffs did not bring claims against JVI or any of its insurers as JVI enjoys workers’ compensation immunity. MWV settled all of the claims brought by the eight JVI employees.
The trial court found MWV did not comply with the Steadfast policy’s notice provisions, which entitled Steadfast to notice of claims “immediately” and “as soon as practicable,” or the policy’s unambiguous no-payment-without-consent provision. Moreover, even though MWV was an additional insured under the Steadfast policy, the trial court reasoned that, because neither Steadfast nor JVI were involved in the underlying litigation or participated in the settlement with the plaintiffs allowing MWV to seek indemnity after unilaterally choosing to settle would result in an absurd consequence.
LAW AND DISCUSSION
According to the rules of contract interpretation the court’s primary responsibility is to determine the parties’ intent. Because the questions of interpretation and ambiguity at issue are legal in nature, they can be resolved on summary judgment.
The basis of the present litigation is the indemnification MWV alleges it is owed from JVI and its insurers pursuant to the indemnity provision contained in its contract with JVI. Under the terms of the contract MWV would only be entitled to indemnification for claims arising out of JVI’s share of liability. Strictly reading the entire agreement the court could not find that the parties expressed, in unequivocal terms, an intent for JVI to indemnify MWV for MWV’s own negligent acts or voluntarily assumed liability.
It follows, therefore, that when MWV settled with the plaintiffs, MWV only compensated the plaintiffs for damages resulting from MWV’s own negligence. Thus, the court found that JVI was under no obligation to indemnify MWV for the plaintiffs’ tort claims against MWV.
Both the Steadfast and ASIC policies imposed duties upon an insured in the event of an occurrence, offense, claim, or suit to give prompt notice and send all relevant documents to the insurer. As a condition precedent to the right of coverage provided by the policies required fulfillment of the condition. Pursuant to these provisions, any insured seeking coverage under either policy was required to provide the insurer with immediate notice of any claim against the insured and could not voluntarily make any payment on a claim without the insurer’s prior written consent.
Breach of Condition Precedent
The undisputed facts establish that eight employees of JVI filed suit against MWV alleging bodily injury sustained during their work at the MWV refinery. By May 2008, MWV had received the certificates of insurance evidencing JVI’s policies with Steadfast and ASIC. Nevertheless, MWV, as an admitted tactical strategy, proceeded to litigate and settle all of the claims by July 2012, without providing any notice to JVI, Steadfast, or ASIC.
Courts have generally reviewed compliance with insurance policy provisions as a condition precedent to recovery. It is obvious to the appellate court that the company is obligated to pay only those amounts which the insured is legally liable to pay. The insured’s liability must be determined either by a court or by the claimant, the company, and the insured jointly.
Finding there was no ambiguity in the insurance contracts and nothing contrary to public policy the court concluded that any payment made by the insured whose liability has not been judicially determined, without the consent of his insurer, is not subject to be reimbursed by the insurer.
The court assumed, without deciding, that an insurer must show prejudice to avoid its obligations under the policy when the insured breaches the consent-to-settle provision, based on the summary judgment evidence in this case the appellate court was satisfied that National Union suffered prejudice as a matter of law. it did so because an insurer’s right to participate in the settlement process is an essential prerequisite to its obligation to pay a settlement. When, as in this case, the insurer is not consulted about the settlement, the settlement is not tendered to it and the insurer has no opportunity to participate in or consent to the ultimate settlement decision, the insurer is prejudiced as a matter of law.
Under these circumstances the breach of the consent-to-settle provision in the policy precludes MWV’s suit.
Under the undisputed facts MWV’s unilateral decision to settle the underlying claims without any notice to the insurers precludes its ability to recover from either Steadfast or ASIC because its actions prejudiced the rights it agreed to when it accepted the policy and its conditions precedent.
The Louisiana Court of Appeal with a great deal of study and unnecessary review of authorities made it clear that breach of two material conditions precedent to recovery under an insurance policy eliminates the insured’s right to seek indemnity. The insured probably could have had contribution from the insurers if it asked them to participate in the settlement negotiations, even late. The insured’s strategic decision to not do so – perhaps to keep the settlement amount low – destroyed any chance it had to recover indemnity fro the two insurers and the contractor.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Excellence in Claims Handling Courses From Experfy.com
The Excellence In Claims Handling program provides everything a person or entity presenting a claim needs to effectively present the claim and provides the insurance claims person with everything he or she needs to properly represent the insurer.
The insured, risk manager, or corporate counsel will be able to present a first party property claim – whether a fire, theft, or windstorm or some other insured against cause – with little difficulty and professionalism and present a sworn proof of loss acceptable to an insurer.
The insurance claims person completing the course will be able conduct a thorough investigation of the policy and claim. The insurance claims person will also be able to assist an insured to fulfill all of the promises made by the insured to the insurer and the insurer to provide the indemnity promised by the insurance policy.
The series of courses was designed so that the student can obtain the needed information easily while he or she sits down in the morning for a first cup of coffee or any other time in the day in short, easy to consume lessons. For instance “Insurance and Claims” is made up of three modules and 27 lectures while “Investigating the Property Claim” is made up of four modules and 65 lectures. You can review each course, each module and each lecture at the links below.
Each person completing the course will be able to claim that he or she is a professional first party property claims person ready to provide excellence in claims handling and be ready to resolve any claims problem that arises for the benefit of the insurer and the policy holder.
Insurance and Claims: https://www.experfy.com/training/courses/insurance-and-claims
Investigating the Property Claims: https://www.experfy.com/training/courses/investigating-the-property-claim
Insurance Law: https://www.experfy.com/training/courses/insurance-law
Solving Claims Problems: https://www.experfy.com/training/courses/solving-claims-problems