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Current Developments in the Commercial Divisions of the
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Posted: July 24, 2016

Insurer’s Disclaimer of Coverage Excused Insured from Obtaining Its Consent to Settlement

On July 7, 2016, Justice Ramos of the New York County Commercial Division issued a decision in J.P. Morgan Securities Inc. v. Vigilant Insurance Co., 2016 NY Slip Op. 31295(U), holding that an insurer’s disclaimer of coverage excused its insured from obtaining its consent to settle.

In J.P. Morgan Securities, the plaintiffs sought a “declaration that its insurers are required to indemnify it for claims stemming from Bear Stearns’ monetary settlement of Securities and Exchange Commission (SEC) and New York Stock Exchange (NYSE) regulatory proceedings and related private litigation predicated on allegations that Bear Stearns facilitated its customers’ deceptive market timing and late trading activities.” One of the defenses advanced by the insurers was that Bear Stearns breached the insurance contract by settling without the insurers’ consent. The court granted the plaintiffs summary judgment dismissing this defense, explaining:

[T]he repudiation of liability by an insurer on the ground that the loss is not covered by the policy will excuse an insured from complying with the term of the policy obligating it to obtain the insurers’ consent before settlement of any matter, provided that the settlement is reasonable. If the insurer does not establish that the loss falls squarely within a policy exclusion as claimed or otherwise does not constitute a covered loss, the insured is excused from further compliance with its obligations under the policy. An insurer declines coverage at its own risk.

(Internal quotations and citations omitted) (emphasis added).

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