INSURER PREJUDICED AS A MATTER OF LAW BY INSURED’S VIOLATION OF CONSENT TO SETTLEMENT PROVISION - COURT UPHOLDS SUMMARY JUDGMENT

December 19, 2011

Last Tuesday, the Amarillo Court of Appeals upheld summary judgment in favor of the insurer after finding that the insured’s settlement of negligent construction claims before providing notice to the insurer prejudiced the insurer’s right to settle or defend under a commercial general liability policy.  In Allen Butler Construction Company v. American Economy Insurance Company, 2011 WL 6183575 (Tex.App. – Amarillo, December 13, 2011),  a subcontractor sought coverage as an additional insured for damages it had to pay to the City of Lubbock to replace defective work caused by the insured subcontractor.  The trial court granted summary judgment to the insurer and an appeal followed.

The court of appeals observed that the policy provided the insurer with the right to settle or defend any “claim or ‘suit’” and the additional insured settled the claim with the city before notifying the insurer. And, the policy contained a consent-to-settlement provision providing that no insured would settle or assume any obligation without the insurer’s written consent.  Here, the additional insured presented no evidence that the insurer’s consent was requested prior to settlement and the court found that their failure request it, prejudiced the insurer as a matter of law.  Accordingly, summary judgment in favor of the insurer was affirmed.