Babcock & Wilcox Co. v. American Nuclear Insurers
131 A.3d 445
Pa.2015Background
- Federal class action in 1994 against Babcock & Wilcox Co. and ARCO for nuclear-energy-emissions injuries; litigation expanded to 500+ plaintiffs near facilities.
- ANI defended under a reservation of rights, contesting coverage while providing defense.
- Insureds settled with class plaintiffs in 2008–2009 for $80 million, far below policy limits.
- Insureds sought reimbursement from insurer; policy required insurer consent to settlements under cooperation clause.
- Superior Court adopted Taylor/Insured’s Choice framework; this Court granted review to address issue of first impression.
- Court adopts a Morris fair-and-reasonable-standard variant limited to reservation-of-rights cases where coverage exists and settlement is fair, reasonable, and non-collusive; reverses Superior Court and reinstates trial-court judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard for insurer liability after a reservation of rights | Insureds advocate Morris fair-and-reasonable standard. | Insurer defends under reservation of rights; Cowden-based bad-faith standard should apply. | Adopt variant of Morris; no Cowden bad-faith standard required. |
| Consequences of settling without insurer consent | Settlement should be reimbursable if fair, reasonable, and non-collusive and coverage exists. | Consent-to-settlement clause remains enforceable; settlement without consent breaches contract unless coverage applies. | Insureds may recover if settlement is fair, reasonable, and non-collusive and coverage exists. |
| Taylor/Insured's Choice approach viability in Pennsylvania | Taylor/Insured’s Choice would permit insured to reject defense and settle. | Policy prohibits insureds from rejecting insurer’s defense without breaching contract. | Taylor/Insured’s Choice rejected; not adopted. |
Key Cases Cited
- Cowden v. Aetna Casualty & Surety Co., 389 Pa. 459 (Pa. 1957) (insurer must act in good faith; no absolute duty to settle within policy limits)
- Alfiero v. Berks Mutual Leasing Co., 347 Pa. Super. 86, 500 A.2d 169 (Pa. Super. 1985) (settlement allowable when insurer breaches defense; good-faith/fees may be considered)
- Morris v. Arizona, 741 P.2d 246 (Ariz. 1987) (insurer may be liable for full verdict if bad faith in refusing to settle; settlement fair and reasonable standard)
- Jerry’s Sport Center, Inc., 606 Pa. 584, 2 A.3d 526 (2010) (insurance contracts interpreted with policy language favored for insured when ambiguity exists)
- Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637 (Iowa 2000) (reservations of rights analyzed; insurer must settle or abandon defense to avoid excess exposure)
- Vincent Soybean & Grain Co., Inc. v. Lloyd’s Underwriters of London, 246 F.3d 1129 (8th Cir. 2001) (insurer-defendant reservation-of-rights cases; settled without consent evaluated for liability)
- Cay Divers, Inc. v. Raven, 812 F.2d 866 (3d Cir. 1987) (consent-based settlements and indemnification under reservation of rights)