National Union Fire Insurance Company (National) provided Motiva Enterprises, LLC (Motiva) a $25 million layer of liability coverage. National was sued by Motiva when, after a large loss, the insurer refused to provide coverage.

Motiva, after a negotiation it handled without National, settled a loss with a couple who sued for the injuries the husband suffered in a Motiva refinery explosion (an acid storage tank erupted). Before that settlement, National had offered to defend Motiva against the claim, subject to a reservation of rights. Motiva settled the loss for nearly $17 million and then asked National for reimbursement. After National denied the claim, based on breach of their policy's consent-to-settle and cooperation provisions, Motiva sued the insurer.

Motiva asked a court to rule that the company did not breach the policy. It argued that, since National only offered to defend them under a reservation of rights, it was no longer bound to fulfilling any other policy provisions. The court ruled against the manufacturer and Motiva appealed.

The higher court reviewed both parties' arguments. Motiva stated that there was no breach since its insurer did not offer an unqualified legal defense of the claim. Motiva also argued that, according to state law, the insurer could not refuse to pay the claim unless it proved that its rights were prejudiced. National countered with its position that it still had the right to be involved with any settlement discussions. It also argued that Motiva's action was prejudicial and that Motiva also failed to cooperate with the insurer.

The records showed that Motiva requested that National send a representative to a mediation between Motiva and the injured party. However, Motiva asked the representative to leave the meeting. Afterwards, without the National representative present, Motiva finalized the loss settlement. Prior to the settlement, Motiva had also refused to provide National with copies of legal paperwork related to the claim it just agreed to settle.

After reviewing several related cases, the court held that National's choice to reserve its rights did not affect its requirement that an insured seek permission before agreeing to a settlement. The court also held that the insurer was justified in expecting the insured to cooperate with its efforts to investigate the claim. The higher court viewed Motiva's unauthorized settlement as prejudicing National's rights. The lower court ruling in favor of the insurer was affirmed.

Motiva Enterprises, LLC, Plaintiff-Appellant, v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Defendant-Appellee. U.S. Court of Appeals, 5th Circuit. No 05-20139. Filed March 28, 2006. Affirmed. http://caselaw.lp.findlaw.com/data2/circs/5th/0520139cv1p.pdf [downloaded 03/31/06]