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Piedmont Office Realty Trust Inc. v. XL Specialty Ins. Co.

The insured was precluded from pursuing its action against the insurer for breach of contract and bad faith failure to settle after the insured settled a lawsuit against it without the insurer's consent.

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Piedmont Office Realty Trust, Inc. “Piedmont” purchased and maintained two insurance policies – a primary policy issued by Liberty Surplus Insurance Company and an excess coverage policy issued by XL Specialty Insurance Company “XL”. The primary policy provided coverage of up to $10 million for claims against Piedmont. The excess policy provided an additional $10 million in excess of the primary policy’s coverage limits.

The excess policy provides that XL will only pay for a “loss” which Piedmont becomes “legally obligated to pay as a result of a securities claim.” The policy also contains a “consent to settle” clause which reads: “No claims expenses shall be incurred or settlements made, contractual obligations assumed or liability admitted with respect to any claim without the insurer’s written consent, which shall not be unreasonably withheld. The insurer shall not be liable for any claims expenses, settlement, assumed obligation or admission to which it has not consented.” In addition, the policy contains a “no action” clause which reads: “No action shall be taken against the insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, and the amount of the insureds’ obligation to pay shall have been finally determined either by judgment against the insureds after actual trial, or by written agreement of the insureds, the claimant and the insurer.”

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