Your business has been sued for negligence, but the complaint also references allegedly intentional acts. The potential liability for the company could be catastrophic. This is exactly why your company has liability insurance and you tender it to the insurance carrier. Rather than accept the defense, the carrier denies, pointing to the intentional acts exclusion in the policy. The business spends months fighting the claims, but is unsuccessful in getting the claims dismissed, and doesn’t have the financial resources to fight a second-front battle with its insurance carrier. It is now the eve of trial and you are concerned that there is a likelihood the jury could find the company liable. Furthermore, the company does not have sufficient funds to pay a settlement, much less a significant judgment. Is this the end? In many states, there is another possible path to settlement: a stipulated, or consent judgment. In Minnesota, these consent judgment settlements are known as Miller-Shugart agreements based upon the 1982 Minnesota Supreme Court case of Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982). In a Miller-Shugart agreement, the defendant company agrees to allow the plaintiff to enter a consent judgment against it in exchange for an agreement that the plaintiff won’t seek to satisfy the judgment from the defendant. Instead, the plaintiff pursues payment from the defendant-company’s insurance carrier in a separate garnishment action. A recent Minnesota Court of Appeals case confirmed a policyholder’s right to enter into this type of agreement. In State Farm Mut. Auto. Ins. Co. v. Beauchane, No. A14-0986, 2015 WL 1514025 (Minn. Ct. App. Apr. 6, 2015), the court upheld a Miller-Shugart agreement, finding coverage and rejecting an insurance carrier’s argument that it was not on notice of potential liability because the underlying complaint was not sufficiently specific. The requirements of a Miller-Shugart in Minnesota are that there is coverage under the policy, that the settlement is reasonable under the circumstances, and that the settlement not be the product of fraud or collusion. Other states have similar requirements. Generally, during the garnishment proceedings the burden is on the plaintiff to prove the existence of coverage and that the settlement was reasonable. Additionally, some courts have required settlements to allocate settlement amounts where there are both covered and uncovered claims. Finally, depending on your jurisdiction, it may be beneficial to keep the insurance company informed of the settlement negotiations, or even invite them to participate in any hearings or motions approving of the settlement agreement. Doing so can strengthen your arguments later if you have to fight allegations of collusion or reasonableness, and will also limit the types of technical notice arguments that the carrier may raise. Companies faced with bet-the-company litigation, and who have been abandoned by their liability insurers, may have options if they feel a coverage denial was made in error. A stipulated or consent judgment may allow a company to continue operating and move the attention back to where it belongs -- the liability carrier who agreed to take on those risks.
CONSENT JUDGMENTS: WHEN AN INSURER FAILS TO DEFEND
RELATED ARTICLES
Insurance Coverage for Emerging Contaminants
October 15, 2021 | Policyholder Protection, Environmental, Insurance
New Texas Legislation Would Reallocate Risk for Design Defects
March 16, 2021 | Construction Law, Construction Defects, Spearin
The Tricky Business of Transferring Insurance Rights in Corporate Transactions
March 13, 2020 | Policyholder Protection, Policy, Insurance
Maintaining Vigilance: A Carrier's Acceptance Of Its Coverage Obligations Is Only The Beginning
November 6, 2019 | Policyholder Protection, Risk Management
The Negligent Breach of Contract Problem In Liability Insurance
September 30, 2019 | Policyholder Protection, Insurance
Insurance Coverage for Emerging Contaminants
October 15, 2021 | Policyholder Protection, Environmental, Insurance
New Texas Legislation Would Reallocate Risk for Design Defects
March 16, 2021 | Construction Law, Construction Defects, Spearin
The Tricky Business of Transferring Insurance Rights in Corporate Transactions
March 13, 2020 | Policyholder Protection, Policy, Insurance
Maintaining Vigilance: A Carrier's Acceptance Of Its Coverage Obligations Is Only The Beginning
November 6, 2019 | Policyholder Protection, Risk Management
The Negligent Breach of Contract Problem In Liability Insurance
September 30, 2019 | Policyholder Protection, Insurance
Noise and the Decision to Settle Within Insurance Policy Limits
May 16, 2019 | Policyholder Protection, Insurance
Is a Settlement of a Restitution Claim Covered If Your Policy’s Ill-Gotten Gains Exclusion Applies Only In the Event of a Final Adjudication?
June 11, 2018 | Indiana Insurance Coverage, Insurance, Policyholder Protection
Scott Godes Quoted in Law360 Article, “A Cyberattack Survival Guide for Policyholders”
October 2, 2015 | Cyber Insurance, Data Breach, Policyholder Protection
Join Us for an Insurance Law Webinar: You're Covered, But...
August 4, 2015 | Miscellaneous, Policyholder Protection
Scott Godes Quoted in Law360 Article, "Cyberinsurance Thaw Hinges On Data-Sharing Bills”
April 29, 2015 | Cyber Insurance, Policyholder Protection
Will Cyberinsurance Cover Target’s $19 Million MasterCard Settlement?
April 20, 2015 | Data Breach, Insurance, Policyholder Protection
Scott Godes Quoted in Advisen’s Cyber Risk Network Weekly Download
March 2, 2015 | Cyber Insurance, Policyholder Protection
Five Tips for Building a Better Insurance Coverage Tower
February 26, 2015 | Excess Insurance, Policyholder Protection
Do We Have Coverage for This? Sometimes it's worth getting a second opinion
November 25, 2014 | Claims, Policyholder Protection
RELATED PRACTICE AREAS
Subscribe
Do you want to receive more valuable insights directly in your inbox? Visit our subscription center and let us know what you're interested in learning more about.
View Subscription Center