When you’re done, you’re done…at least in Ohio. The Sixth Circuit recently held that a settlement exhausts the settling insurer’s policy and precludes non-settling insurers from seeking equitable contribution.
In OneBeacon Am. Ins. Co. v. Am. Motorists Ins. Co., B.F. Goodrich alleged that its insurers were contractually obligated to insure Goodrich against claims by the federal government for soil and groundwater contamination at its plant in Calvert City, Kentucky. AMICO, a primary insurer, settled with Goodrich for $55 million, but OneBeacon refused to settle. Goodrich won in state court, and OneBeacon was ordered to pay $54 million in fees and damages. OneBeacon’s request for settlement credits was denied, and the Ohio Court of Appeals affirmed. OneBeacon then brought a contribution claim against AMICO in federal district court. The district court rejected OneBeacon’s contribution claim.
The Sixth Circuit affirmed, relying on Ohio law that a settled policy is exhausted for purposes of equitable contribution. The court recognized that insurers, like AMICO, would lose much of their incentive to settle if they would still be liable to non-settling insurers for equitable contribution. It said:
A decision allowing OneBeacon to pursue equitable contribution from AMICO would not only fail to encourage settlements, it would actively discourage such settlements. An insurer would have no incentive to settle with a policyholder if it knew that it would be liable to another insurer down the road. And an insurer considering going to trial would be economically rational in doing so if the expected value of prevailing at all exceeds the expected cost of defending the lawsuit.
Thus, the Sixth Circuit ruled that AMICO’s settlement with Goodrich exhausted its policy, precluding OneBeacon from receiving equitable contribution.
(Special thanks to Jennifer Fujawa for her contributions to this post.)