The Fourth Circuit affirmed the district court's determination that there was no duty to indemnify after the insured settled without consent of the insurer. Perini/Tompkins Joint Venture v. ACE American Ins. Co., 2013 U.S. App. LEXIS 24865 (4th Cir. Dec. 16, 2013).
The insured, a joint venture, was hired as manager for the construction of a $900 million hotel and convention center. OCIP and excess policies were obtained through ACE. The project was also insured by a Builders Risk Policy through Factory Mutual Insurance Company.
During construction, a rod eroded, causing the atrium to collapse. Substantial property damage occurred and the completion of the project was delayed for several months.
The joint venture was sued for breach of contract and breach of fiduciary duty. Reimbursement of approximately $65 million in damages was sought from the joint venture for an alleged overpayment. The joint venture did not notify ACE of the suit. The underlying suit was settled with the joint venture crediting the owner for over $26 million.
Six months after the settlement and nearly two years after the collapse, the joint venture wrote to ACE advising to the extent that FM Global did not pay the underlying claim, reimbursement would be sought from ACE. However, the letter did not mention the settlement. Ten months later, ACE issued a reservation of rights letter, citing business risk exclusions, late notice, and voluntary payments made without ACE's consent as potential grounds for denial of coverage. Subsequently, FM Global denied the joint venture's claims.
The joint venture sued ACE. The district court granted summary judgment to ACE. The Fourth Circuit affirmed.
The primary policy provided the insured would not, except at its own cost, "voluntarily make a payment, assume any obligation, or incur any expense," without the insurer's consent. Further, the insured could not sue for coverage unless the policy terms had been fully complied with.
The joint venture argued that under a Maryland statute, an insurer could not disclaim coverage for failure to give notice unless there was actual prejudice to the insurer. Therefore, ACE had to show actual prejudice before denying coverage. The Fourth Circuit decided the central issue was whether the insured could unilaterally settle a construction defect case, present a completed settlement to the insurer, and obtain indemnification despite breaching the policy provisions.
Here, the joint venture could not satisfy the conditions precedent of the voluntary payment and no-action clause because they attempted to settle and voluntarily made payment without ACE's consent. The Maryland statute did not apply, so there was no requirement for ACE to show prejudice.
Finally, the joint venture argued ACE had waived its late notice defense because it ignored the joint venture's claim for an unreasonably long period and even told the joint venture it would pay the claim. There was no showing, however, that ACE had intentionally relinquished its rights under the policy.