News & Events

Seventh Circuit Affirms Insurer Not Liable for Insured’s Collusive Settlement

August 18, 2017
Skarzynski Black prevailed in an appeal of a summary judgment ruling in favor of its client, Novae Corporate Underwriting, Ltd. The Seventh Circuit Court of Appeals affirmed a ruling by the District Court for the Northern District of Illinois holding that a settlement by an insured defendant was unenforceable against Novae, the insurer.

The case involved a settlement agreement between the plaintiff and the insured defendant that included: (1) a stipulated judgment of $5.12 million judgment against the insured; (2) an assignment of the insured’s rights against the insurer to the plaintiff; and (3) a covenant not to execute on the judgment against the plaintiff.

The plaintiff-assignee subsequently filed an action for declaratory judgment and breach of contract against Novae, as the Lead Underwriter on a Lloyd’s of London policy, seeking to enforce the $5.12 million stipulated judgment. Applying Texas law, the district court granted Novae’s motion for summary judgment, ruling that the insured’s assignment of rights to the plaintiff was valid, but the judgment was not enforceable against the insured’s insurers.

The Seventh Circuit panel affirmed in a unanimous opinion. In addition to agreeing with the district court’s holding that the judgment was unenforceable against the insurer, the Seventh Circuit also held that the assignment was invalid as a matter of law because it violated Texas public policy. Describing the settlement as collusive, the court stated, “This settlement arrangement distorted, complicated, and prolonged the litigation by roping in an insurer that otherwise had no obligation to be involved.”
In addition to litigating the coverage action in the District Court and the Court of Appeals, Skarzynski Black served as monitoring and coverage counsel for Novae and the other Lloyd’s Underwriters in connection with this matter. The case is captioned Hendricks v. Novae Corporate Underwriting, Ltd., No. 16-1712, and the opinion is available on Westlaw at 2017 WL 3573390 and on the Seventh Circuit’s website here.