Eleventh Circuit Certifies Questions to the Supreme Court Regarding Interpretation of Insurance Contracts with Regards to Consenting to Settlement

In Piedmont Office Realty Trust, Inc. v. XL Specialty Insurance Co., No. 14-11987 (Oct. 21, 2014), the Eleventh Circuit certified the following three questions to the Supreme Court of Georgia pursuant to O.C.G.A. § 15-2-9:

“(1) Under the facts of this case, and in light of the Final Judgment and Order in the Underlying Suit which approves of and authorizes and directs the implementation the terms of the settlement agreement, is Piedmont “legally obligated to pay” the $4.9 million settlement amount for purposes of qualifying for insurance coverage under the Excess Policy?

(2) In a case like this one, when an insurance contract contains a “consent-to-settle” clause that provides expressly that the insurer’s consent “shall not be unreasonable withheld,” can a court determine, as a matter of law, that an insured who seeks but fails to obtain the insurer’s consent before settling is flatly barred — whether consent was withheld reasonably or not — from bringing suit for breach of contract or for bad-faith failure to settle? Or must the issue of whether the insurer withheld unreasonably its consent be resolved first?

(3) In this case, under Georgia law, was Piedmont’s complaint dismissed properly?”

During class action litigation naming Piedmont as a defendant in a federal securities class action, Piedmont entered into settlement negotiations with the class action plaintiffs. Pursuant to the insurance policy Piedmont had with XL, Piedmont sought consent to settle the suit for approximately $6 million, the remainder on the policy. XL agreed to contribute only $1 million for settlement. Piedmont, however, agreed to settle for $4.9 million without notice to XL or obtaining XL’s consent. The Final Judgment and Order issued by the district court approved the settlement agreement. After XL refused to cover the full amount of the settlement, Piedmont filed the instant suit for breach of contract and bad-faith failure to settle under O.C.G.A. § 33-4-6. Piedmont appeals from the district court’s grant of XL’s motion to dismiss.

The district court relied on Trinity Outdoor, LLC v. Central Mutual Insurance Co., 679 S.E2d 10 (Ga. 2009), in dismissing Piedmont’s complaint. In Trinity Outdoor, the Georgia Supreme Court held that failure to obtain consent from the insurer prior to settlement barred a suit for breach of contract and for a bad faith failure to settle, based on the policy’s “consent-to-settle” and “no action” provisions. The district court also held that the Final Judgment and Order, entered in the class-action, did not create a “legal obligation” under the insurance contract obligating XL to pay the full amount.

The Eleventh Circuit, however, found several distinguishing facts that could produce a different outcome in this case but have not yet been addressed by any appellate court in Georgia. First, no final court order existed in Trinity Outdoor, while in this case, the district court issued a Final Judgment and Order implementing the settlement agreement. Second, the insurance contract between Piedmont and XL included a requirement that XL’s consent not be “unreasonably withheld” from settlements. Since doubt exists as to how these issues would be resolved under Georgia law, the Eleventh Circuit has asked the Supreme Court of Georgia for its assistance in resolving this dispute.

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