Court Finds Insurer Not Bound by $1 Million Consent Judgment

The Supreme Court of Appeals of West Virginia has held that a consent judgment did not bind a general liability insurer because the insurer was not a party to the lawsuit and did not expressly agree to the judgment.  Penn-America Ins. Co. v. Osborne, 2017 WL 878716 (W. Va. March 1, 2017).

The claimant, a logger, injured his leg in a timbering accident.  He filed suit against his employer and two other parties – the owner of the land and a timber-lessee.  The employer’s general liability insurer denied coverage for the lawsuit.  The two other parties notified the employer that it had a contractual duty to defend them in the suit, but the employer never notified its insurer of the parties’ request for a defense.

The claimant entered into a pre-trial consent judgment with the landowner and timber-lessee without notice to the insurer.  The parties agreed to a $1 million judgment for the claimant (the policy limit) that the claimant would not seek to collect from the two settling parties, and to an assignment of the parties’ claims against the insurer to the claimant.  The claimant dismissed the suit against the two parties and filed suit against the insurer.  The trial court entered summary judgment in the claimant’s favor, finding the insurer bound by the consent judgment.

The appeals court reversed, holding that as a matter of law, the insurer was not bound by the consent judgment because it was not a party to the lawsuit and did not expressly agree to it.  The court also held that the parties’ assignment of claims was void as a matter of public policy.  The court found that the parties had falsely stipulated that the landowner and timber-lessee faced the risk of personal liability for a potential verdict, because in fact their lawsuit was covered by another insurance policy.  Moreover, the parties based their determination of the claimant’s injuries on the $1 million policy limit.  Finally, the insurer had no knowledge of settlement negotiations or the ability to participate.  Highlighting these facts as evidence of possible fraud and collusion, the court held that the settlement agreement impermissibly resulted in “a $1 million windfall for [the claimant’s] injured leg with [the insurer’s] money.”