IN THE SUPREME COURT OF TEXAS
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9552;═══
No. 02-0730
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2;═══
Excess=20
Underwriters at Lloyd=92s, London and Certain Companies =
Subscribing=20
Severally But Not Jointly to Policy No. 548/TA4011F01,=20
Petitioners,
v.
Frank=92s Casing =
Crew &=20
Rental Tools, Inc., Respondent
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#9552;═════════_=
52;══════════=
══════════ =
552;═
On Petition for Review from =
the
Court of Appeals for the Fourteenth =
District of=20
Texas
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9552;═════════λ=
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#9552;═════════_=
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══
Argued February=20
15, 2006
=20
Justice=20
Wainwright, dissenting.
=20
In the heat of trial, an insured and its excess insurer reached =
an=20
agreement to address a situation not covered by the insurance policy. =
The=20
insured accepted a $7.5 million payment from the insurers (including =
$500,000=20
from the primary insurance carrier) to settle the case against it, but =
later=20
objected to enforcement of an express condition in the agreement to =
settle the=20
case on its behalf. A deal is a deal, whether the insurer or the insured =
likes=20
it after the fact. Because the Court=92s holding contradicts this =
principle, I=20
respectfully dissent.
=20
At trial it quickly became clear that defendant Frank=92s Casing =
was the=20
focus of plaintiff ARCO=92s attention. =
Frank=92s Casing=20
and its insurers feared a large verdict that might eclipse the limits of =
its=20
excess coverage. On two prior occasions Frank=92s Casing refused offers =
by the=20
excess underwriters to fund a settlement of the claims brought against =
it by=20
ARCO, subject to the condition that the excess underwriters could seek a =
reimbursement if the settled claims were not covered. The third offer to =
settle=20
the dispute with ARCO for $7.5 million in insurance funds was also =
expressly=20
conditioned on the right of the excess underwriters to seek =
reimbursement of the=20
settlement payment if a later declaratory judgment action determined =
that ARCO=92s claims were not covered by the excess =
policy. Frank=92s=20
Casing did not respond verbally or in writing to the third offer, but =
Frank=92s=20
Casing accepted the $7.5 million check and announced on the record in =
the trial=20
court that it accepted the insurance payment to fund the settlement of =
the=20
dispute and that the settlement with plaintiffs was consummated =93by =
letter dated=20
February 23, 1998.=94 The February 23rd letter contained the =
reimbursement term.=20
The trial court rendered judgment on the settlement. In the subsequent=20
declaratory action brought by the excess underwriters, Frank=92s Casing =
lost its=20
argument that ARCO=92s claims were covered =
by the excess=20
policy on summary judgment and did not appeal the final judgment. Having =
secured=20
millions of dollars from the excess underwriters by virtue of their =
offer to=20
settle the dispute, Frank=92s Casing now claims that it is not bound by =
the=20
express condition in the offer to reimburse the payment by the excess=20
underwriters. By its actions and its statements in the trial court =
confirming=20
the settlement, Frank=92s Casing accepted the February 23rd offer. And =
Frank=92s=20
Casing lost on the issue the parties reserved to finally determine =
whether a=20
right of reimbursement arose=97the trial court determined there was no =
insurance=20
coverage for ARCO=92s claims.
=20
Frank=92s Casing admits that the excess underwriters paid $7 =
million to=20
settle the claims on its behalf. Frank=92s Casing does not dispute that =
the third=20
settlement offer conditioned the right to reimbursement on whether =
coverage was=20
found to exist and did not reject the offer or object to the =
reimbursement=20
condition. Frank=92s Casing lost on the coverage issue. Notwithstanding =
these=20
facts, the Court surprisingly bifurcates the =
settlement=20
offer to allow Frank=92s Casing to accept the benefits of a contract and =
reject=20
its obligations. The Court holds that Frank=92s Casing consented to the =
settlement=20
payment but not to the express condition. Frank=92s Casing, the Court =
holds, can=20
keep the $7.5 million benefit from the agreement but is not bound by the =
obligation to reimburse the excess underwriters when it lost its claim =
that=20
there was coverage of the settled claims. The Court essentially decides =
that the=20
insurer is bound by the deal but that the insured can rewrite the =
deal if=20
it does not like the result.
=20
The Court relies on Texas Association of Counties County =
Government=20
Risk Management Pool v. Matagorda County. 52 =
S.W.3d 128=20
(Tex.=20
2000). In Matagorda County, the Court restricted an =
insurer=92s=20
right to reimbursement of settlement payments later found not to be =
covered by=20
an insurance policy to circumstances where the insurer =93obtains the =
insured=92s=20
clear and unequivocal consent to the settlement and the insurer=92s =
right to seek=20
reimbursement.=94 Id. at=20
135. Matagorda County erected this uncommon =
standard=20
for contract formation even though the standard eschewed traditional =
common law=20
contract principles on the tenets necessary to establish a right to =
recover.=20
I.
=20
Once upon a time, the relationship between insurer and insured =
was fully=20
one of contract and was governed by the terms and conditions of the =
policy.=20
See Progressive County Mut. Ins. Co. v. =
Sink, 107=20
S.W.3d 547, 551 (Tex. 2003) (insurance policy is a contract to be =
interpreted=20
according to contract principles); Barnett v. Aetna Life Ins. =
Co., 723=20
S.W.2d 663, 665 (Tex. 1987) (=93It is a fundamental rule of law that =
insurance=20
policies are contracts and as such are controlled by rules of =
construction which=20
are applicable to contracts generally.=94). Even after common law =
modifications=20
and legislative regulation of the parties=92 consensual relationship, =
see,=20
e.g., Tex. Bus. & Com. Code =
=A7=A7 17.41=96.63;=20
Tex. Ins. Code =A7=A7 541.001=96.454; Arnold v. =
Nat=92l County =
Mut.<=
/SPAN>=20
Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987) (holding that insurers =
owe a duty=20
of good faith and fair dealing toward insureds); G.=20
A. Stowers Furniture Co. v. Am. Indemn. Co., 15 S.W.2d=20
544, 547 (Tex. Comm=92n App. 1929, holding =
approved)=20
(creating a duty to accept reasonable settlement demands within policy=20
limits), the relationship between insurer and =
insured=20
is still fundamentally based on the agreement of the parties. See =
Provident=20
Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 =
(Tex. 2003) =
(insurance=20
policies are interpreted under rules of contract construction); =
Barnett,=20
723 S.W.2d at 665. In an insurance arrangement like the one at issue, =
the=20
insured and insurer enter an agreement for the insurer to cover =
prescribed=20
risks. Generally, the insured pays premiums to protect it against =
certain=20
unrealized fortuitous costs or damages, up to an agreed limit, that it =
may=20
suffer or be obligated to pay. See Eric Mills Holmes, et al., Holmes=92 =
Appleman on=20
Insurance, =A7 1.4, at 22=9623 (2d ed. 1996). A contract of =
insurance=20
obligates the insurer to cover only the risks prescribed in the policy.=20
Id. at=20
29.
=20
The standard of proof for an agreement is straightforward. A =
contract is=20
established when proven by a preponderance of the evidence that an offer =
is=20
accepted, accompanied by consideration. See Fed. Sign v. Tex. S. =
Univ.,=20
951 S.W.2d 401, 408 (Tex. 1997) (=93A contract must be based upon a =
valid=20
consideration, in other words, mutuality of obligation.=94); Haws =
& Garrett=20
Gen. Contractors, Inc. v. Gorbett Bros. =
Welding=20
Co., 480 S.W.2d 607, 609 (Tex. 1972) (=93[T]here must be shown the =
element of=20
mutual agreement which, in the case of an implied contract, is inferred =
from the=20
circumstances.=94). Unusual to Texas=92s common law=20
of contracts, Matagorda County made the existence =
of a=20
contractual agreement in this context subject to =93clear and =
unequivocal=94 proof=20
of acceptance. Matagorda County, 52 S.W.3d at=20
135. Matagorda=20
County provides no =
reasoning to=20
support its creation of that particular standard, but that remains the =
law in=20
Texas. Because=20
the parties reached an agreement on reimbursement, we should decide this =
case by=20
simply enforcing their agreement.
II.
=20
Frank=92s Casing agreed to pay premiums for the provision of =
excess=20
insurance coverage by the excess underwriters in the amount of $10 =
million. ARCO=20
sued Frank=92s Casing and others after an offshore drilling platform =
partially=20
fabricated by Frank=92s Casing for ARCO collapsed in the Gulf=20
of Mexico. The excess underwriters issued a reservation of =
rights=20
letter contesting coverage under its excess insurance policy with =
Frank=92s=20
Casing. When settlement discussions were unfruitful, the case was tried =
to a=20
jury. During the heat of trial, with a large verdict appearing =
increasingly=20
likely, Frank=92s Casing entered another round of settlement discussions =
directly=20
with ARCO and procured a settlement demand of $7.5 million, which =
Frank=92s Casing=20
presented to the excess underwriters. The excess underwriters agreed to =
pay $7=20
million (plus $500,000 from the primary insurer) to settle the case, =
conditioned=20
on their right to seek reimbursement if they were ultimately not =
required to=20
extend coverage for the claims at issue.
=20
At the time the parties were considering the settlement, both =
believed=20
they were in difficult positions. The record indicates that both parties =
believed a substantial verdict, possibly beyond the excess layer of =
insurance=20
coverage, was likely. Both also knew that their original contract of =
insurance=20
did not address the issue of the insurer=92s ability to obtain =
reimbursement of a=20
settlement payment for uninsured claims. Under these circumstances, the=20
following decision trees grew.
=20
During the trial, the excess underwriters had to decide whether =
to fund a=20
settlement for an amount less than their policy limits, which included =
claims=20
potentially not covered by their policy, to avoid the risk of a larger =
judgment.=20
By agreeing to pay a settlement amount that was less than the excess=20
underwriters=92 policy limits, the excess underwriters would avoid a =
verdict that=20
could exhaust their policy limits and potential extra-contractual =
claims. Thus,=20
the excess underwriters would benefit from the proposed settlement.
=20
Frank=92s Casing likewise believed that it was faced with the =
specter of a=20
large jury verdict against it. By settling within the excess =
underwriters=92=20
policy limits, Frank=92s Casing avoided a verdict beyond policy limits, =
a portion=20
of which Frank=92s Casing would be personally liable to pay. The =
settlement would=20
end the trial and vanquish the risk of a large verdict and Frank=92s =
Casing=92s=20
potential exposure for amounts above the excess limits or for the entire =
verdict=20
if there were no coverage. In other words, the settlement would also =
benefit=20
Frank=92s Casing.
=20
The excess underwriters decided to pay their portion of the =
settlement=20
but conditioned their payment on their right to seek reimbursement if =
the claims=20
were proven not to be a risk the parties had agreed to cover under the =
excess=20
policy. The excess underwriters sent a letter on February 23, 1998, =
making this=20
offer to Frank=92s Casing. The letter further stated that the excess =
underwriters=20
=93w[ould] =
contact Arco/Vastar=92s attorney th[at] morning=94=20
to settle the claims against Frank=92s Casing. Frank=92s Casing =
concurred that the=20
settlement was reasonable and not only approved but demanded that the =
excess=20
underwriters consummate the $7.5 million settlement. The excess =
underwriters=20
sent a second letter on February 23rd to confirm the settlement with =
ARCO,=20
copied Frank=92s Casing on the letter, and then filed a declaratory =
judgment=20
action contesting coverage that same day. The next day at the hearing =
before the=20
trial court, which had recessed trial to give the parties the =
opportunity to=20
resolve the dispute, the parties dictated their settlement into the =
record. At=20
the hearing, Frank=92s Casing did not object to any portion of the =
settlement, but=20
asserted that by agreeing to the settlement the excess underwriters =
waived their=20
right to contest =93coverage,=94 making no mention of reimbursement.
=20
Hence, we come to the dispute before this Court. Did Frank=92s =
Casing=20
obtain a windfall=97i.e., payment by its insurer of millions of dollars =
to settle=20
claims against it for which there was no coverage? Or did the excess=20
underwriters voluntarily pay a settlement to obtain the benefits of =
saving=20
potentially millions of dollars from the expected verdict? Two =
sophisticated=20
entities carefully exercised their rights and obligations in light of =
their=20
potential exposure. Both made reasoned decisions they believed to be in =
their=20
best interests under the circumstances. But for the reimbursement =
condition=20
included in the excess underwriters=92 offer accepted by Frank=92s =
Casing, I would=20
conclude that there is no right to reimbursement. Absent the parties =
entering=20
into a legally enforceable agreement, I do not believe that the equities =
of the=20
parties=92 respective circumstances alone support allowing a right to =
recoup the=20
settlement payment.
=20
If Frank=92s Casing=92s only conduct toward the excess =
underwriters upon=20
obtaining the $7.5 million settlement offer from ARCO was to acquiesce =
to a=20
settlement that did not include the reimbursement condition, the excess=20
underwriters would have no right to reimbursement. However, I conclude =
that=20
Frank=92s Casing, by its acceptance of the $7.5 million payment and =
acquiescence=20
in the settlement, bound itself under principles of contract law to the=20
condition that the excess underwriters would be able to seek =
reimbursement.=20
Frank=92s Casing was not simply a beneficiary of its insurer=92s =
settlement, but=20
demanded in a prior letter dated February 19, 1998, that the excess =
underwriters=20
act in a =93reasonably prudent=94 manner, accept the settlement offer =
from ARCO, and=20
do so =93BEFORE a ruling by the court on the contract issues . . . =
[which] could=20
occur at any time, but will occur, at the latest, by beginning of court =
Tuesday=20
of next week.=94 Including the weekend, the following Tuesday, February =
24, 1998,=20
was five days away. The excess underwriters agreed to pay the settlement =
conditionally. The second February 23rd letter, which Frank=92s =
Casing told the=20
trial court was the basis of settlement, provided:
[The=20
excess underwriters] continue to reserve all rights against Frank=92s =
[Casing] as=20
to coverage under the Umbrella Policy, and will hold Frank=92s =
[Casing]=20
responsible for and will seek reimbursement of all sums paid in =
settlement of=20
claims for which no coverage exists under the Umbrella Policy.
(emphasis added). The excess underwriters then =
settled the=20
case against Frank=92s Casing the same day and faxed written =
confirmation to ARCO=20
with a copy to Frank=92s Casing. Frank=92s Casing never asserts that it =
rejected the=20
settlement offer or made a counteroffer. Instead, Frank=92s Casing =
acknowledges=20
that it accepted the settlement offer from the excess underwriters but =
argues=20
that the excess underwriters did not obtain =93Frank=92s [Casing=92s] =
agreement nor=20
its clear and unequivocal consent to seek reimbursement.=94
=20
The second letter sent on February 23rd to the plaintiffs =
confirmed the=20
verbal settlement but stated that the excess underwriters would continue =
to=20
reserve all rights =93against Frank=92s [Casing] as to coverage=94 and, =
for a second=20
time that day, affirmed that they would =93hold Frank=92s [Casing] =
responsible for=20
and will seek reimbursement of all sums paid in settlement of claims for =
which=20
no coverage exists under the Umbrella policy.=94 Frank=92s Casing again =
did not=20
reject but accepted the settlement. After entering the settlement, the =
excess=20
underwriters filed a declaratory judgment action contesting coverage =
that=20
afternoon.
=20
The next morning the trial court recessed the trial to enable the =
parties=20
to dictate their settlement into the record. Frank=92s Casing stated =
that =93by=20
letter dated February 23, 1998=94 (which conditioned settlement on =
reimbursement)=20
from the excess underwriters to the plaintiffs, it had agreed to pay =
$7.5=20
million to settle the case with the plaintiffs. Frank=92s Casing then =
asserted=20
that the excess =93underwriters have either waived their right to =
reserve cover=20
[sic] issues or alternatively [are estopped] =
from=20
asserting any coverage issues since underwriters have agreed to the =
settlement.=94=20
Counsel for the excess underwriters reconfirmed on the trial court =
record:
=20
This settlement is being funded by Frank=92s [Casing=92s] =
umbrella=20
underwriters subject to a full reservation of all rights against =
Frank=92s=20
[Casing] under the umbrella policy. . . . And these [excess] =
underwriters will=20
hold Frank=92s [Casing] responsible for and will seek reimbursements of =
all sums=20
paid [for] the settlement of claims for which no coverage exists under =
the=20
umbrella policy.
The trial=20
court rendered judgment on the agreement dictated into the record. The=20
Settlement Agreement and Release, signed later by Frank=92s Casing and =
the excess=20
underwriters, confirmed that the excess underwriters=92 right to seek=20
reimbursement was not released. The covenants not to sue and the =
releases=20
between the parties did not apply =93to any claims that exist presently =
. . .=20
between Defendant Frank=92s [Casing] and Frank=92s [Casing=92s] Insurers =
arising from=20
the claims asserted by Plaintiffs.=94
=20
Frank=92s Casing has never disputed that the excess =
underwriters=92=20
settlement offer was conditioned on a right to seek reimbursement. =
Frank=92s=20
Casing argues that by its actions it accepted the part of the settlement =
offer=20
providing for the excess underwriters to make a $7 million settlement =
payment=20
but did not accept the condition on that promise. The facts do not =
support=20
Frank=92s Casing=92s position.
III.
=20
A contracting party cannot accept the benefits of a contract and =
disclaim=20
its obligations. W. H. Putegnat Co. v. =
Fid. &=20
Deposit Co. of Md., 29 S.W.2d 1004, 1006 (Tex. 1930) (=93Where one =
accepts the=20
benefits of a contract[,] he must assume its burdens.=94); United =
Concrete Pipe=20
Corp. v. Spin-Line Co., 430 S.W.2d 360, 364 (Tex. 1968) (noting that =
a party=20
may have the right to withdraw his consent before a contract=92s =
performance but=20
not after the promise is accepted or performed); Robert H. Jerry, II, The Insurer=92s =
Right to=20
Reimbursement of Defense Costs, 42 Ariz. L. =
Rev. 13, 72 (2000) (=93[A]cquiescence in and acceptance of the benefits of =
[the=20
party=92s] performance constitute a manifestation of acceptance of the =
terms on=20
which [the party=92s] performance was =
tendered.=94). To=20
effectively decline an offer, some terms of which an offeree disapproves, the offeree=20
must reject the offer or make a counteroffer. See Ashford Dev., Inc. =
v. USLife Real Estate Servs.=20
Corp., 661 S.W.2d 933, 934=9635 (Tex. 1983) (determining that an =
additional=20
term in a loan commitment was a counteroffer); Komet v. Graves, 40 S.W.3d 596, 601 =
(Tex.=20
App.=97San Antonio 2001, no pet.) (holding an =
attempt to=20
change an offer before acceptance operates as a rejection and =
counteroffer).=20
Neither occurred here before the settlement was=20
consummated.
=20
Frank=92s Casing accepted the settlement proposed by the excess=20
underwriters, thereby acquiescing in the terms of the offer, and bound =
itself to=20
the settlement under the law of contracts. See Blue Ridge Ins. =
Co. v.=20
Jacobsen, 22 P.3d 313, 317 (Cal. 2001) (holding an insurer may =
seek=20
reimbursement for settlement of uncovered claims where the insured is =
aware of=20
the reservation but acquiesces). In practice in an insurance context, =
insureds often communicate acceptance of an offer =
by=20
conduct, as in the case of an insured accepting a defense from an =
insurer that=20
reserves its right to deny coverage. In such cases, the insured=92s =
acceptance of=20
the defense is an implied consent to the insurer=92s reservation of the =
coverage=20
issues, =93even in the absence of an express consent or acceptance of =
the offer.=94=20
W. Cas. & =
Sur. Co. v.=20
Newell Mfg. Co., 566 S.W.2d 74, 76 (Tex. Civ. App.=97San Antonio =
1978, writ=20
ref=92d n.r.e.); =
see also=20
In re Halliburton Co., 80 S.W.3d 566, 568 (Tex. 2002) (=93[W]hen an =
employer=20
notifies an employee of changes to the at-will employment contract and =
the=20
employee =91continues working with knowledge of the changes, he has =
accepted the=20
changes as a matter of law.=92=94) (quoting =
Hathaway v.=20
Gen. Mills, Inc., 711 S.W.2d 227, 229 (Tex. 1986)).
=20
Although the excess policy does not address reimbursement, during =
the=20
trial the parties extended their contractual arrangement to address the =
risk of=20
a large verdict by settlement and also agreed on a method to allocate =
the cost.=20
The settlement vanquished the risk of a jury verdict against them. The=20
allocation of the cost of settlement would be based on the outcome of =
the=20
coverage suit. If the settled claims were found to be covered by the =
excess=20
policy, the excess underwriters=92 payment of the settlement would end =
the matter.=20
The contractual relationship would function as intended as the excess=20
underwriters were paid premiums to protect Frank=92s Casing from covered =
risks=20
within policy limits. If the settled claims were found not to be covered =
under=20
the excess policy, the excess underwriters would have a contractual =
right to=20
seek reimbursement of the settlement payment. The Court agrees that the =
parties=20
reserved the coverage question but steadfastly ignores both the fact =
that=20
Frank=92s Casing lost on the issue reserved (on which the parties hinged =
the=20
excess underwriters=92 right to seek reimbursement) and the implications =
of that=20
determination. By the terms of the parties=92 arrangement during trial, =
there=20
arose a right to reimbursement.
=20
The Court concludes that no such agreement was reached or can be =
implied=20
in fact but nevertheless decides that Frank=92s Casing may keep the =
benefit of the=20
offer to pay $7.5 million to settle the case but reject the =
reimbursement=20
condition on the offer. As cited, infra, contract law does not =
allow the=20
Court=92s approach of =93having my cake and eating it, too.=94 A deal is =
a deal, and=20
in Texas we=20
enforce deals. If Frank=92s Casing wanted to reject the condition on=20
reimbursement, it should have rejected the $7.5 million payment on its =
behalf=20
and proceeded with trial, made a counteroffer that excluded the =
condition on=20
reimbursement, or objected to the condition on reimbursement before the=20
settlement was entered. The Court posits that =93the excess =
underwriters=92=20
agreement to accept the settlement in light of Frank=92s Casing=92s =
reimbursement=20
contest implied the insurers=92 consent to Frank=92s Casing=92s =
reservation of the=20
reimbursement question.=94 __ S.W.3d __, __. =
The Court=20
misstates some facts and ignores others. First, the excess underwriters =
did not=20
accept the offer, Frank=92s Casing did; the excess underwriters made the =
offer.=20
Second, as explained, it is true the parties hinged reimbursement on the =
answer=20
to the coverage question. However, again, ignoring the facts, the Court =
refuses=20
to acknowledge that Frank=92s Casing lost its claim of coverage, which =
gave rise=20
to the excess underwriters=92 contractual right to reimbursement.
=20
The Court asserts =93it makes no more sense to say that Frank=92s =
Casing=20
impliedly agreed to reimburse the carriers than it would to say that the =
carriers impliedly agreed to waive their coverage position.=94 =
Id. at=20
__. The Court=92s logic falters as it again ignores material =
facts. The=20
excess underwriters=92 reservation of the right to reimbursement is an =
express=20
condition in the second February 23rd letter (pursuant to which the =
parties=20
consummated the settlement) and acknowledged in the language of the =
subsequent=20
settlement releases. It defies logic in this context to argue that the =
carriers=20
impliedly waived positions they explicitly reserved in writing when the=20
settlement was consummated, explicitly reserved during the hearing in =
the trial=20
court, and then provided for in the settlement documents. The facts of =
Frank=92s=20
Casing=92s agreement to the settlement are, however, very different. =
Frank=92s=20
affirmed on the trial court record that it settled under the terms of =
the second=20
February 23rd letter, affirmatively accepted the $7.5 million check, and =
raised=20
no objection when counsel for the excess underwriters stated, in the =
same trial=20
court hearing on the record, that under the terms of the settlement they =
retained the right to seek reimbursement if the settled claims were =
later held=20
not to be covered.
=20
Frank=92s Casing also argues that recognizing the excess =
underwriters=92=20
contractual right to reimbursement is unfair. I do not agree. A trial =
court=20
decided that the claims against Frank=92s Casing, which the excess =
underwriters=20
agreed to pay to settle, were not covered claims under the excess =
policy.=20
Frank=92s Casing did not appeal that determination, and it is therefore =
settled.=20
Frank=92s Casing is not entitled to insurance coverage for risks for =
which it paid=20
no premiums, and the excess underwriters are not obligated to pay for =
risks they=20
did not agree to cover and for which they received no consideration. =
Should the=20
parties have desired to cover such risks, they could have consented to =
such an=20
arrangement by defining the scope of coverage to include the claims at =
issue and=20
agreeing on premiums to be paid for such coverage. But they did not.
=20
And neither would I create an equitable right to reimbursement in =
this=20
case. Matagorda County left open a very =
small window=20
for insurers to seek reimbursement of settlement payments for claims =
later=20
determined to be outside policy coverage. The parties should sink or =
swim on the=20
agreements they enter, unless the facts are such that they effect a =
change in=20
the parties=92 agreement under traditional principles of contract law, =
are changed=20
by the Legislature, or involve fraud, extortion, mutual mistake of fact, =
or=20
another basis for altering a contract. Deciding this case based on a =
balancing=20
of equitable rights to reimbursement would significantly widen this =
window but=20
would invite insurers and insureds to =
unnecessarily=20
introduce the uncertainty and unpredictability of restitutionary theories into these situations when =
the=20
relationship is one based on contract.
IV.
=20
In conclusion, I would hold that absent an agreement that the =
insured=20
reimburse the insurer for paying to settle a claim that is later held =
not to be=20
covered, there is no right to reimbursement of the settlement payment. =
Such an=20
agreement may be included in the insurance policy or by subsequent =
explicit=20
consent or by conduct.
=20
The parties=92 contractual relationship should govern an =
insurer=92s right to=20
reimbursement. If our analysis of this reimbursement issue were based on =
the=20
common law of contract, determined by the agreements between the =
parties, rather=20
than undefined standards that are foreign to contract law, the law in =
this area=20
would be less perplexing and more certain. Insureds=20
and insurers alike benefit from predictability and certainty in the law. =
=20
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J. Dale Wainwright
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bsp; =20
Justice
OPINION=20
DELIVERED: February 1, 2008