Piedmont Office Realty Trust, Inc. v. Xl Specialty Insurance Company
297 Ga. 38
Ga.2015Background
- Piedmont purchased a primary policy with Liberty Surplus covering up to $10 million and an excess policy with XL for an additional $10 million.
- The XL excess policy requires Piedmont to be legally obligated to pay a loss and contains a consent-to-settle clause mandating insurer consent for settlements and claims expenses.
- The policy also contains a no-action clause requiring full compliance with policy terms and a final determination of the insureds’ obligation (by judgment or written agreement) before suit against the insurer.
- Piedmont was named in a federal securities class action seeking over $150 million; after extensive litigation, Piedmont settled the underlying suit for $4.9 million without XL’s consent.
- XL contributed $1 million to the settlement but refused to cover the remaining $3.9 million; Piedmont sought coverage and sued for breach of contract and bad-faith failure to settle; the district court dismissed, and the Eleventh Circuit certified Georgia Supreme Court questions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Piedmont was legally obligated to pay the $4.9 million settlement under the excess policy. | Piedmont contends obligations arise from relief in the underlying judgment/settlement and policy terms. | XL contends no obligation exists without XL’s consent and compliance with the consent-to-settle clause. | No; Piedmont was not legally obligated to pay without XL’s consent and fulfillment of the policy’s conditions. |
| Whether the consent-to-settle clause with “consent shall not be unreasonably withheld” allows an insured to sue for bad faith when consent is withheld, or whether this question must be resolved first. | Piedmont argues Trinity should allow recovery despite lack of consent. | XL argues consent is a condition precedent; no settlement unless consent obtained. | The insured cannot pursue bad-faith or settlement-suit absent insurer consent; Trinity controls and requires consent rather than a rights-based rollback. |
| Whether Trinity Outdoor applies even though Piedmont’s policy expressly provides consent would not be unreasonably withheld. | Piedmont asserts Trinity is inapplicable due to express “not unreasonably withheld” phrasing. | Consent remains a condition precedent; insurer may not unreasonably withhold consent, but failure to obtain consent ends liability. | Trinity applies; even with an express provision, insurer cannot unreasonably withhold consent, and settlement without consent cannot trigger bad-faith liability. |
| Whether district court approval of the settlement alters the insurer’s obligation or relieves Piedmont of contract requirements. | District court approval might imply a contractual obligation to pay. | Approval does not create an obligation where consent to settle was lacking; breach remains intact. | District court approval does not create an obligation where consent to settle was absent; relief requires XL consent and policy conditions. |
Key Cases Cited
- Trinity Outdoor, LLC v. Central Mut. Ins. Co., 285 Ga. 583 (2009) (no action clause and consent requirements limit insured settlements; insurer may be liable for failure to settle within policy terms)
- Reed v. Auto-Owners Ins. Co., 284 Ga. 286 (2008) (insureds may be excused from coverage conditions under certain circumstances; discusses policy terms and obligations)
- McCall v. Allstate Ins. Co., 251 Ga. 869 (1984) (insurer’s duty to settle within policy limits and potential bad-faith liability)
- Great American Ins. Co. v. Exum, 123 Ga. App. 515 (1971) (insurer must give equal consideration to insured’s interests when deciding to settle within policy limits)
- S. General Ins. Co. v. Holt, 262 Ga. 267 (1992) (implied covenant of good faith and fair dealing affects settlement decisions)