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Applying Missouri law, a California appellate court ruled that a policyholder was obligated to obtain the consent of an excess insurer prior to settling an environmental pollution suit.  Doe Run Res. Corp. v. Fidelity & Cas. Co. of N.Y., 2016 WL 379839 (Cal. Ct. App. Feb. 1, 2016).

Environmental litigation against Doe Run began in 2001.  Doe Run notified its excess insurer, Fidelity, of the suit, but Fidelity did not participate in the defense.  In 2011, Doe Run informed Fidelity of anticipated mediation but did not specify that a potential settlement might implicate Fidelity’s excess coverage.  At mediation, Doe Run agreed to settle for $55 million.  Approximately one month later, in response to a status inquiry, Doe Run informed Fidelity of the settlement.  Shortly thereafter, Doe Run filed suit seeking coverage from Fidelity.  A California trial court granted Fidelity’s summary judgment motion and the appellate court affirmed.

The Fidelity policy provided indemnification for “ultimate net loss,” defined as “the sum actually paid or payable in cash in settlement or satisfaction of losses for which the Insured is liable either by adjudication or compromise with the written consent of the company.”  The appellate court ruled that Doe Run violated this provision by failing to obtain Fidelity’s consent prior to settlement.  The court further ruled that under Missouri law, a violation of a consent clause, without more, is sufficient to preclude coverage.  The court explained that a showing of prejudice is not required, because the “very fact of depriving the insurer of the ‘opportunity to protect its interests’” prior to settlement constitutes prejudice itself.  The court stated, “[t]here [is] no need for the insurer to prove that, despite the loss of that opportunity, it might have done better if it had been notified.”