Onewest Bank, Fsb v. Houston Casualty Company
676 F. App'x 664
| 9th Cir. | 2017Background
- OneWest Bank (insured) purchased a professional liability policy from Houston Casualty covering Mar 19, 2012–May 15, 2013 with a $10M limit and $2.5M self-insured retention.
- Policy Section 8 required prior written consent from Houston before admitting liability, settling, stipulating to judgment, or incurring defense costs; only insurer-consented settlements/defense costs are recoverable as Loss.
- Assured Guaranty sued OneWest for alleged servicing failures; after settlement negotiations OneWest and Assured executed a settlement term sheet memorializing material settlement terms.
- OneWest did not obtain Houston’s prior written consent before executing the term sheet; it informed Houston only afterward and sought coverage.
- Houston denied coverage based on OneWest’s breach of the Section 8 consent provision; OneWest sued, and the district court granted summary judgment for Houston.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of prior-written-consent clause | OneWest argued coverage should not be barred despite executing the term sheet without consent (argues exceptions or that term sheet was not a final settlement) | Houston argued the clause is clear and unambiguous; failure to obtain prior written consent bars coverage | Court held clause unambiguous; term sheet constituted a final binding settlement and OneWest breached Section 8, barring coverage |
| Whether the term sheet constituted a final, binding settlement | OneWest contended the term sheet did not finalize settlement obligations or that circumstances excused noncompliance | Houston maintained the term sheet set forth all material terms and reflected intent to be bound | Court held the term sheet contained all relevant terms and evidenced intent to enter a final, binding settlement |
| Applicability of exceptions to consent requirement (e.g., insurer breach or economic necessity) | OneWest argued an exception applied to excuse the lack of consent | Houston argued no exception applied here | Court held no exception applied; insurer’s consent requirement enforceable absent extraordinary circumstances |
| Breach of implied covenant of good faith and fair dealing | OneWest alleged Houston unreasonably withheld coverage and thus breached the covenant | Houston argued no benefits were withheld because coverage was properly denied due to policy breach | Court held OneWest could not show Houston withheld benefits; implied-covenant claim failed |
Key Cases Cited
- Low v. Golden Eagle Ins. Co., 2 Cal. Rptr. 3d 761 (Ct. App. 2003) (prior-written-consent provisions are enforceable absent insurer breach, economic necessity, or extraordinary circumstances)
- Jamestown Builders, Inc. v. General Star Indem. Co., 91 Cal. Rptr. 2d 514 (Ct. App. 1999) (insureds cannot unilaterally settle before a claim is established where consent is required)
- AIU Ins. Co. v. Superior Court, 799 P.2d 1253 (Cal. 1990) (contract language is construed according to the mutual intention of the parties and plain meaning)
- Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198 (Cal. 1958) (every contract implies a covenant of good faith and fair dealing)
- Love v. Fire Ins. Exchange, 271 Cal. Rptr. 246 (Ct. App. 1990) (to prevail on an implied-covenant claim against an insurer, insured must show benefits were due and denial was unreasonable)