Blue Ridge Reimbursement: Multi-Party Coordinated Response – CS

CASE STUDY

A construction defect complaint names both a corporation and its president as defendants, both of whom insured by the same $1 million liability policy. The plaintiff has significant injuries. The corporation has significant liability exposure to the plaintiff but is pennyless. The president has little liability exposure to the plaintiff but is wealthy.

The plaintiff offers to settle with both the corporation and the president for the $1 million policy limit. The insurer notifies both policyholders that it intends to accept the settlement offer over their objection with a Blue Ridge reservation to recover the entire $1 million jointly and severally from the corporation and its president. As required by the Blue Ridge opinion, the insurer offers the policyholders two options:

1) accept the settlement and be sued for not Blue Ridge reimbursement; or

2) assume their own defense. The corporation and its president want the case to settle, are willing to expose the corporation to the Blue Ridge reimbursement claim but wish to shelter the president from joint and several liability for the Blue Ridge reimbursement claim.

The corporation takes option number one by accepting the settlement and urging the insurer to pay $1 million on its behalf. In coordination, the president takes option number two by: A) consenting to the insurer settling on behalf of the corporation alone and waiving any bad faith claim related to the fact that the insurer will not settle on behalf of the president; and B) assuming his own defense. The insurer pays its $1 million policy limit to the plaintiff to settle on behalf of the corporation alone. Neither the corporation nor its president assert any claim against the insurer. Separately, the president funds his own settlement with the plaintiff for $10,000 of his own money without the insurer’s consent.

Because the corporation accepted the settlement and accepted exposure to the insurer’s Blue Ridge reimbursement claim, and because the president consented to the insurer not settling on his behalf, the insurer’s duty to settle on behalf of the corporation ripened and the insurer paid its policy limit to the plaintiff to settle on behalf of the corporation.

Because the president assumed his own defense, he secured control of his own defense and his own settlement, freeing him to independently settle with the plaintiff for $10,000, without the insurer’s consent.

Because the insurer did not pay anything on behalf of the president, the insurer has no Blue Ridge reimbursement claim against the president.

Because the corporation is pennyless, the insurer will have little incentive to try to actually recover its perfected Blue Ridge reimbursement claim from the corporation. The net result is: 1) the plaintiff collected $1,010,000; 2) the insurer paid $1 million; 3) the president paid $10,000, 4) the insurer failed to perfect any Blue Ridge right of reimbursement against the president; and 5) the insurer succeeded in perfecting its Blue Ridge right of reimbursement against the corporation but cannot collect on that claim because the corporation is impecunious.

The corporation and its president achieved their goal of settling with the plaintiff while sheltering the president from joint and several liability for the Blue Ridge reimbursement claim. The settlement achieved and the insurer’s impaired ability to collect on its Blue Ridge reimbursement claim reflects the reality that the corporation had significant liability exposure to the plaintiff, while the president did not.

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