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Judge: Safeco Can't Recover $1 Million in Defense Costs From Lloyd's Underwriters

Source: Bestweek Wire Services

Posted on 12 Oct 2009

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Safeco Insurance Company of America can't recover more than $1 million in defense costs from some Lloyd's underwriters in connection with a professional liability policy because Safeco didn't have Lloyd's consent to settle an underlying lawsuit, a California state court judge ruled.

Judge Charles F. Palmer of California Superior Court, Los Angeles County, granted summary judgment in Lloyd's favor.

The defendants showed that the no-voluntary payment clause in the policy provided to Safeco is "applicable with respect to the underlying action" and the defendants are excused from providing coverage based on Safeco's failure to obtain the defendants' written consent before entering the agreement, Palmer wrote in the ruling.

A spokesman for Safeco said the company doesn't comment on pending litigation.

Robert P. Firriolo, one of the attorneys who represented certain underwriters at Lloyd's, London and Wurttembergische Versicherung, said Safeco was sued by one of its automobile insurance policyholders, who claimed Safeco committed bad faith and legal malpractice in connection with Safeco's settlement of an accident claim, said Firriolo, of the law firm Duane Morris.

After Safeco began defending that suit, and on the eve of settlement, Safeco turned to its professional liability policy for coverage, Firriolo said. That policy was subscribed to by certain underwriters at Lloyd's and Wurttembergische Versicherung, known as the London insurers, and also New Hampshire Insurance Co., he said.

Firriolo said he and other attorneys in his firm advised Safeco of the requirement in the policy that Safeco obtain the written consent of the insurers prior to Safeco settling the suit against it, Firriolo said. They asked Safeco for specific information to help the London insurers in evaluating the case and any potential settlement, he said.

Without providing the information, and without obtaining insurers' consent, Safeco settled the case at a mediation, Firriolo said. The day after the mediation, Safeco informed the London insurers it settled with its policyholder for $10 million, he said. While the Lloyd's policy had a $10 million deductible, Safeco sought defense fees, costs, and interest of more than $1 million from its insurers, Firriolo said.

Safeco Insurance Company of America currently has a Best's Financial Strength Rating of A (Excellent). Lloyd's currently has a Best Financial Strength Rating of A (Excellent).