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Babcock & Wilcox Co. v. American Nuclear Insurers

Pennsylvania Supreme Court
131 A.3d 445 (2015)


Facts

Over 500 people sued Babcock & Wilcox Co. and Atlantic Richfield Company (collectively, insureds) (defendants) over emissions from their nuclear facilities. American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters (collectively, insurers) insured both companies and provided a defense under a reservation of rights. Eight test cases resulted in an initial verdict over $36 million, but the court granted a new trial. Before retrial, the insurers claimed the insureds had breached the duty to cooperate, submitted a second reservation-of-rights letter, and filed a declaratory action to resolve their disputes. The insureds counterclaimed that the insurers had refused to consent to settlement and rejected reasonable settlement offers in bad faith. Eventually the insureds settled without the insurers’ consent well under the policy limits, then sought reimbursement from the insurers. Applying an Arizona test, the trial court held that an insurer who is defending subject to a reservation of rights must reimburse the insured for a settlement reached without the insurer’s consent if the claims were covered and the settlement was fair, reasonable, and made in good faith without collusion. The court then held a trial, and the jury found the settlement fair and reasonable. The insurers appealed, and the appellate court reversed. The Pennsylvania Supreme Court granted review.

Rule of Law

Issue

Holding and Reasoning (Baer, J.)

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