Exploring The Excess Exposure Playbook

Transcription

1 Insert Program Title Exploring The Excess Exposure Playbook Kelly Castriotta Arch Insurance Chicago, IL Dana Ferestien Williams, Kastner & Gibbs, PLLC Seattle, WA Michael Skoglund BatesCarey LLP Chicago, IL -1-

2 I. Introduction Excess exposure claims can present in many different variations: o A catastrophic personal injury claim for which the insured defendant has only a $1 million liability policy; o o A construction defect lawsuit for which the named subcontractor and the additional insured general contractor are both demanding payment of the same policy limits; Securities fraud lawsuits where numerous claimants are all pursuing the same policy limits. What to do in these circumstances can get tricky. Often, there is no one right or wrong answer. Rather, attorneys representing claimants, insureds and insurers have to weigh the pros and cons of various strategies and options. This paper reviews some of those scenarios and examines the various strategies available (depending on the jurisdiction) and the potential advantages and disadvantages to those strategies. II. The Insurer s Duties In the liability insurance context, the insurer generally has three duties when dealing with claims, whether they involve excess exposure or not: (1) an implied duty of good faith and fair dealing; (2) the duty to defend (though some policies provide only defense cost reimbursement coverage); and (3) the duty to indemnify the insured against covered liability, either in the form of a settlement or a judgment. The duty of good faith is statutorily imposed in some jurisdictions 1 and implied by case law in others. 2 While the duty of good faith often is the basis for bad faith claims against insurers, insureds generally owe a reciprocal duty of good faith to the insurer that can also support a reverse bad faith claim against the insured or a comparative bad faith affirmative defense. For those policies that include a defense obligation, the insurers duty to defend is triggered when a complaint, or other claim, contains an allegation that may be covered by the insurance policy. The duty to indemnify, however, is narrower; an insurer is obligated to indemnify only when there is liability that is actually covered by the policy. 3 While insurance policies do not contain any express duty to settle, many courts recognize that insurers duty of 1 See, e.g., Revised Code of Washington ( The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance. ) 2 See, e.g., Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 658 (1958) ( There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. This principle is applicable to policies of insurance. ) 3 Woo v. Firemans Fund Ins. Co., 161 W.2d 43, 164 P.3d 454 (2007). -2-

3 good faith may obligate them to settle cases in order to protect insureds from liability in excess of their policy limits. 4 III. Excess Exposure Scenarios and Strategies A. Consent, Notice, and Cooperation Liability policies typically contain two provisions that restrict the insured s control over any settlement negotiations. Consent to settlement provisions prohibit an insured from settling a claim without the insurer s consent, except at the insured s own expense. 5 And a Legal Action Against Us clause bars an insured as well as a claimant from suing the insurer for indemnification if the insured negotiates a settlement without the insurer s signed approval. 6 As discussed more in Section III.C. below, these provisions may preclude an insured and claimant from entering into a settlement without the insurer s consent. Whether dealing with an occurrence-based liability policy or a claims made policy, insureds have a duty to promptly notify their insurers of claims and claim circumstances. If an insured fails to comply with a policy s notice provisions, they can forfeit coverage if the delay materially prejudices the insurer or the notice is outside the reporting period in a claims made policy, even absent prejudice. Finally, insureds have a duty to cooperate with their insurer. 7 The extent of that duty turns upon the particular language of the policies involved. But in many states an insured s failure to cooperate does not free an insurer of its coverage obligations unless the insurer can affirmatively prove meaningful prejudice. In practical terms, an insurer cannot respond to a claim of which it is it not aware. And when dealing with large claims that present exposure in excess of policy limits, both insurers and insureds benefit from having more time to investigate and evaluate before making decisions about whether or not to settle. Providing insurers with early notice and a free flow of relevant information and documents should benefit the insured in almost all instances. Such information provides insurers with the resources needed to make prompt decisions and allows for insureds to discuss settlement options with insurers. And in the event that an insurer denies coverage or rejects a settlement offer, the insured may be better positioned to raise arguments regarding whether the insurer unreasonably failed to settle a claim and thereby exposed the insured to liability in excess of policy limits. Insureds, however, sometimes choose not to provide immediate notice. Under a claims made policy, delayed reporting can vitiate coverage in its entirety, even without a showing of prejudice by the insurer, as the majority of courts find that timely notice is an essential and 4 For a detailed discussion of the duty to settle, see The Duty To Settle, 76 Va. L. Rev (1990). 5 See, e.g., Insurance Services Office, Inc. Form CG 00 01, II.2.d (12/07). 6 See, e.g., id., II.3. 7 Field v. State Farm Mut. Auto. Ins. Co., 2014 U.S. Dist. LEXIS 83790, *5 (W.D. Wash. June 18, 2014); Hunter Roberts Constr. Group, LLC v. Arch Ins. Co., 75 A.D.3d 404, 904 N.Y.S.2d 52 (2010). -3-

4 material feature of claims made coverage. 8 Delayed notice to the insurer may not present as significant of a practical risk with occurrence coverage, because insurers bear the burden of proving material prejudice from late notice under that type of coverage. 9 B. Coverage Issues Many jurisdictions impose upon insurers that retain control over the defense, investigation, and settlement of claims under the policy a duty to accept a reasonable settlement offer within limits if the insured s liability is reasonably clear and potential damages exceed policy limits. 10 Insurers that breach their duty to settle within limits may be found to have committed bad faith and held liable for both the full amount of a judgment against the insured in excess of policy limits and other potential damages suffered by the insured. Oftentimes, however, when an opportunity to settle an excess exposure claim within policy limits presents itself, the insurer has raised coverage defenses that may preclude any coverage under the policy. In some jurisdictions, a good faith but mistaken belief that the policy provides no coverage provides the insurer with a complete defense to a bad faith failure to settle claim. 11 In such jurisdictions, an insurer can deny coverage based on its good faith coverage defense without the risk of extra-contractual damages, even in the face of a policy limit demand. Other courts have held, however, that an insurer s reasonable but mistaken belief in a coverage defense does not excuse a failure to settle within limits. 12 In such jurisdictions, handling a policy limits demand can be tricky for the insurer. If the insurer decides to settle the case notwithstanding the coverage defense, the insurer may pay a claim for which it did not underwrite or collect premium. On the other hand, if the insurer denies coverage incorrectly, the insurer can be held liable for the entire resulting judgment in excess of the policy limits, and also possibly consequential or punitive damages depending on the jurisdiction. If the insured has sufficient funds, the insurer may be able to mitigate these risks in a few different ways. For example, some insurance policies contain provisions that allow the insurer to fund a settlement and then recoup from the insured any amount it paid if a court later finds that the policy did not provide coverage. Additionally, some jurisdictions allow an insurer to recoup uncovered amounts it paid on behalf of an insured in settlement of a claim even absent any such provision in the policy, so long as the insurer reserves its rights to recoup such amounts. 13 In 8 See, e.g., Safeco Title Ins. Co. v. Gannon, 54 Wn. App. 330, 774 P.2d 30 (1989) (enforcing claims made requirement without any showing of prejudice). 9 See e.g. Tush v. Pharr, 68 P.3d 1239, 1250 (Alaska 2003) (reversing summary judgment in favor of insurer on late notice defense in an occurrence policy because [t]he burden of showing prejudice from a delay in notice rests with the insurer, not the insured [and g]enerally proof of prejudice to the insurer is a question of fact. ) 10 E.g. Haddick ex rel. Griffith v. Valor Ins., 198 Ill.2d 409, (Ill. 2001). 11 See, e.g., Stevenson v. State Farm Fire & Cas. Co., 257 Ill. App. 3d 179 (Ill. Ct. App. 1993) (insurer cannot be held liable for failure to settle within limits where coverage is fairly debatable). 12 Am. W. Home Ins. Co. v. Tristar Convenience Stores, Inc., No. H , 2011 WL (S.D. Tex. June 2, 2011). 13 See, e.g., Blue Ridge Ins. Cov. v. Jacobsen, 25 Cal. 4th 489 (2001). -4-

5 those situations, the insurer can pay the settlement within limits, and then file an action to recoup any amounts that a court later finds uncovered. In other jurisdictions, however, absent a provision in the policy, an insurer cannot recoup amounts it pays toward a settlement that are later found to be uncovered. 14 Both the insurer and the insured face a quandary in such jurisdictions. If the policy limit settlement is not accepted and an excess judgment results, either the insured or the insurer could face substantial exposure depending on the results of later coverage litigation. Again, if the insured has sufficient assets, these risks can be eliminated through the use of a funding agreement where the insurer agrees to fund the settlement where the insured agrees to repay any amount that a court later finds to be uncovered. That way, the insured can ensure that its liability is capped at the settlement amount and the insurer can ensure that it will not pay a claim that it did not agree to cover. This is an especially effective way for the parties to control their risk in very high exposure claims, such as securities suits, in the face of significant coverage disputes. Not all insureds, however, have the ability to repay the amount that an insurer wishes to contribute to a settlement on the insured s behalf. In that situation, when presented with a policy limit demand in a no recoupment state, the insurer must consider its options in light of the strength of the coverage defense, the insured s potential liability, and the likelihood of an adverse judgment, knowing that a mistaken coverage defense could result in significant excess policy limits exposure. C. Assignments of Rights / Covenant Judgments An insurer faced with a policy limits demand must consider to what extent the jurisdiction allows the insured and the claimant to enter into an assignment of rights and a covenant judgment in excess of policy limits. A typical covenant judgment settlement has three basic elements: (1) The insured stipulates to the entry of a judgment in favor of the claimant; (2) The claimant covenants to enforce the judgment only against the insurer; and (3) The insured assigns its rights related to the claim to the claimant. A covenant judgment settlement can greatly increase an insurer s exposure in some jurisdictions. Miller v. Kenny, 180 Wn. App. 772, 325 P.3d 278 (2014), illustrates the point. The underlying personal injury claims arose out of an automobile accident caused by Safeco s insured. Safeco defended the claims, without reservation, and knew early on that the claimants had severe injuries. Safeco s total limits were at least $1.5 million. After two of the claimants made settlement demands in excess of the policy limits, appointed defense counsel demanded that Safeco tender the policy limits into the registry of the court in exchange for a release of liability. Safeco s adjuster responded that, based on the information received so far, we do not 14 See, e.g., Med. Malpractice Joint Underwriting Ass n of Mass. v. Goldberg, 425 Mass. 46 (1997). -5-

6 see the combined value of the injuries in excess of the policy limits. Safeco later raised its settlement authority to what it claimed to be the total available policy limits. But by that time, the personal injury litigation was close to trial and the plaintiffs attorneys would not accept the total insurance available in order to settle all of the claims. As a result, defense counsel negotiated a settlement under which the insured defendant driver paid $1.8 million and agreed to entry of a judgment against him for additional damages to be approved by the court at a reasonableness hearing. Ultimately, however, there was no reasonableness hearing because Safeco later stipulated to a net judgment amount of $4.15 million. The bad faith trial court granted the claimants motion for summary judgment to establish the $4.15 million covenant judgment as the floor for the damages and later instructed the jury on the categories of additional damages that could be recovered for alleged harm and injury to the personal injury defendant. The jury awarded additional damages based upon, among other things, the insured s emotional distress resulting from Safeco s failure to settle the lawsuit. Including interest, the total verdict was $21 million and was affirmed by the Washington Court of Appeals. Because there is wide variation in how courts treat covenant judgment settlements, it is critical for parties to fully understand the rules in the governing jurisdiction. At one end of the spectrum, Washington uses a hearing before the trial court in the underlying claim to approve the reasonableness of the stipulated judgment amount. 15 If approved as reasonable, the stipulated judgment amount sets the floor but not the ceiling for the damages recoverable in a future bad faith lawsuit against the insurer. 16 And while the insurer gets notice of the reasonableness hearing and is often allowed to intervene in the underlying litigation for the purpose of participating in the reasonableness hearing, it is not entitled to a jury trial or to challenge the amount of an approved stipulated judgment in a subsequent bad faith lawsuit. 17 At the other end of the spectrum, some courts have refused to enforce covenant judgments at all because they violate the voluntary payment and the Legal Action Against Us provisions in a policy. 18 Many courts, however, take a more moderate approach. They recognize covenant judgments. But they allow the insurer to challenge the judgment in later bad faith litigation and 15 Washington courts consider the following nine factors when deciding whether or not a stipulated settlement is reasonable: (1) the releasing claimant s damages; (2) the merits of the releasing claimant s liability theory; (3) the merits of the insured s defense theory; (4) the insured s relative faults; (5) the risks and expenses of continued litigation; (6) the insured s ability to pay; (7) any evidence of bad faith, collusion, or fraud; (8) the extent of the releasing person s investigation and preparation of the case; and (9) the interests of the parties not being released. Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 717, 658 P.2d 120 (1983), overruled on other grounds, Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988); Chaussee v. Md. Cas. Co., 60 Wn. App. 504, 803 P.2d 1339, 812 P.2d 487, review denied, 117 Wn.2d 1018 (1991). 16 Miller, supra at Bird v. Best Plumbing Grp., LLC, 175 Wn.2d 756, 770, 287 P.3d 551 (2012). 18 Klepper v. ACE Am. Ins. Co., 999 N.E.2d 86, 99, 2013 Ind. App. LEXIS 602, 36, 2013 WL (Ind. Ct. App. 2013) (holding voluntary payment provision barred insured from entering into settlement without insurer s consent); Hamilton v. Md. Cas. Co., 27 Cal. 4th 718 (2002) (holding insurer not bound to stipulated settlement amount to which it did not agree even though amount was reasonable). -6-

7 place the burden on the claimant and insured to prove the reasonableness of the stipulated judgment amount. 19 However, a Colorado court recently allowed an insured and claimant to shift the burden of proof back to the insurer by using an arbitration proceeding to set the amount of the judgment rather than just stipulating to an amount. 20 A covenant judgment, however, will not necessarily wash away the shortcomings that may exist in a defending a coverage issue or establishing liability. In most instances, an insurer still should be able to effectively raise both coverage defenses and defects in the underlying claim. 21 For example, in Cincinnati Ins. Co. v. Blue Cab Co., 2014 U.S. Dist. LEXIS (N.D. Ill. May 9, 2014), the court refused to enforce a covenant judgment settlement between a taxi company and an injured passenger for an amount in excess of the taxi company s available policy limits. The accident occurred when the taxi driver lost consciousness and hit a telephone pole. The driver was an independent contractor, and there was no evidence that the taxi company had caused the accident. Although the court rejected the insurer s coverage defenses, it concluded that no reasonable finder of fact would find causation and, therefore, the settlement amount was unreasonable. Aspen Grove Owners Association v. Park Promenade Apartments, LLC, 842 F. Supp. 2d 1298 (W.D. Wash. 2012), provides an example of how a covenant judgment settlement amount can be greatly reduced by the reviewing court. The case involved an apartment building that had been converted into condominiums. The condominium owners association brought defect claims against the developer and the developer representatives who had previously served on the association s initial board of directors. Farmers Insurance Exchange insured the association and it provided a defense to the former director defendants under a reservation of rights because its policy provided breach of fiduciary coverage and the association had alleged, among other things, that the initial directors had breached their duties by failing to order building inspections that would have uncovered ongoing water damage sooner. At mediation, the association demanded that Farmers pay $3.75 million to settle the lawsuit. The next day, after Farmers offered only $230,000, the association and the directors entered into a covenant judgment for $5.75 million. Farmers intervened in the construction defect lawsuit and aggressively challenged the reasonableness of the settlement and sought allocation of any accepted judgment amount between covered and uncovered claims. At Farmers urging, the court found that the stipulated judgment amount was not reasonable and reduced the judgment amount in two significant ways. First, after examining expert evidence regarding the cost of repair, the court reduced the claimed damages amount by more than $2 million. Second, the court reviewed weaknesses in the association s liability theories and applied a 55% discount to account for the lack of a causal link between the directors alleged failure to inspect sooner and property damage that had been ongoing for approximately 15 years. After reducing the judgment to $1.91 million, the court allocated only $300,000 to the breach of fiduciary duty claim covered by Farmer s policy. 19 See, e.g., Miller v. Shurgart, 316 N.W.2d 729, (Minn. 1982). 20 DC-10 Entm t LLC v. Manor Ins. Agency, Inc., 2013 Colo. App. LEXIS 167 (Feb. 14, 2013) (holding burden shifts to insurer to prove that the damages award, as determined by an arbitrator, was unreasonable). 21 Hudson Specialty Ins. Co. v. Brash Tygr, LLC, Nos , (8th Cir., Oct. 7, 2014) (insurer not bound by covenant judgment with respect to the coverage issues raised by the insurer). -7-

8 Insurers can also attack a covenant judgment settlement as collusive and/or inflated especially if the insureds and claimants negotiations do not appear to have been conducted at arm s length. The covenant judgment settlement reached in Water's Edge Homeowners Association v. Water's Edge Associates, 152 Wn. App. 572; 216 P.3d 1110 (2009), illustrates this point. The case also centered around a condominium construction defect claim. And the owners association and developer defendants entered into an $8.75 million covenant judgment settlement after the insurers offered only a few hundred thousand dollars at mediation to settle the claim. The trial court, however, rejected the settlement amount as unreasonable based, in large part, upon evidence of collusion. In its decision affirming rejection of the settlement, the appellate court highlighted several facts that portrayed the relationship between the association and developer and their respective counsel as far less than adversarial. First, during the litigation, the association s counsel provided the developer s in house counsel with a ghost letter designed to spur appointed defense counsel to better prepare the case. Second, the developer defendants hired insurance coverage counsel proposed by the association s counsel, and an from the association s counsel on the topic included the following passage: Both attorneys have had substantial success squeezing every possible nickel out of insurance companies on behalf of their clients. I know of multiple instances where counsel was even able to obtain thousands of dollars paid to their client, the insured, in addition to full indemnity to the plaintiff. Third, while the parties mediated, counsel for the association and the defendants insurance coverage counsel agreed to the amount of the covenant judgment over lunch at a restaurant. Parties considering a potential covenant judgment settlement or evaluating the enforceability of a covenant judgment settlement should consider the following issues and factors: Have the defendants insurers been put on notice of the claim and been given a reasonable opportunity to respond and consider settlement opportunities? Are any participating insurers defending under a reservation of rights? If so, what rules do the relevant jurisdictions apply with regard to control of the defense? Do the insureds have any other assets against which a judgment could be enforced? What is the strength of any coverage defenses asserted by the insurer? If an insurer declines to settle a claim within policy limits, does it face potential exposure for a settlement amount in excess of their limits of coverage? Do the insurance policies contain any provisions that may preclude the insureds/defendants, or limit their ability, to enter into a settlement without the insurers consent? Taking into consideration the merits of the claim, is the settlement amount reasonable? -8-

9 What other evidence is there that the judgment amount was reached by an arm s length process (e.g. a formal arbitration or through a retired judge mediator) versus by potentially non-adversarial or collusive discussions (e.g. discussions over lunch)? D. Multiple Insureds and Multiple Claimants Insurers periodically encounter situations involving claims made against their policies from multiple insureds, multiple claimants, or both. These situations can be especially tricky because they often involve competing demands to limited insurance proceeds that are insufficient to satisfy all of the competing demands. Courts have developed two rules for resolving claims by multiple claimants that exceed an insurer s policy limits: (1) the first to settle rule; and (2) the pro rata rule. 22 The court s opinion in Farinas v. Florida Farm Bureau Gen. Ins. Co., 850 So.2d 555 (Fla. App. 2003) illustrates the first to settle rule. In that case, a liability insurer exhausted its policy limits by settling the claims of three claimants whose claims arose from a car accident where the insured s liability was beyond question. The insurer then filed a declaratory judgment action seeking a declaration that it had no further duty to defend its insured in the remaining claims. The nonsettling claimants intervened and filed bad faith actions alleging that the insurer entered into settlements without regard for the interests of the insured. The court held that, where multiple claims arise out of one accident, an insurer has the right to enter reasonable settlements with some of the claimants, even if the settlements deplete or exhaust the policy limits such that the claims of other claimants are unable to be satisfied. The court cautioned, however, that the insurer is obligated to investigate all of the claims and determine how to best limit the insured s liability, and that all settlements entered by the insurer must be reasonable. The second rule the pro rata rule applies in some jurisdictions where multiple claims are combined in one lawsuit and the available policy limits are inadequate to satisfy the full amount awarded to each claimant. In such cases, the policy limit is distributed on a pro rata basis in accordance with the damages suffered by each claimant. See Christlieb v. Luten, 633 S.W.2d 1239 (Mo. App. 1982); Wondrowitz v. Swenson, 392 N.W.2d 449 (Wis. App. 1986). In Christlieb, for example, a claimant who was injured in an auto accident that also killed two other boys sought to reapportion the allocation of a $20,000 policy limit owned by the insured who caused the accident. The claims of all three claimants were consolidated into a single lawsuit, which resulted in separate judgments in favor of each claimant for a combined total in excess of $500,000. The claimant, having by far the smallest damages, sought an equal one-third share of the policy limit whereas the trial court apportioned the policy limit according to the pro rata percentage of total damages suffered by each claimant. On appeal, the court found that the trial court s pro rata allocation of applicable policy limit was proper, and upheld the allocation. 22 A third rule the first to judgment rule which gives first priority to insurance proceeds to those claimants who first obtain judgment has been criticized due to practical concerns such as the length of time between filing and judgments, and creating a race to the courthouse. -9-

10 Not only must insurers deal with multiple claimants, but insurers often encounter competing claims from multiple insureds seeking defense or indemnity coverage for claims asserted against an insufficient policy limit. Sometimes policy language can resolve this issue. For example, many directors and officers policies have priority of payments provisions that specify which class of insureds should be paid first from the policy proceeds (e.g., outside directors versus inside directors versus officers). Absent policy language directing the parties as to which insureds should be paid first, insurers can face a dilemma when they receive a demand to settle claims on behalf of some but not all insureds, which will deplete or exhaust the policy limits available to the non-settling insureds. If the insurer accepts the settlement, the non-settling insureds may accuse the insurer of treating them unfairly. On the other hand, if the insurer rejects the settlement in order to preserve policy proceeds for the benefit of other insureds, the insured who had the opportunity to settle may accuse the insurer of a bad faith breach of the duty to settle. To resolve competing claims by multiple insureds, some courts rely on the first to settle rule, which holds that an insurer presented with an opportunity to enter a reasonable settlement within its policy limits can enter into such a settlement even though it may reduce or exhaust policy proceeds available to other insureds. For instance, in Pride Transportation v. Continental Casualty Co., 511 F. App x 347 (5th Cir. 2013), an insured trucking company (Pride) sued its primary and excess liability insurers for breach of contract and bad faith for ceasing to defend Pride after they entered a policy limits settlement on behalf of one of Pride s drivers (Harbin), a co-insured under Pride s policies, which left Pride without coverage. There, Harbin struck the underlying claimant s pickup truck, resulting in severe injuries that left him paralyzed. The claimant and his wife sued Pride and Harbin. Harbin s defense counsel valued the case at $8-$10 million and Pride s counsel acknowledged that liability might exceed the $5 million combined primary and excess policy limit. After learning that Harbin falsified her driver logs to avoid restrictions on the hours she could work, the claimants made a settlement demand upon Harbin for the full $5 million limit of the policies, to which the insurers agreed. Despite the fact that Pride was left without coverage, the court held that the insurers did not breach any duty by accepting the settlement because the claim was within the scope of coverage, within the policy limits, and an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured s potential exposure to an excess judgment. The court concluded that Pride s insurers did not breach their policies or engage in bad faith, and affirmed summary judgment in favor of the insurers. On the other hand, some courts have rejected the first to settle rule when multiple insureds raise competing claims to an insufficient policy limit. For example, the court in Schwartz v. State Farm Fire & Casualty Co., 88 Cal. App. 4th 1329 ( Cal. Ct. App. 2001) held that an insurer facing multiple claims on a limited pool of funds has at least two means of protecting itself without breaching its duty to either insured. The first is to seek a negotiated agreement among the insureds as to a fair apportionment of the pool of funds. If that approach fails, an insurer may file an interpleader action as other insurers do when faced with multiple claimants to a single fund. Indeed, filing an interpleader action should insulate an insurer from any claim that it breached any duty in connection with the settlement of claims if there are multiple insureds -10-

11 competing for a limited policy limit. The point is illustrated in Lexington Ins. Co. v. Hovensa, No , 2009 WL (D.V.I. Sept. 8, 2009). In that case, Lexington issued employment practices liability policies with a combined limit of $6 million to Jacobs Maintenance, a contractor hired to perform maintenance at a refinery (Hovensa). Hovensa was named as an additional insured on the Lexington policies. Between 2000 and 2002, several workers sued Jacobs Maintenance and Hovensa for workplace discrimination. Lexington agreed to defend and indemnify Jacobs Maintenance and Hovensa, and spent approximately $2.4 million to defend and settle some of the suits, leaving approximately $3.6 million in remaining limits and 17 active lawsuits. Lexington informed Jacobs Maintenance and Hovensa that it would not settle any more claims without the consent of both defendants. Hovensa negotiated a proposed settlement in 13 of the lawsuits suits and demanded that Lexington tender its remaining limits to pay the proposed settlement. Jacobs Maintenance objected to the settlement. Lexington declined to accept the settlement, stating that it could not exhaust the policy for a settlement that Jacobs Maintenance did not approve. Soon after refusing to pay the settlement, Lexington filed an interpleader action. Lexington alleged that the additional defense and liability costs in the remaining lawsuits would exceed its policy limits and Lexington deposited a bond with the court in the amount of the remaining policy limits. Hovensa filed a counterclaim for breach of contract against Lexington for refusing to pay the settlement. In granting summary judgment in favor of Lexington on Hovensa s counterclaim, the court explained that Lexington was an innocent stakeholder that was not responsible for the competing demands made against the policy. The court stated that had Lexington attempted to resolve the distribution of proceeds in favor of either insured, it would have placed itself in an untenable position. The court concluded that Lexington could not be held liable for filing an interpleader instead of choosing between its two insureds since these circumstances are the very reason interpleaders exist. IV. Conclusion As the cases reviewed above make clear, there is no magic bullet to successfully resolve the many thorny issues that can arise in the context of an excess exposure claim. But the strategies set forth in this paper, when examined in light of the particular facts and applicable case law of each specific case, will allow the parties to navigate their options in a way that minimizes risk to everyone involved. -11-