June 15, 2015

Summary: This article was written by Catalina J. Sugayan, Carol J. Gerner, and Michael A. Boshardy and presented at the DRI seminar in March 2015. Catalina Sugayan is a partner at Sedgwick, LLP in Chicago, Illinois. The article is printed here with the permission of Ms. Sugayan.

Topics covered:

Introduction

50 state overview

Introduction

The typical consent judgment scenario is as follows:

•The insurer declines a defense, or defends under a reservation of rights, or rejects a settlement demand within limits.

•The insured and the claimant stipulate to a settlement where the claimant agrees to limit recovery or to not seek recovery from the insured in exchange for the right to pursue recovery against the insurer. There is typically an assignment and sometimes a stipulation of facts that would defeat the insurer's coverage defenses. Sometimes that stipulation is presented to a court for a finding of a good faith settlement, or there is a hearing or trial resulting in a judgment.

•The claimant sues the insurer for breach of contract and sometimes bad faith to collect on the judgment. The amount sought could exceed policy limits and include claims for attorney's fees and interest.

As the insurer, you may have one or more of the following defenses: (i) the underlying claim is not covered; (ii) the insured breached its duty to cooperate or it violated a policy provision by entering into a settlement without consent or assigning a non-assignable right; or (iii) the judgment amount is not reasonable or binding, or was the product of fraud or collusion.

An insurer's ability to raise defenses when faced with extra contractual liability premised on a consent judgment will depend on the circumstances and the policy. It will also depend on the applicable state law.

State law differs with respect to:

•Whether a consent judgment is even binding on an insurer. In this regard, some courts will not enforce consent judgments if the insurer provided a defense, even if that defense was pursuant to a reservation of rights. Courts differ with respect to whether an insurer must first be provided with notice of or have the opportunity to participate in settlement discussions.

•Some courts have held consent judgments cannot be enforced against an insurer if the insured is released from liability prior to assigning rights to the claimant. This is based on policy language requiring that the insured is legally obligated to pay. Most courts have distinguished a release from a covenant not to execute against the insured; a covenant not to execute generally would not be considered a release that would permit an insurer to escape its obligations.

•Courts recognize that there has to be a showing of actual damage for a finding of liability against the insurer for breach of the insurance contract or bad faith. The majority of courts follow the judgment rule, which provides entry of judgment alone is sufficient damage to sustain recovery from an insurer. A minority of courts have applied the prepayment rule, which provides that if an insured cannot satisfy an excess judgment, then the insurer cannot be held responsible for it.

•Courts differ with respect to enforcement of cooperation, consent to settle, and assignment pro- visions in policies.

•Courts differ with respect to whether the amount of a consent judgment is binding on an insurer.

In this regard, it may make a difference if the amount was obtained after a hearing or trial. Decisions in some jurisdictions seem to condone sham trials. Similarly, courts differ with respect to the factors, burdens of proof, and presumptions in determining whether the amount of a consent judgment is reasonable.

•Courts differ with respect to who has the burden of proving coverage or bad faith, and the procedure and degree to which such showings need to be made to recover an excess judgment.

•Most courts allow an insurer to defeat liability for a consent judgment if there is a showing of collusion or fraud.

Below is a compilation of legal precedents from the states and the District of Columbia on consent judgments. This compilation is not intended to be exhaustive. Instead, we attempted to identify a recent high level court decision that provided a good discussion of the state law on the issue. In some jurisdictions there are other precedents that are not cited herein. Also, many of the cases cited addressed other issues that are not summarized in this paper.

The reader is encouraged to conduct a complete reading and analysis of the cited case law and other precedents and to seek legal advice before making a significant decision on any particular matter. Nothing contained herein should be construed as a position or opinion by Sedgwick LLP, the authors or their clients with respect to the law or any specific claim.

Fifty State Overview

I. Alabama

Sharp Realty & Mgmt. LLC v. Capitol Specialty Ins. Cor., No. CV-10-AR-3180S, 2012 WL

2049817 (N.D. Ala. May 31, 2012), aff 'd, No. 12-13344, 2013 WL 56701 (11th Cir. Ala. Jan. 4, 2013).

Realty company management sued insured realty company board for terminating a management contract. The two sides entered into a consent agreement. The court held that where the insured enters an agreement with claimant, and the insured is fully released from liability, that agreement also releases the insurer when the insurer offered to defend.

Stone Bldg. Co. v. Star Elec. Contrs., 796 So. 2d 1076 (Ala. 2000). Claimant contractor sued the insured subcontractor over a matter involving an employee injury and failure to procure liability insurance. Claimant settled with the insured and received the insured's rights against its insurer. The court held when an insurer refuses to defend, it is bound by any good faith reasonable settlement, and the insured or claimant needs to only show potential liability.

II. Alaska

Great Divide Ins. Co. v. Carpenter, 79 P.3d 599 (Alaska 2003). Claimant, a small boy hit by a felled tree, brought suit against the insured company that cut the tree. The insurer refused to defend. The insured entered into a settlement agreement that assigned claimant rights against the insurer in return for a covenant not to execute. The court found the insured was placed at economic risk, was allowed to settle, and that covenant settlement is allowed when the insurer commits a material breach of its defense obligations. The court further found such an agreement is only binding on the insurer if reasonable, and reasonableness should be determined by a jury trial. Reasonableness factors include: the releasing person's damages; the merits of the releasing person's liability theory; the merits of the released person's defense theory; the released person's relative faults; the risks and expenses of continued litigation; the released person's ability to pay; any evidence of bad faith, collusion or fraud; the extent of the releasing person's investigation and preparation of the case; and, the interest of the parties not being released. The insurer is allowed to defend its decision to deny coverage and not defend.

III. Arizona

Quihuis v. State Farm Mut. Auto. Ins. Co., 334 P.3d 719 (Ariz. 2014). In this case the Coxes sold an auto to Norma, but kept title pending final payment. Norma was in an accident and a lawsuit was brought against Norma and the Coxes. The Coxes' insurer denied coverage because ownership of the auto was transferred before the accident. The Coxes entered into a stipulated judgment in excess of policy limits and assigned rights against the insurer in return for a covenant not to execute (Damron Agreement). Court found the ownership issue was an element of both liability and coverage, and that the insurer was not precluded from litigating coverage. The court stated an insurer that refuses to defend opens itself up to the possibility of contract damages if it breaches the duty to defend and could face bad faith tort claims depending on whether reasonable grounds exist for refusing to defend.

Lozier v. Auto Owners Ins. Co., 951 F.2d 251 (9th Cir. 1991) (applying Arizona law). Insurer that failed to settle for $100,000 policy limits put its own interest first and was liable for stipulated judgment of $3.5 million. Court found Damron Agreement was made fairly, with notice to the insurer, and without fraud or collusion on the insurer.

United States Auto. Ass'n v. Morris, 741 P.2d 246 (1987) (Morris Agreement: defense subject to reservation of rights). Morris broke into a home and was shot. He filed a lawsuit and the homeowner's insurer provided a defense while reserving rights based on exclusion for injuries expected or intended by the insured. A $100,000 policy limit demand was conveyed to the insurer. Thereafter the insureds stipulated to a $100,000 judgment to be collected solely from the insurer. The issue before the court was whether insureds being defended under a reservation of rights can protect themselves by entering into a settlement agreement without breaching the cooperation clause. Court noted that insureds who find themselves in a position of economic peril because an insurer raised coverage defenses, have the right to make a reasonable, non-collusive settlement to protect themselves. The insurer is free to litigate the facts of the coverage defenses (here insureds stipulated their actions were either negligent or intentional so coverage issue could still be litigated). If the insurer loses on the coverage defense, then claimant has the burden of showing the judgment was not fraudulent or collusive and was fair and reasonable under the circumstances.

Damron v. Sledge, 460 P.2d 997 (Ariz. 1969) (Damron Agreement: breach of duty to defend). Where auto insurer refused to defend driver, driver's assignment to claimants of whatever claims he had against insurer for bad faith failure to defend was not collusive, even though it was before a judgment.

IV. Arkansas

Hartford Ins. Co. v. Mullinax, 984 S.W.2d 812 (Ark. 1999). Claimant was injured when White backed into claimant's car. An issue in the case was claimant's claim for underinsured motorist benefits from Hartford, which rejected a $100,000 limits demand because of claimant's pre-existing injuries and because, if White was in the scope of his employment, then claimant had to first exhaust any liability coverage available from the employer. Claimant entered into a consent judgment with White's employer for $125,000 and agreed not to execute on the judgment or assign subrogation rights to Hartford. Claimant and White's employer also agreed to set aside the consent judgment if claimant did not receive underinsurance coverage from Hartford. Hartford contested the judgment was the result of a sham trial. The court agreed that the circumstances surrounding the consent judgment were highly questionable and smack of subterfuge. The case was remanded to resolve the extent of claimant's damages and Hartford's liability to pay underinsurance benefits.

V. California

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Hamilton v. Maryland Cas. Co., 41 P.3d 128 (Cal. 2002). In this case, a liability insurer agreed to defend its insured's dating service company against a lawsuit that alleged invasion of privacy rights and broadcasting of confidential communications. After the insurer refused a settlement demand within policy limits, claimant and the insured, without the insurer's participation, agreed to a settlement that included a stipulated judgment in excess of policy limits, claimant's agreement not to execute the judgment against the insured, and the insured's assignment of its cause of action against the insurer for breach of duty to accept a reasonable settlement to claimant. The trial court approved the settlement as made in good faith pursuant to Code of Civil Procedure §877.6. The Supreme Court found the amount of the stipulated judgment was not presumptively binding on the insurer as the damages suffered by the insured as a result of the alleged breach. Instead it held a defending insurer cannot be bound to a settlement to which it has not agreed and in which it has not participated, even where the settlement had been approved under §877.6. The court further found claimant could not maintain an action for breach of the duty to settle against the insured because the stipulated judgment was insufficient to prove the insured suffered any damages from the insurer's breach of the settlement duty. The court discussed and distinguished other cases where the insurer did not defend, the underlying action proceeded to trial, or the insured contributed payment to conclude the settlement.

Rose v. Royal Ins. Co., 3 Cal. Rptr. 2d 483 (Ca. 1991). Held a consent judgment does not satisfy the requirement of a judgment after actual trial as a condition precedent to the maintenance of an action against the insurer. Also noted, but did not apply, the rule that an insurer waives the right to assert a no action clause in the policy when it chooses to not defend the insured.

VI. Colorado

Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010). Claimant automobile accident victim entered into a settlement agreement with the insured. The agreement assigned to claimant all of the insured's rights against the insurer. Claimant brought suit against the insurer alleging bad faith. The insurer argued there could not be bad faith, as the insured was not personally exposed to liability. The court held that entry of a judgment in excess of liability limits, notwithstanding the existence of a covenant not to execute, is sufficient to establish actual damages in a bad faith breach of an insurance contract claim. Claimant had the burden to establish bad faith and that the stipulated damages were reasonable.

Old Republic Ins. Co. v. Ross, 180 P.3d 427 (Colo. 2008). An airplane accident led to a wrongful death suit against the insured charter company. The insurer disputed the amount of coverage and filed a declaratory judgment action. During the declaratory judgment proceedings, the insured entered into a consent judgment with claimant for more than the policy limits in exchange for a covenant not to execute. In accordance with the agreement, the insured brought a bad faith counterclaim against the insurer in the declaratory judgment proceeding. The insured then willingly dismissed those claims to expedite the declaratory judgment proceeding. Claimant was never assigned the right to bring the bad faith claim. The court held that where the insurer has conceded coverage and defended its insured, and where there has been no finding of bad faith against the insurer, a stipulated judgment entered before trial, to which the insurer is not a party, cannot be enforced against the insurer.

Northland Ins. Co. v. Bashor, 494 P.2d 1292 (Colo. 1972). Claimant sued insured for injuries from an auto accident. Insurer did not settle within its $10,000 limit and, after trial, claimant obtained an $18,000 judgment. Insurer paid $10,000 limit, insured paid claimant $1,500 and then insured brought bad faith action against insurer for $8,000 with agreement that, if successful, it would share recovery with claimant. Court held insured not limited to $1,500 and that claimant was not a necessary party to the action.

VII. Connecticut

Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961 (Conn. 2013). The University of Connecticut sued the insured general contractor for defects in a student housing building. The insurer denied coverage. The insured then settled the claim with the university. The court found that an insurer that refuses to defend is liable for any reasonable settlement made. The burden is on the insured to show that the claims settled fell within the policy's coverage and that the settlement was reasonable.

VIII. Delaware

Process Indus., Inc. v. Delaware Ins. Guar. Ass'n, No. 92C-11-7, 1994 WL 680122 (Del. Super. Ct. May 25, 1994). Two insureds sued Delaware Insurance Guaranty Association (DIGA) to cover a settlement they claim would have been settled by an insolvent insurer. The court held that DIGA had to cover whatever the original insurer would have to cover. Here, the insureds entered into a settlement agreement independent of the insurer, when the insurer refused to participate in the settlement discussions. Court ruled the insured may consent to a settlement after the insurer denies liability without jeopardizing later recovery from the insurer, if coverage is resolved in its favor. The settlement must be reasonable if it is to bind the insurer. Claimant has the burden of demonstrating the settlement is reasonable.

IX. District of Columbia (Washington DC)

Interstate Fire & Cas. Co. v. 1218 Wis., 136 F.3d 830 (D.C. Cir. 1998). Claimant sued insured bar owner after being attacked outside the bar. The insured settled with claimant. The insurer challenged the agreement and consent judgment. The court held that the consent judgment between the insured and claimant was exorbitant and collusive, and may be vacated.

Central Armature Works, Inc. v. American Motorists Ins. Co., 520 F. Supp. 283 (D.D.C. 1980). Claimant, a customer of the insured electrical equipment contractor, sued the insured for breach of contract. The insurer did not defend the insured for the first year and denied settlement requests. Claimant and the insured settled without the insurer's consent. The insured sued the insurer for indemnification after paying the settlement itself for breach of the obligation to defend and indemnify. The court entered summary judgment in favor of the insured finding that when the insurer has failed to exercise diligence, good faith, and conscientious fidelity in safeguarding the interests of the insured, which this insurer did by failing to defend for the first year, policy provisions prohibiting settlement without the consent of the insurer will not be enforced. The insurer retained its right to contest coverage.

X. Florida

Perera v. U.S. Fid. & Guar. Co., 35 So. 3d 893 (Fla. 2010). This case involved the following facts: claimant was crushed to death during his employment; a wrongful death lawsuit was brought against the employer; employer was insured by Cigna (liability policy with limits of $1 million excess $500,000 deductible), USF&G (WC policy with limits of $1 million excess $350,000 SIR), and Chubb (umbrella policy with limits of $25 million); USF&G denied coverage based on intentional acts exclusion; there was a stipulation to settle for $10 million with $5 million paid as follows: $750,000 from employer, $500,000 from Cigna, and $3.75 million from Chubb; there was an evidentiary hearing and the court found the settlement amount was reasonable; claimant's estate filed suit against USF&G seeking $5 million asserting breach of contract and bad faith. The Florida Supreme Court examined if there can be a third party bad faith claim against an indemnity insurer when there was never exposure to liability in excess of policy limits.

The court noted that under Florida law, a claimant may bring a third party bad faith case when: (1) the insurer breached its duty of good faith and that breach results in an excess judgment against the insured; (2) the insurer and claimant stipulate to try the bad faith issues first and, if there is no bad faith, claimant will settle for policy limits (a Cunningham Agreement); (3) the insurer breached its duty to defend and the insured and claimant consent to an adverse judgment for policy limits (or in excess of limits if there is bad faith) only collectible against the insurer (Coblentz Agreement); and, (4) the excess insurer seeks equitable subrogation from a primary insurer that did not act in good faith. The court found that an excess judgment is not a prerequisite before bad faith can be brought, however, the damages claimed by the insured or its assignee must be caused by the insurer's bad faith and that did not happen where USF&G's actions did not cause the insured to be exposed to liability in excess of limits and where Chubb did not bring a claim against USF&G.

Coblentz v. American Sur. Co. Of New York, 416 F.2d 1059 (5th Cir. 1969)(Coblentz Agreement). Where insurer withdrew from the defense of a wrongful death case, claimant and insured entered into a stipulation of facts and testimony, and judgment was entered against the insured for $50,000. Claimant filed a garnishment action against the insurer and there was a jury finding that the death was caused by negligence, not an assault and battery. The court found the judgment was enforceable against the insurer because the insurer was aware of the suit and refused to defend, and the judgment was not tainted by fraud or collusion.

Mobley v. Capitol Specialty Ins., No. 13-20636-CIV, 2013 WL 3794058 (S.D. Fla. July 19, 2013). Found Coblentz Agreement was enforceable against the insurer where the damages are covered by the policy, the insurer wrongfully refused to defend, and the settlement was reasonable and made in good faith. The party seeking to enforce the settlement agreement against the insurer has the burden of initially producing evidence sufficient to make a prima facie showing that the settlement was reasonable and made in good faith. An agreement in excess of policy limits is enforceable only where the insurer acts in bad faith.

Bond Safeguard Ins. Co. v. Nat'l Union Fire Ins. Co., No. 6:13-cv-561-Orl-37DAB, 2014 WL 5325728 (M.D. Fla. Oct. 20, 2014). Insurer does not have to pay a judgment entered pursuant to a consent agreement when the claim is not covered.

XI. Georgia

Liberty Mut. Ins. Co. v. Wheelwright Trucking Co., 851 So. 2d 466 (Ala. 2002) (applying Georgia law). Claimant brought a breach of contract suit against insured trailer dealer and against trailer manufacturer. Insurer for the insured dealer filed declaratory judgment lawsuit. The insured chose to the settle the claim and assign his rights to claimant. The court held that when an insurer refuses to defend, the insured is allowed to settle the claim in good faith, therefore binding any insurers to the settlement, expenses, and attorney fees. The insurers may still contest coverage, but in this specific case, could not contest the validity or amount of the consent judgment.

Southern Guar. Ins. Co. v. Dowse, 605 S.E.2d 27 (Ga. 2004). Homeowners sued insured contractors for defects in their home. The parties entered into a consent judgment and the homeowners subsequently filed a garnishment action against the insurer. The court found that when the insurer refuses to defend, it waives its right to rely on the cooperation clause, but does not lose its right to contest coverage. The court further held that an insurer does not waive its rights when defending under a reservation of rights letter.

XII. Hawaii

Sentinel Ins. v. First Ins., 875 P.2d 894 (Haw. 1994). An association of apartment owners sued the insured developers and contractors of an apartment complex. The insurer refused to defend and denied coverage. Claimants and insureds settled. The court held that when an insurer refuses to defend, an insured is entitled to enter into a reasonable and good faith settlement. Further, the settlement amount may then be used as presumptive evidence of the breaching insurer's liability. The insurer may present any defenses not inconsistent with the consent judgment. Where claimant brings a garnishment action against the insurer: (1) coverage is rebuttably presumed; (2) the insurer bears the burden of proof to negate coverage; and, (3) where relevant, the insurer carries its traditional burden of proof that an exclusionary clause applies.

XIII. Idaho

Exterovich v. City of Kellogg, 80 P.3d 1040 (Idaho 2003). Claimants filed suit against the insured city to recover for personal injuries sustained from sewer gas testing. The city's insurer refused to defend the claims. The city filed a third-party complaint against the insurer which was later bifurcated. Thereafter, claimants and the city reached a settlement whereby the city admitted liability and waived its right to appear at the hearing to determine claimants' damages. The city also assigned claimants all of its rights against the insurer in exchange for an agreement not to execute. Thereafter the trial court denied the insurer's request to participate in the evidentiary hearing regarding damages, then determined damages and held claimants could enforce their judgment against the insurer.

The Supreme Court of Idaho reversed finding the trial court erred in preventing the city's insurer from participating in the evidentiary hearing. The court further found once the trial court ruled there was coverage, the insurer could assume the defense, and although it would be bound by the city's admission of liability, it could participate in the trial on damages.

XIV. Illinois

Central Mut. Ins. Co. v. Tracy's Treasures, Inc., 19 N.E.3d 1100 (Ill. App. Ct. 2014). Insured was in business of selling dating services, which it publicized by facsimile advertisements. Claimant brought a class action lawsuit against insured alleging TCPA and other violations. Insurer disclaimed coverage but provided a courtesy defense and filed a declaratory judgment lawsuit seeking a finding it had no duty to defend. Insured later had a different attorney substitute in the defense and the insurer paid for this attorney. Unbeknownst to the insurer, the attorney had previously been negotiating with the claimant class and, after he substituted in, he told the insurer he had filed a motion with the court in the class action case for approval of a $14 million settlement against the insured that was enforceable only against the insurer. The settlement agreement also expanded the definition of the putative class to trigger the insurer's policy periods. A few days later the court preliminarily approved the settlement.

The insurer moved for summary judgment arguing the settlement was collusive and unreasonable. The court found that the insurer retained the ability to contest both the reasonableness of the settlement and the whether the claims giving rise to the settlement were covered. The court recognized that, in Illinois, when an insurer cedes control of the defense of an action against an insured, the insured may enter into a reasonable settlement agreement without the insurer's consent. The court found the insurer ceded the defense and therefore could not assert policy defenses prohibiting the insured from voluntarily assuming an obligation. The court also found, however, that because the insurer preserved its rights by filing a declaratory judgment action and did nothing to prejudice the insured's defense, it retained the ability to contest both the reasonableness of the settlement and whether the claims giving rise to the settlement were covered. The court found a hearing was needed where the claimant had the burden of demonstrating both the reasonableness of the decision to settle and the amount of the settlement.

Guillen v. Potomac Ins. Co., 785 N.E.2d 1 (Ill. 2003). Claim tendered to insurer who declined a defense and did not file suit seeking a declaration of the rights of the parties. Insured thereafter entered a consent settlement where settlement could only be satisfied though assignment of insured's rights against insurer to claimant. In claimant's suit against insurer, court noted general rule that in the absence of a breach of the duty to defend, an insured must obtain the consent of the insurer before settling with an injured claimant. Court found a breach of the duty to defend. It also found that notwithstanding fact that insured's payment obligations were limited solely to assignment, an insurer that breached the duty to defend could not demand an insured be held to strict policy terms, such as “legally obligated to pay”. Court remanded case for consideration of whether insured's decision to settle and the amount of damages were reasonable.

Pekin Ins. Co. v. XData Solutions, Inc., 958 N.E.2d 397 (Ill. App. Ct. 2011). Where insurer denied coverage and insured subsequently settled with claimant, insurer could not assert it had no duty to indemnify settlement based on voluntary payment provision in policy.

XV. Indiana

State Farm Fire & Cas. Co. v. T.B., 762 N.E.2d 1227 (Ind. 2002). Claimant attended a home daycare run by an insured homeowner and was molested by another homeowner. The insurer denied coverage based on daycare exclusion. There was a consent judgment where the insured assigned all rights to claimant. The court ruled that when the insurer refuses to defend the insured, the insured may enter a consent agreement with claimant. The insurer is bound by the decision in the underlying case but may assert coverage defenses. The burden is on the insurer to demonstrate the insured breached the cooperation clause. In the absence of bad faith, the insurer may not be liable for more than the coverage limit.

XVI. Iowa

Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637 (Iowa 2000). Claimant died while working on the insured's farm equipment and suit was brought. The insurer denied coverage based on an exclusion that was later found inapplicable. In the meantime, claimant's representative settled with the insured, and then sued the insurer for the amount of the consent judgment. The court held that stipulated judgments are enforceable where the insurer breached the contractual obligation to accept a reasonable settlement or to defend. The insurer does not breach the policy by providing a defense under a reservation of rights. The insurer has the burden to show that the insured breached the contract by settling the claim, and if that is shown, the insured has the burden to show the insurer was not prejudiced by this breach. The court adopted the objective reasonably prudent person test for challenging a consent judgment.

XVII. Kansas

Phillips v. Phillips, No. 105349105748, 2013 WL 1444259 (Kan. Ct. App. Apr. 5, 2013). Claimant was working on his insured father's farm when he was injured by a tractor. A claim was brought and the insurer rejected a settlement offer. Thereafter the insured and claimant entered into a consent judgment. The court found the consent judgment unreasonable because of the collusive nature of the trial. The court noted that the Kansas Supreme Court approved the use of prejudgment covenants not to execute, but worried about the reasonableness of consent judgments when the amount of the judgment assigned had been determined by agreement of the parties. Under these circumstances, the agreement may not represent an arms-length determination of the value of the claim. A settlement may be enforced where the amount is reasonable and the agreement is entered into in good faith. The burden of proof to show reasonableness and good faith is on claimant, while the burden of persuasion is on the insurer. The court found that while a trial is unnecessary, the district court needs to have enough information to make an independent evaluation of the reasonableness of the settlement. Here, claimant did not present a prima facie case that the court had enough information to approve the reasonableness of the settlement. For that reason, claimant's case was dismissed against the insurer.

Glenn v. Fleming, 799 P.2d 79 (Kan. 1990). The court found that where the insured and claimant entered a settlement agreement after a trial determination of the damages, the settlement may be enforced against the insurer if it is reasonable in amount and entered into in good faith. The initial burden of going forward with proof of these elements rests upon the insured, and the ultimate burden of persuasion as to these elements is the responsibility of the insurer.

XVIII. Kentucky

Associated Ins. Serv. v. Garcia, 307 S.W.3d 58 (Ky. 2010). Claimants sued insured for personal injuries after a wheelchair lift malfunctioned and crushed their legs as they disembarked from a dinner cruise.

The insured reached an agreement where it assigned its claims against the insurance agent and broker to claimants in exchange for a dismissal of their suit without prejudice. The court found claimants had the burden of presenting prima facie evidence of the settlement's reasonableness to establish insurer liability for same.

XIX. Louisiana

New England Ins. Co., v. Barnett, No. 11-30348, 465 F. App'x 302 (5th Cir. Mar. 6, 2012) (applying Louisiana law). Claimant sued the insured, his former business partner. The insurer provided a defense under a reservation of rights. Settlement negotiations were unsuccessful until the insured and claimant entered a consent judgment within the limits of the coverage. The court found that since the insurer did not breach the duty to defend the insured, the consent judgment was prohibited by the consent to settle clause in the policy.

XX. Maine

Patrons Oxford Ins. Co. v. Harris, 905 A.2d 819 (Me. 2006). The insured driver struck claimant with his car. Claimant sued the insured, and his insurer defended under a reservation of rights. The court held that the insured may settle with claimant without the insurer's permission if the insurer either refuses to defend, or defends under a reservation of rights. The settlement must be reasonable, noncollusive, and the insurer must have notice of the suit. Claimant has to demonstrate the reasonableness of the settlement and show that the policy covers the liability from which the settlement arises. See also, Me. Rev. Stat. tit. 24-A, §2904 (2013) (right to apply the insurer's funds to claimant's judgment won against the insured).

XXI. Maryland

Fireman's Fund Ins. Co. v. Rairigh, 475 A.2d 509 (Md. Ct. Spec. App. 1984). An excess insurer retained its right to contest coverage after a consent judgment was entered into by the insured and claimants after trial. Excess insurer was bound to the decision of the consent judgment if coverage exists.

Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070 (Md. Ct. Spec. App. 2002). City of Baltimore sued contractors who installed asbestos in city buildings. A consent judgment was entered and was contested by some of the insurers. The court found the insurers had the right to contest the reasonableness of the damage amount and whether it was the product of fraud or collusion.

XXII. Massachusetts

Campione v. Wilson, 661 N.E.2d 658 (Mass. 1996). The insured sand and gravel company was sued after claimants' descendant was killed by a tractor. Claimants and the insured entered into a settlement agreement pretrial which assigned all of the insured's rights against its insurer to claimants. The court determined that this agreement was valid, but the burden was on claimants to prove the elements of the underlying claim, that the damages were the fault of the insured, and the reasonableness of the damages.

XXIII. Michigan

Century Indem. Co. v. Aero-Motive Co., 336 F. Supp. 2d 739 (W.D. Mich. 2004). An environmental cleanup was required on certain land that a company sold to new owners before the time the cleanup had to take place. Claimant new owners sued the insured former owners for the cost of the cleanup. The insurer did not defend. Under Michigan law, an insurer has two alternatives when it determines that a claim against its insured is not covered under the policy: (1) it may repudiate liability and refuse to defend, in which case the insurer must accept the risk that its determination of no coverage was incorrect; or (2) it may protect itself by providing a defense under a reservation of rights. Where an insurer breaches its duty to defend, the insured is free to settle the claim with a third party. In those circumstances, the insurer is bound by any reasonable settlement entered into in good faith between the insured and claimants. However, the insurer retains the right to contest coverage.

XXIV. Minnesota

Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) (Miller-Shugart Agreement). While insurer was litigating coverage, insured auto owner settled with claimant after advising insurer. After coverage question was decided adversely to insurer, claimant brought garnishment action against insurer to collect on judgment. Court allowed recovery of policy limits with interest accruing from date of judgment. Court found settlement agreement was binding on the insurer if: (1) the insured did not violate its contractual duty to cooperate with the insurer; (2) the settlement is not the product of fraud or collusion; and (3) the settlement is reasonable and prudent. The burden of proving reasonableness is on claimant.

Innsbruck Vill. Ass'n v. Stock Roofing, Inc., No. A06-95, 2006 WL 3772286 (Minn. Ct. App. Dec. 26, 2006). Insurer issued reservation of rights where it agreed to cover negligence resulting in water damage, but denied coverage for breach of warranty and contract claims. Insurer brought a declaratory judgment lawsuit seeking finding that some or all of the damages did not fall within the scope of the policy or were barred by policy exclusions. The insured entered into a Miller-Shugart settlement that stipulated the basis for all damages was negligence. The court concluded the settlement was unenforceable.

Steen v. Underwriters at Lloyds, 442 N.W.2d 158 (Minn. Ct. App. 1989). Insurer did not contest coverage for insured's negligent acts, but defended under a reservation of rights with respect to indemnification for false and fraudulent misrepresentations and for punitive damages. The insured, without presenting a demand, stipulated to a settlement. The court found this was a material and prejudicial breach of the cooperation clause.

XXV. Mississippi

Hermitage Ins. Co. v. Brewer, No. 02-60201, 57 F. App'x 210 (5th Cir. 2002) (applying Mississippi law). Claimant employee suffered severe burn injuries while insured was instructing his work on electrical breakers. Claimant and the insured entered into a consent judgment. The court held that unless the insurer breached the duty to defend, there were no damages the insured is personally liable for that would trigger coverage. The court found there was no duty to defend, and therefore the consent judgment did not apply to the insurer.

XXVI. Missouri

Mo. Rev. Stat. §537.065 (2014). This statute allows a claimant having an unliquidated claim for damages against an insured tortfeasor, on account of bodily injury or death, to enter into a contract with the tortfeasor to limit recovery to insurance policy proceeds, typically by bringing a Section 379.200 garnishment proceeding against the insurer. The insured tortfeasor usually agrees to admit liability, typically through an uncontested bench trial. Claimant risks recovery if it is later determined there is no coverage.

Columbia Cas. Co. v. HIAR Holding, L.L.C., 411 S.W.3d 258 (Mo. banc.), reh'g denied (Oct. 29, 2013). This case involved the following facts: class action claims were brought against an insured alleging violations of the Telephone Consumer Protection Act for sending junk fax advertisements; the insurer denied coverage asserting that penalties were not covered and that the claims did not allege property damage or advertising liability; the insurer also rejected settlement demands within the policy's $2 million aggregate limit; and the insured settled with the class for $5 million with the approval of the court. The court held the insurer was liable for the entire $5 million settlement, plus interest. While the insurer argued there were no bad faith allegations, the court found its refusal to defend and settle put it in a position to indemnify the insured for all damages flowing from the breach of the duty to defend and failure to settle within limits. During the garnishment action, the insurer could only assert coverage defenses, and could not contest the reasonableness of the judgment entered by the court.

Schmitz v. Great Am. Assurance Co., 337 S.W.3d 700 (Mo. banc. 2011). An insurer that wrongly refuses to defend cannot thereafter litigate the reasonableness of an indemnification amount where the award of damages results from a judgment after a bench trial.

Gulf Ins. Co. v. Noble Broadcast, 936 S.W.2d 810 (Mo. banc. 1997). Applied reasonableness standard to settlement between an insured and a tort claimant. The test of whether a settlement amount is reasonable is what a reasonably prudent person in the position of the defendant would have settled for on the merits of claimant's claim. The determination involves a consideration of the facts bearing on the liability and damage aspects of claimant's claim, as well as the risks of going to trial. The burden of proving the reasonableness of a settlement contract is on the insurer, who elected not to participate in the underlying case. The court found coverage and that the settlement was unreasonable. The case was remanded to determine a reasonable settlement for which the insurer should be liable.

XXVII. Montana

Tidyman Mgmt. Servs. Inc. v. Davis, 330 P.3d 1139 (Mont. 2014). In this case, a corporation and its employees brought an action against certain officers and directors alleging breach of corporate fiduciary. After receiving a declination of coverage letter, one claimant filed a stipulation stating that $29 million in damages was sought for the alleged breach of fiduciary duty. The court held that where an insurer unjustifiably refused to defend, it is estopped from denying coverage. The court also held that a trial court may hold a hearing to establish whether a stipulated judgment is reasonable or collusive, but failing to do so is not procedural error. Furthermore, the burden of establishing unreasonableness of a stipulated settlement and/or judgment rests with the insurer where the insurer breaches the duty to defend. In this case, the court held that further consideration was necessary to determine whether the $29 million stipulated judgment was reasonable.

RQR Dev., LLC v. Atlantic Cas. Ins. Co., No. CV 14-118-M-DWM, 2014 WL 6997935 (D. Mont. Dec. 10, 2014). An excavation contractor executed a confession of judgment in favor of a real estate development firm in Montana state court after its insurer declined coverage. It also assigned its rights to the real estate firm. In a subsequent coverage action filed in federal court, the court granted the insurer's motion for summary judgment finding that the policy did not provide coverage. The court rejected the arguments that the Tidyman decision stood for the proposition that the court need not analyze coverage under a policy to determine whether an insurer breached its duty to defend. The court also rejected the arguments that the insurer waived its right to argue for policy exclusions.

State Farm Fire & Cas. Co. v. Schwan, 308 P.3d 48 (Mont. 2013). State Farm sought a declaration that its homeowner's policy excluded coverage for the vehicular death of the insureds' child passenger. The insureds counterclaimed alleging that the insurer was estopped from denying coverage because it breached its duty to defend under the State Farm homeowner policy even though State Farm had provided counsel under a separate auto policy. The trial court granted the insureds' motion for summary judgment and entered judgment against the insured for the amount of the stipulated judgment of $750,000. On appeal, the Montana Supreme Court concluded that State Farm did not breach its duty to defend. It gave the necessary substance to the duty to defend and fulfilled its contractual duty under the homeowner policy. The court concluded it would make little sense for State Farm to provide other legal counsel under the homeowner policy when such a need was not demonstrated, i.e., counsel appointed by State Farm under the auto policy advised that additional counsel was not necessary. Accordingly, the court reversed the grant of summary judgment and vacated the award of the $750,000 judgment. The cause was remanded to the district court to determine, in the first instance, whether the claims were covered under the auto policy.

XXVIII. Nebraska

Carlson v. Zellaha, 482 N.W.2d 281 (Neb. 1992). Claimant sued the mayor to recover damages allegedly caused by the publication of false and defamatory statements. The City's insurer declined coverage claiming that the mayor was not acting in his official capacity when the statements were made. Thereafter, the parties executed a consent judgment in the amount of $100,000. The Nebraska Supreme Court affirmed the trial court's dismissal of the action against the insurer finding that (1) the issue of whether the mayor was acting in his official capacity so as to make the insurer liable for the consent judgment was a proper issue for consideration despite the consent judgment; and (2) the evidence supported the finding that the consent judgment was obtained by collusion so as to be unenforceable against the insurer. Specifically, the court found that the amount of the judgment was unreasonable given the improbability of claimant's success against the mayor and the questionable likelihood of insurance coverage where the mayor testified that he did not know how the amount was determined and that he thought the amount was ridiculous; and the mayor was to be compensated a portion of the amount collected.

Wolff v. Royal Ins. Co., 472 N.W.2d 233 (S.D. 1991) (applying Nebraska law). Workers who were injured while dismantling a stage at a state fair filed suit against the entertainment agency, which assigned to the workers its rights under its liability policy in exchange for a covenant not to execute on a stipulated judgment. The court held that the evidence supported a determination that the settlement was unreasonable, collusive and reached in bad faith.

XXIX. Nevada

Allstate Ins. Co. v. Miller, 212 P.3d 318 (Nev. 2009). In this case, the insured brought an action against an automobile liability insurer to recover for bad faith failure to file an interpleader complaint, inform the insured of a settlement offer, and agree to a stipulated judgment in excess of the policy limits. The trial court entered judgment on a jury verdict for the insurer. On appeal, the Supreme Court of Nevada affirmed the decision in part, reversed in part, and remanded. The court found that the insurer had no duty to accept an offer of stipulated judgment in excess of the policy limits. The insurer had a duty to adequately inform the insured of the victim's offer to release the insured if the insurer filed an interpleader action. The insurer was not required, however, to file an interpleader action on the insured's behalf.

XXX. New Hampshire

Dumas v. State Farm Mut. Auto. Ins. Co., 274 A.2d 781 (N.H. 1971). Insured was involved in an automobile accident with claimant who filed suit for injuries sustained in the accident. Following an excess verdict in favor of claimant, the insured assigned to claimant his rights to recover the excess amount from his insurer; the insured did not pay the excess judgment. Court held that claimant may maintain an action against an insurer for negligent failure to settle a case without prior payment of or proof of ability to pay the excess judgment. New Hampshire follows the judgment rule whereby an insurer that is held to have committed bad faith is liable for an excess judgment regardless of whether the insured pays, or is capable of paying, anything toward satisfaction of the judgment.

XXXI. New Jersey

Griggs v. Bertram, 443 A.2d 163 (N.J. 1982). Claimant was injured from fight with insured teenage boy. Insured notified insurer who waited several months before disclaiming coverage based on intentional tort exclusion. Claimant and insured entered a settlement where judgment would be entered in favor of claimant and claimant would enforce the judgment against insurer. Court found the insurer was estopped from denying coverage due to untimely disclaimer. It also found insurer could not insist on compliance with cooperation or no action provisions in policy since it did not participate in the settlement negotiations. Court found that where an insurer wrongfully refused coverage and insured is obligated to defend himself in an action that is later held to be covered under the policy, the insurer is liable for the amount of the judgment against the insured or the settlement made by him. The amount must be reasonable and the settlement must be entered in good faith. The initial burden of going forward with proofs of these elements rests on the insured since it had control of the case and the opportunity for discovery. Thereafter, the insurer has the ultimate burden of demonstrating by a preponderance of the evidence that it is not liable because the settlement is neither reasonable nor reached in good faith.

Fireman's Fund Ins. Co. v. Imbesi, 826 A.2d 735 (N.J. Super. Ct. App. Div. 2003). Found settlement unreasonable on its face, collusive and entered in bad faith.

Pasha v. Rosemount Mem'l Park, Inc., 781 A.2d 1119 (N.J. Super. Ct. App. Div. 2001). Found claimants failed to satisfy their burden under Griggs and settlement was collusive.

Pemaquid Underwriting Brokerage, Inc. v. Certain Underwriters at Lloyd's, No. AA-1407-09T2, 2011 WL 4483112 (App. Div. Sept. 29, 2011). Settlement amount was not reasonable because it did not demonstrate any compromise.

XXXII. New Mexico

Continental Cas. Co. v. Hempel, No. 97-2136, 4 F. App'x 703 (10th Cir. 2001) (applying New Mexico law). Insurer filed an action seeking a declaratory judgment that it had no obligation to indemnify its insured, Westerfield, for a judgment in the amount of $26.38 million because the judgment arose out of a collusive settlement. The court found that the settlement was collusive with respect to nonparticipating insurers because claimant agreed not to execute on a judgment against the insured, but he did not agree to release the insured from liability.

Under New Mexico law, insurers that improperly refuse to defend their insureds may lose the right to the claim the insured breached policy provisions and did not cooperate. Also, an insurer that wrongfully fails to defend generally becomes liable for a judgment entered against the insured and for any reasonable settlement entered against the insured in good faith. A settlement that is the product of fraud or collusion at the expense of the nonparticipating insurer would release that insurer from any obligation under the settlement. See also Rummel v. Lexington Ins. Co., 945 P.2d 970 (N.M. 1997).

The court looked to the following factors to consider whether the settlement was reasonable: what a reasonably prudent person would have settled for on the merits of the claim; the procedure through which the settlement was entered (court noted the mere fact a state court judge approved the settlement agreement is not sufficient to render it reasonable), specifically a reviewing court must examine whether there was an independent adjudication of the facts based on an evidentiary showing and whether the process adopted by the parties and the court created the potential for abuse, fraud, or collusion; and, evidence establishing actual fraud or collusion would render the agreement unenforceable against nonparticipating insurers.

The Tenth Circuit affirmed the district court's conclusion that the $23.38 million judgment was unreasonable because it was wildly out of proportion to the valuation of claimant's claim. Furthermore, the Tenth Circuit found that the uncontested trial in which plausible defenses, including the statute of limitations, were not advanced, evidenced collusion.

American Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799 P.2d 1113 (N.M. 1990). A settlement negotiated by insured after insurer unjustifiably failed to defend must be reasonable, and the insurer is not precluded from asserting the defense that the settlement was unreasonable.

XXXIII. New York

Pavia v. State Farm Mut. Auto. Ins. Co., 626 N.E.2d 24 (N.Y. 1993). Insurer failed to accept a time- restricted $100k policy limit settlement demand made by claimant's counsel in a personal injury action. At the time, the insurer was investigating potential liability defenses. Thereafter the insurer made a policy limit offer that was rejected. An excess verdict was entered. The insured assigned its claims against the insurer to claimant in exchange for an agreement not to execute. The court found no bad faith.

Societe Generale Energie Corp. v. N.Y. Marine & Gen. Ins. Co., 368 F. Supp. 2d 296 (S.D.N.Y. 2005). Recognized that when an insurer declines coverage, the insured may settle with third parties without prejudicing its rights against the insurer. The insured need not show actual liability to the party with whom it settled, just potential liability and a reasonable settlement amount in view of the possible recovery and probability of success. The settlement must be made in good faith. Court found settlement in this case was unreasonable as a matter of law because claim had not been pursued in years and then there was an agreement to pay $1.6 million plus fees.

XXXIV. North Carolina

N.C. Farm Bureau Mut. Ins. Co. v. Smith, 743 S.E.2d 647 (N.C. Ct. App. 2013). Automobile insurer brought declaratory judgment action against mother, father, and daughter who had been injured when struck by a car driven by the insured's son. Following the accident, the parties entered into releases and covenants not to execute which included one but not both of the insurers of the vehicle that caused the accident. The court affirmed the trial court's entry of summary judgment in favor of the insurer concluding that the obligations of the insurer were extinguished by the releases and covenants not to execute. The court also concluded that N.C. Gen. Stat. Section 1-540.3 (2011)(governing advance payments and providing that partial payments do not constitute a release or bar to future claims) did not apply. The appellate court did not discern any meaningful distinction between the phrase “legally obligated to pay” as found in the policy at issue in Terrell and the phrase “legally responsible” found in this case. See Terrell v. Lawyers Mut. Liab. Ins. of North Carolina, 501 S.E.2d 923 (N.C. Ct. App. 1998).

Lida Mfg. Co. v. U.S. Fire Ins. Co., 448 S.E.2d 854 (N.C. Ct. App. 1994). The issue presented was whether a consent settlement agreement, which contained a covenant not to execute against the insured, precludes claimants from recovering under a policy which provided coverage only if the insured is legally obligated to pay damages. Court found that when an insurance policy contains language such as “legally obligated to pay,” an insurer has no obligation to an injured party where the insured is protected by a covenant not to execute.

XXXV. North Dakota

Wangler v. Lerol, 670 N.W.2d 830 (N.D. 2003). Wangler was employed by Pine Ridge, a turkey farm. Following an injury at work, Wangler filed suit against Pine Ridge, which submitted the claim to its broker and insurer. The insurer defended, but subsequently withdrew the defense after determining the policy was issued to the sister of Pine Ridge's owner and for a different property. Thereafter, Wangler and Pine Ridge entered into a Miller-Shugart settlement agreement where Pine Ridge stipulated to a judgment against it and, in return, Wangler would seek to satisfy the judgment only from the insurer. The court found Wangler failed to show insurance by estoppel since there was no definite statement by the agent of the insurer that would lead Pine Ridge to believe it had employee liability coverage. The court also held the Miller-Shugart agreement was not a release of Pine Ridge's liability.

McPhee v. Tufty, 623 N.W.2d 390 (N.D. 2001). An insured may enter into a settlement with claimant without violating the cooperation clause if the insurer is denying all liability for coverage. The agreement is binding on the insurer only if: (1) the insured did not violate its contractual duty to cooperate with the insurer; (2) the settlement is not the product of fraud or collusion; and (3) the settlement is reasonable and prudent.

Medd v. Fonder, 543 N.W.2d 483 (N.D. 1996). Medd was injured while working as a bartender at the Bronze Boot, when an off-duty fellow employee, Fonder, caused her to fall and injure her back. Medd filed suit against Fonder. The insurer for Bronze Boot denied coverage for a variety of reasons. Thereafter, Medd and Fonder stipulated judgment could be entered against Fonder and in favor of Medd for $400,000, collectible only from the proceeds of insurance policies. Medd and Fonder agreed the stipulation and accompanying release should be interpreted in accordance under the Miller v. Shugart decision. The court found claimant failed to show the probable cause required under the garnishment statute to warrant granting her leave to file a supplemental complaint against either insurer.

XXXVI. Ohio

Calich v. Allstate Ins. Co., 2004-Ohio-1619 (Ohio Ct. App. 2004). Claimant offered to settle with the tortfeasor by having the tortfeasor enter into a consent judgment of $1,060,000 and an assignment from the tortfeasor of his claims against the insurer. The trial court accepted the consent judgment that was signed by claimant, her attorney and the tortfeasor. Thereafter claimant brought an action against the tortfeasor's insurer contending that the insurer acted in bad faith in regard to an alleged excess judgment against the tortfeasor. The appellate court reversed the trial court's entry of judgment on the jury verdict for claimant finding that a lack of an adjudicated excess judgment against the insurer precluded a bad faith claim. The appellate court refused to promote the manufacturing of a bad faith claim.

Sanderson v. Ohio Edison Co., 693 N.E.2d 19 (Ohio 1994). The court held that by abandoning their insureds to their own devices, the insurer voluntarily foregoes the right to control the litigation and will be bound by the insured's actions, including admissions of liability, as part of settlement negotiations, in the absence of fraud.

XXXVII. Oklahoma

May not have addressed the issue.

Kirkpatrick v. Chrysler Corp., 920 P.2d 122 (Okla. 1996). Held that where agreed or consent judgment is entered against a tortfeasor based on a compromise and settlement, a covenant not to sue or similar agreement will not normally discharge or bar subsequent suit against other potential tortfeasors who might be liable for a single indivisible harm, unless such others are named or otherwise specifically identified as persons to be discharged.

XXXVIII. Oregon

Brownstone Homes Condo. Ass'n. v. Brownstone Forest Heights, LLC, 298 P.3d 1228 (Or. Ct. App. 2013). Condominium association, as assignee of insured siding subcontractor, attempted to garnish insurance policy in construction defect action. The trial court granted the insurer's motion for summary judgment. The appellate court affirmed finding that the association could not, under the Stubblefield rule, garnish the subcontractor's insurance policy to collect the unpaid balance of a stipulated judgment. Under Or. Rev. Stat. §31.825 (2013) (assignment of actions against insurers), the association could not garnish the insurance policy as the judgment against the subcontractor had not been entered when the subcontractor assigned its claim against the insurer. Critical to the court's analysis was the fact that the judgment had not been entered at the time of the assignment.

Portland School Dist. No. 1J v. Great Am. Ins. Co., 249 P.3d 148 (Or. 2011). School District, as assignee of insured roofing contractor whose negligence caused fire damage to the school, brought a breach of contract action against the excess insurer. The appellate court held that the excess policy did not incorporate the underlying policy's anti-assignment clause and under the statute governing assignment of actions against insurers, Or. Rev. Stat. §31.825 (2013), the insured was entitled to assign the claim to the school district. The court rejected the insurer's argument that the statute did not apply because the assignment and release were agreed to in the settlement agreement before any suit was filed against the insured. The court found that the terms of the settlement agreement were conditioned upon the filing of a tort action and entry of judgment against the insured.

Holloway v. Republic Indem. Co. of Am., 147 P.3d 329 (Or. 2006). Claimant filed suit against the insured alleging employment discrimination. The insurer refused to defend. Thereafter, claimant and the insured reached a settlement agreement whereby they stipulated to the entry of a $50,000 judgment against the insured. The settlement included a covenant not to execute against the insured for more than $6,000 and an assignment of the insured's rights against the insurer. The Oregon Supreme Court held that the anti-assignment provision in the policy was unambiguous and invalidated the insured's assignment of its rights under the policy.

Lancaster v. Royal Ins. Co. of Am., 726 P.2d 371 (Or. 1986). The court held that consent judgment arrangements that absolve insured from further liability to claimant eliminate the insurer's obligation to pay and are, in effect, releases.

Stubblefield v. St. Paul Fire & Marine Ins. Co., 517 P.2d 262 (Or. 1973). Claimant settled an action for alienation of affections and criminal conversation against a physician for allegedly seducing claimant's wife. Claimant secured entry of judgment against the physician for $50,000 and received an assignment by the physician of all claims against the physician's insurer in excess of $5,000. Claimant filed suit in recover the amount of the judgment in excess of $5,000. The Oregon Supreme Court held that as a result of the prior covenant not to execute, claimant acquired no rights that were enforceable against the insurer because the insured was not legally obligated to pay anything.

XXXIX. Pennsylvania

Allstate Prop. & Cas. Ins. Co. v Wolfe, No. 39 MAP 2014, 2014 WL 7088147 (Penn. Dec. 15, 2014). Wolfe was injured when his vehicle was struck from behind by an automobile driven by Zierle. Wolfe filed suit against Zierle and amended the complaint to include allegations that Zierle was intoxicated at the time of the accident and sought punitive damages. Allstate defended under a reservation of rights. Wolfe secured a jury verdict and judgment against Zierle for compensatory and punitive damages. Allstate paid the compensatory portion of the judgment. As to the punitive damage portion of the judgment, Wolfe and Zierle entered into an agreement whereby Wolfe committed to forbear from executing in exchange for an assignment from Zierle of all claims arising under the policy which he might possess against Allstate. Relying on the assignment, Wolfe filed an action against Allstate alleging that Allstate's refusal to settle constituted bad faith. Wolfe sought damages under common law contract and pursuant to Section 8371 of the Pennsylvania Judicial Code which authorizes punitive damage awards in bad faith actions.

Addressing a matter of first impression under Pennsylvania law, the Pennsylvania Supreme Court held that an insured can assign the right to assert bad faith damages to an injured claimant and judgment creditor.

General Refractories Co. v. First State Ins. Co., 862 F. Supp. 2d 382 (E.D. Penn. 2012). Manufacturer and supplier of asbestos-containing products sued its insurers for a declaration of excess liability insurance coverage in 33,000 underlying asbestos-related suits. The court denied the insurers' motion for summary judgment finding that that the two-tiered or conditional settlements entered into by the insured were permissible. The court rejected the insurers' arguments that the insured could not prove any damages by virtue of the settlements which provided that claimants would be paid if, and only if, the insured prevailed in the pending coverage litigation.

Keystone Spray Equip., Inc. v. Regis Ins. Co., 767 A.2d 572 (Pa. Super. Ct. 2001). Kennedy was injured when his hand became caught in a conveyor belt that Keystone manufactured and installed at Kennedy's workplace. Kennedy brought a products liability action against Keystone whose insurer declined coverage. Thereafter, Kennedy and Keystone entered into a court-approved consent judgment pursuant to which Keystone admitted negligence and liability for Kennedy's injury. Keystone assigned its rights against its insurer to Kennedy. Kennedy and Keystone filed suit against the insurer for breach of contract and bad faith. The trial court held that the insurer had a duty to defend and indemnify. The appellate court affirmed. Because the insurer wrongfully declined to defend Keystone and the policy actually covered Kennedy's injury, the insurer owed a duty to indemnify Keystone for the settlement assuming it was reasonable in amount.

XL. Rhode Island

May not have addressed the issue.

Conanicut Marine Servs. v. Insurance Co. of N. Am., 511 A.2d 967 (R.I. 1986). A marine owner, which settled suit brought by passenger injured while disembarking from launch, brought action against its insurer to recover the settlement payment and defense costs. The appellate court affirmed the trial court's entry of judgment in favor of the insured. When an insurer refuses to defend the insured pursuant to a general liability policy, it will be obligated to pay the award of damages or settlement against its insured in addition to costs of defense and attorney fees. The insurer could have exercised one of two options instead of completely refusing to defend its insured. It could have entered into a nonwaiver agreement whereby it agreed to defend and the insured recognized the insurer's right to question coverage. The insurer could also file a declaratory judgment action on the issue of coverage.

XLI. South Carolina

Fowler v. Hunter, 668 S.E.2d 803 (S.C. Ct. App. 2008). Motorcyclists brought action against driver of a car that struck and severely injured them and the business that owned the car. The parties reached a settlement where the driver and business assigned their professional negligence claims against their insurance agency to the motorcyclist in exchange for a covenant not to execute. The appellate court reversed the trial court's grant of summary judgment in favor of the insurance agency. It found that even though the driver and the business were insulated from the execution of any judgment by virtue of the covenant, the majority of other courts have allowed such assigned claims to proceed. The court acknowledged that there had to be careful examination of settlement agreements to avoid wrongdoing, citing Ecclesiastes Prod. Ministries v. Outparcel Assocs., 374 S.C. 483, 649 S.E. 2d 494 (Ct. App. 2007). The court concluded that there was no evidence of collusion between the settling parties.

XLII. South Dakota

Kobbweman v. Oleson, 574 N.W.2d 633 (S.D. 1998). An automobile accident victim, as assignee of tortfeasor, brought action against agents for failure to procure additional insurance. While the South Dakota Supreme Court upheld the assignment finding settlement between the victim and the tortfeasor, which included a covenant not to execute in exchange for assignment of cause of action against the agents, was neither intrinsically collusive nor ineffective for lack of damages, it was nonetheless void and against public policy because the tortfeasor purported to waive the statute of limitations defense in connection with the assignment.

XLIII. Tennessee

Clark v. Sputniks, 368 S.W.3d 431 (Tenn. 2012). Following a bar brawl, the patrons brought separate tort actions against the bar and its owner. The insurer declined coverage and declined to defend the lawsuits. The trial court entered default judgments on the issue of liability and entered final judgments in the amounts of $275,000 and $2.5 million to claimants. The appellate court reversed and remanded holding that there was no liability coverage because the incident arose from an assault and battery. Further, the doctrine of estoppel by judgment does not apply to collaterally estop the insurer from arguing the lack of coverage.

XLIV. Texas

State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). Held that an insured's assignment of his claims against his insurer to a claimant is invalid if: (1) it is made prior to an adjudication of claimant's claim against the insured in a fully adversarial trial, (2) the insurer tendered a defense, and (3) either (a) the insurer has accepted coverage, or (b) the insurer has made a good faith effort to adjudicate coverage issues prior to the adjudication of claimant's claim. Further held that in no event is a judgment for claimant against the insured, rendered without a fully adversarial trial, binding on the insurer or admissible in evidence as damages in an action against the insurer.

XLV. Utah

Ammerman v. Farmers Ins. Exch., 450 P.2d 460 (Utah 1969). The insured and claimant filed an action against the insured's auto insurer alleging negligence and bad faith failure to accept an offer of settlement in an amount less than the $10,000 policy limit. The parties had an oral agreement that claimant would not execute upon his judgment if the insured, who was unable to pay the judgment, would cooperate in seeking to have the insurer satisfy the same. The court concluded that the insured need not pay the amount of judgment exceeding policy limits as condition precedent to action against the insurer for failure to settle within policy limits.

Utah follows the judgment rule whereby an insurer that is held to have committed bad faith is liable for an excess judgment regardless of whether the insured pays, or is capable of paying, anything toward satisfaction of the judgment.

XLVI. Vermont

May not have addressed the issue.

In Re Ambassador Ins. Co., 965 A.2d 486 (Vt. 2008). Held that consent-to-assignment clause in policy did not bar the assignment of right to recover under excess liability policy after loss from liability for asbestos-related products.

XLVII. Virginia

Spence-Parker v. Maryland Ins. Grp., 937 F. Supp. 551 (E.D. Va. 1996). The alleged victim of tort brought an action against the liability insurer to recover under a consent judgment against the insured and as assignee of the insured's claims for bad faith denial of coverage. The insurer moved for summary judgment on the issues of bad faith and validity of the consent judgment. The court ruled that to avoid liability for the consent judgment, the insurer had to establish by clear and convincing evidence that the consent judgment was the product of fraud or collusion. The court held that the attorney's failure to inform the judge about the nonadversarial nature of the settlement amounted to constructive fraud. Accordingly, the insurer was entitled to have the consent judgment set aside.

Liberty Mut. Ins. Co. v. Eades, 448 S.E.2d 631 (Va. 1994). Injured pedestrian entered into a stipulated judgment with insured and, after assignment, brought action against insurer seeking satisfaction of the judgment. The Court held that the insurer could not collaterally attack the stipulated judgment which was not procured by fraud or collusion. Virginia does not allow insurers, who have breached their duty to defend, to challenge the enforceability of consent judgments on the grounds of reasonableness. The insurer has burden of proving a preponderance of the evidence fraud or collusion.

XLVIII. Washington

Bird v. Best Plumbing Group, LLC, 287 P.3d 551 (Wash. banc. 2013). Claimant suffered personal injuries and property damage after an insured contractor cut a sewage pipe. Claimant filed suit against the contractor. The contractor's insurer appointed defense counsel without reserving rights. Prior to trial, claimant made a $2 million policy limit demand to insured contractor and insurer offered $350,000. Thereafter, insured negotiated a settlement with claimant for $3.75 million, which included an assignment of the insured's rights against the insurer and a covenant not to execute against the insured. After providing the insurer with notice of the settlement, claimant moved for a determination that the settlement was reasonable under RCW 4.22.060. The trial court allowed the insurer to intervene, but denied its motion for a jury trial. There was a four-day reasonableness hearing that was described as fiercely contested. The trial court concluded $3.75 million was reasonable.

The Washington Supreme Court affirmed. It held that an insured defendant may independently negotiate a pretrial settlement if the insurer refuses in bad faith to settle and that an insured can recover the amount of the judgment from an insurer, even if it exceeds policy limits. It also held that if a trial court deems the amount of the covenant judgment reasonable, then it becomes the presumptive measure of damages in a later bad faith action against the insurer. The court applied the nine Chaussee factors the trial court must consider to determine if the settlement is reasonable: the releasing party's damages; the merits of the releasing party's liability theory; the merits of the released party's defense theory; the released party's relative fault; the risks and expenses of continued litigation; the released party's ability to pay; any evidence of bad faith, collusion, or fraud; the extent of the releasing party's investigation and preparation; and, the interests of the parties not being released. See Chausee v. Maryland Cas. Co., 803 P.2d 1339 (Wash. Ct. App. 1991).

Unigard Ins. Co. v. Mut. Of Enumclaw Ins. Co., 250 P.3d 121 (Wash Ct. App. 2011). Held claimant has burden of proving the covenant judgment is reasonable. Also held insurer gave up right to argue that another is liable for the damages.

Green v. City of Wenatchee, 1999 P.3d 1029 (Wash. Ct. App. 2009). Held that findings and conclusions of law in consent judgment did not collaterally estop or bind insurer as issues had not been judicially addressed prior to settlement.

Besel v. Viking Ins. Co., 49 P.3d 887 (Wash. 2002). Required a bad faith finding before allowing insured to recover more than policy limits.

Miller v. Kenny, 325 P.3d 278 (Wash. Ct. App. 2014). This case involved three passengers who were severely injured in an auto collision. The passengers sued the driver who was defended under a reservation of rights by the auto owner's insurer. The driver assigned rights against the insurer to a passenger. There was a consent judgment for $4.15 million, which exceeded the $2 million policy limit. In a lawsuit against the insurer for bad faith, consumer protection violations and other, the court awarded $13 million plus $1.7 million in attorneys' fees plus post judgment interest, for a total award of over $21.8 million. The court found it was appropriate for the jury to consider damages beyond the consent amount for bad faith.

XLIX. West Virginia

Strahin v. Sullivan, 647 S.E.2d 765 (W. Va. 2007). A landowner's guest sought damages from the landowner and third-party assailant who shot the guest. The court held that the landowner did not have a Shamblin claim for failure to settle within policy limits, which could have been assigned to the guest, as landowner assigned his rights against the insurer prior to trial and was never actually exposed to personal liability for a judgment in excess of policy limits. See Shamblin v. Nationwide Mutual Ins. Co., 183 W. Va. 585, 396 S.E.2d 766 (1990).

The court acknowledged that under West Virginia law, there is an important distinction depending on whether the assignment involves a post-verdict assignment of rights. Here the covenant was executed before the jury rendered its verdict and it was not enforceable.

Horkulic v. Galloway, 665 S.E.2d 284 (W. Va. 2008). Former clients brought legal malpractice action against attorney and third-party bad faith claim against attorney's legal malpractice insurer. The insured attorney confessed to judgment in excess of policy limits. The court found the consent or confessed judgment was not binding on the insurer.

L. Wisconsin

Deminsky v. Arlington Plastics Mach., 259 Wis. 2d 587 (Wis. 2003). A machine operator filed a products liability and negligence action against the seller of a grinding machine that injured him, as well as the buyer, as the seller's indemnitor. Following entry of a stipulated judgment between the seller and the operator in the amount of $1.475 million and assignment of the seller's indemnity rights, the operator sought judgment in that amount, plus costs, against the buyer and its insurer. The trial court entered summary judgment for the operator and against the buyer and its insurer, and awarded damages in the amount of $1.7 million. The appellate court reversed and remanded. On appeal, the Wisconsin Supreme Court held the operator could enforce the agreement, but the indemnitor would be entitled to produce evidence that the settlement was unreasonable, including evidence that the indemnitee faced no potential liability or that the settling parties were involved in fraud or collusion.

LI. Wyoming

Crawford v. Infinity Ins. Co., No. 01-8029, 64 F. App'x 146 (10th Cir. 2003) (applying Wyoming law). Following a settlement between the insured motorist and victim injured in an automobile accident that included a consent agreement in the amount of $700,000, the insured and victim brought a bad faith action against the insurer. A jury found that insurer acted in bad faith but that only a portion of the settlement ($300,000) was fair and reasonable. The Court of Appeals found insurer liable for $300,000. Under Wyoming law, an insurer is protected by the requirement that a settlement be reasonable and by its ability to raise the issues of fraud and collusion. The insured has the burden of proving the settlement is reasonable. A settlement is reasonable if a reasonably prudent person in the position of the insured, under all of the relevant circumstances, would have settled on those terms.

Gainsco Ins. Co. v. Amoco Prod. Co., 53 P.3d 1051 (Wyo. 2002). The insurer defended its insured under a reservation of rights, denying coverage based on two policy exclusions: a pollution exclusion and an insured contract exclusion. The insurer refused a settlement offer within policy limits. Thereafter the insured settled on the following terms (a) the insured confessed judgment in the amount of $716,490.80 plus interest and attorney's fees, (b) an agreement not to execute, and (c) an assignment of any bad faith claims.

The court found that the inclusion of a covenant not to execute in a settlement agreement between the insured and claimant, did not bar claimant, as assignee of the insured, from pursing a claim against the insurer for third-party bad faith. The court held that the contractual indemnittee had the burden of proving the settlement was reasonable. The court concluded that the settlement was not reasonable under the circumstances of the case and therefore was not binding on the insurer. The court also held the insurer should have defended without a reservation of rights because the claims were within the coverage of the policy. The insurer, however, was excused from paying even its policy limits because the unreasonable settlement breached the insurance contract.

Insurance Co. of N. Am. v. Spangler, 881 F. Supp. 539 (D. Wyo. 1995). Insurer brought declaratory judgment action seeking a determination of unenforceability of stipulated judgment of liability in the amount of $450,000 entered against it as a result of a settlement between its insured, whom it was defending under a reservation of rights under a property and casualty policy, and the underlying tort claimant. The insurer argued that the stipulated judgment was unenforceable because the insured entered into the agreement without consent or notice to the insurer on the eve of a jury trial in a wrongful death suit. The court denied the insurer's motion for summary judgment anticipating that the Wyoming Supreme Court would conclude that the insured's assignee could seek recovery of stipulated liability (to which insurer did not consent and the insured is not personally liable) where the insurer defended under a reservation of rights. The court concluded that there were material issues of fact as to whether the insured failed to give the insurer adequate and timely notice and whether the settlement amount was reasonable.