Summary
barring claim under voluntary payment rule where insurer paid legal malpractice plaintiff under mistaken belief that failing to settle claim could expose it to greater liability
Summary of this case from State Farm Mut. Auto. Ins. v. Midtown Med. CTROpinion
Civil Action No. 98-6769
May 9, 2001
MEMORANDUM
In 1998, Cynthia Clark brought a legal malpractice suit against Carole F. Kafrissen, Esquire, and the Law Offices of Carole F. Kafrissen, P.C. (collectively, "Kafrissen") in the Philadelphia Court of Common Pleas. Kafrissen had previously represented Clark in a medical malpractice action against various health care providers. In response to Clark's suit against her, Kafrissen requested that Coregis Insurance Company ("Coregis"), Kafrissen's malpractice insurance carrier, defend and indemnify her against Clark's claim pursuant to her policy with Coregis. In turn, Coregis undertook Kafrissen's defense, but also filed suit in this court, seeking a declaratory judgment that it was not required to defend or indemnify Kafrissen under the terms of Kafrissen's malpractice policy and requesting rescission of the policy contract. Coregis claimed that Kafrissen's application for malpractice insurance had failed to disclose the existence of Clark's potential claim against her.
Even though Clark's malpractice suit against Kafrissen was stayed in the Court of Common Pleas pending resolution of the coverage question presented in this case, Kafrissen, Clark, and Coregis continued to discuss settlement of Clark's underlying claim. In a letter dated January 13, 2000, Kafrissen's attorney in this case, Ronald Kidd, Esquire, informed Coregis that if Coregis did not discontinue the instant declaratory judgment action, Kafrissen would tender a settlement proposal to Clark on January 14, 2000, the following day. The settlement proposal provided that: (1) Clark and Kafrissen would enter a consent judgment against Kafrissen and in favor of Clark in the amount of $3,000,000; (2) Kafrissen would make no admission of liability to Clark; and (3) Clark would execute a covenant not to execute the judgment against any of Kafrissen's assets. See Letter from Kidd to Ball of 1/13/00, at 1. The clear implication underlying the settlement proposal was that following the execution of such a settlement, Clark would be able to proceed against Coregis directly to satisfy the $3 million judgment.
By letter dated the very next day, January 14, 2000, Coregis's attorney took strong exception to the proposed settlement of Clark's claim contained in Kidd's letter. In the letter, Coregis's attorney cited specific language in Kafrissen's policy that expressly prohibited Kafrissen from settling any claims made against her under the policy without Coregis's consent. See Defs.' Mot. for Summ. J. on Pl.'s Action for Recoupment/Rescission Ex. D at 2. In addition, Coregis's letter put Kafrissen on notice that, should she agree to the entry of the consent judgment seeking to bind Coregis, Coregis reserved the right to "pursue affirmative relief against Ms. Kafrissen for breach of contract, collusion, breach of the covenant of good faith and fair dealing, and any other remedies Coregis may have against Ms. Kafrissen." Id. at 3.
Most importantly, the policy stated that "no INSURED shall, without the prior written consent of the Company, . . . admit liability [or] settle any CLAIMS. . . ." See Defs.' Mot. for Summ. J. on Pl.'s Action for Recoupment/Rescission Ex. D at 2 (capitalization in original).
Following this exchange of letters between Kafrissen and Coregis, no consent judgment between Clark and Kafrissen was ever entered, nor did Clark and Kafrissen otherwise reach a settlement of Clark's malpractice claim. Instead, two months later in March, 2000, Coregis and Clark reached a settlement agreement for $1,000,000 in the underlying action, that was contingent upon Kafrissen consenting to the settlement. Kafrissen agreed to consent to an $800,000 settlement amount, provided that the settlement was "in full and final settlement of all claims, including (a) Cynthia Clark's claims against Carole Kafrissen and Carole F. Kafrissen, P.C. in the underlying legal malpractice action in the Court of Common Pleas of Philadelphia County and (b) Coregis's claims against Carole Kafrissen and Carole F. Kafrissen, P.C. in [the instant case]." See Defs.' Mot. for Summ. J. on Pl.'s Action for Recoupment/Rescission Ex. F (emphasis in original).
Under the terms of the policy, Coregis was not permitted to settle any claim against Kafrissen without her written consent, provided that such consent was not "unreasonably withheld." See id. at 2. Given that Coregis voluntarily made the settlement payment to Clark,, see discussioninfra, the presence of the clause in the policy is not material to the disposition of Kafrissen's motion for summary judgment.
Despite Kafrissen's refusal to consent to the settlement without Coregis's agreement to drop its claim for rescission of its policy with Kafrissen, Coregis subsequently entered into a settlement with Clark dated April 14, 2000 in which Coregis agreed to pay Clark $800,000 in consideration for Clark's release of all claims against Kafrissen. With leave of the court, Coregis then amended its complaint to seek "recoupment/restitution" from Kafrissen for the $800,000 it paid to Clark pursuant to the April 14, 2000 settlement.
Coregis inexplicably continues to contend that Kidd's March 24, 2000 letter to Coregis constitutes Kafrissen's consent to the settlement. The plain language of the letter could not be any more clear, as Kafrissen's consent was expressly conditioned upon Coregis's agreement to drop its claims against Kafrissen.
Kafrissen now contends in her motion for summary judgment that Coregis is not entitled to recover from her the $800,000 that it paid to Clark to settle Clark's claims against Kafrissen, because Coregis's payment to Clark was a voluntary payment. "[I]t is elementary that one who voluntarily pays money with full knowledge of the facts, without any fraud having been practiced upon him, cannot recover it back." Ochiuto v. Prudential Ins. Co., 356 Pa. 382, 384, 52 A.2d 228, 230 (Pa. 1947). Coregis argues that Kafrissen's threat to enter into a consent judgment with Clark, that would purportedly expose Coregis to a $3 million judgment, effectively forced Coregis to enter into the settlement with Clark in order to protect itself from the jeopardy of the possible $3 million consent judgment.
The court in Ochiuto also noted that the voluntary payment rule did not apply where the party was subject to duress. See id.
This argument is entirely without merit. One, the threatened "consent judgment" would not have required Coregis to pay $3 million to Clark. As Coregis's own attorney persuasively stated in his letter to Kidd dated January 14, 2000, the terms of the policy prohibited Kafrissen from entering into such an agreement with Clark and Coregis would have had legal recourse against Kafrissen if she had done so. See Defs.' Mot. for Summ. J. on Pl.'s Action for Recoupment/Rescission Ex. D. Two, under Pennsylvania law, absent an insurer's consent to the entry of judgment against the insured, "any judgment secured by the insured cannot be enforced against the insurer." Sands v. Andino, 404 Pa. Super. 238, 248 590 A.2d 761, 765 (Pa.Super.Ct. 1991). Therefore, it is clear that, as Coregis pointed out when the subject was first broached in January, 2000, a consent judgment agreed upon by Clark and Kafrissen would have had no legal effect upon Coregis.
Coregis cites no legal authority for its claim that Kafrissen's threat to enter into a consent judgment would somehow oblige Coregis to pay the amount of the consent judgment.
To the extent that Coregis subjectively believed that the threat of the consent judgment was not illusory but in fact real, a contention the court finds difficult to countenance in light of Coregis's own persuasive letter of March 24, 2000, to Kidd, Coregis would have been mistaken as to the law concerning Kafrissen's ability to bind Coregis under the insurance contract that Coregis had issued to Kafrissen. "[M]oney paid voluntarily, although under a mistake of law as to the interpretation of a contract, cannot be recovered." Acme Markets, Inc. v. Valley View Shopping Center, Inc., 342 Pa. Super. 567, 569, 493 A.2d 736, 737 (Pa.Super.Ct. 1985) (citing William Sellers Co. v. Clarke-Harrison, Inc., 354 Pa. 109, 113, 46 A.2d 497, 499 (Pa. 1946). Accordingly, Coregis cannot recover from Kafrissen the money that it paid to Clark under the mistaken understanding that Coregis's interests could somehow be injured by Clark and Kafrissen agreeing to enter a consent judgment.
Coregis also argues that there is an exception to the rule regarding voluntary payments where the payor acts in its own self interest. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 447 (5th Cir. 1991); Weir v. Federal Ins. Co., 811 F.2d 1387, 1395 (10th Cir. 1987). According to Coregis, the voluntary payment rule is subject to the exception of "self interest" in addition to fraud and duress. The "self interest" rule concerns the situation where the payor makes a payment while acting in what it believes to be its own self interest. Although it argues forcefully that the "self interest" rule should be applied in this case, Coregis fails to explain the rule's genesis or contours, or even to provide a public policy rationale for applying the rule in this case. Whatever the breadth or pedigree of the "self interest" exception, the parties agree that it has not been applied by any court in Pennsylvania.
A party would appear to be acting in its own self interest whenever it makes a payment. The self interest exception, if adopted, would therefore swallow the voluntary payment rule.
For example, the court in Acme Markets could have applied the self interest rule. In that case, the plaintiff argued that it was entitled to recover for certain maintenance payments that it made under the mistaken impression that it was obligated to do so under the terms of its lease. The court held that because plaintiff's mistake was a mistake of law rather than of fact, it was not entitled to reimbursement for the payments. See id. at 571. Under Coregis's view, the plaintiff should have been entitled to reimbursement because it was acting out of its self interest in making the payments in order to ensure that its right to occupy the property that was subject to the lease continued without interruption. The court has no basis for believing that the plaintiff inAcme Markets actually made such an argument, but merely makes the point to show the indeterminate scope of the purported "self interest" exception to the voluntary payment rule.
In any event, the cases cited by Coregis in support of the "self interest" exception are distinguishable. In Weir, the insurer sought to recover from a third party payments it had made to its insured. Weir thus presents a typical application of the subrogation doctrine, wherein insurers are permitted to "stand in the shoes" of their insured to make claims against third parties who have caused some injury to insured. Under Weir, insurers are protected from waiver of their rights to seek reimbursement from third parties when making prompt payments to their insured in accordance with their fiduciary duties to the insureds. In the instant case, Coregis seeks reimbursement from its insured for payments made to a third party, a much different question than the one presented in Weir.
The court in Weir cited 73 A. Jur. 2D Subrogation § 25 (1974), in support of the proposition that an insurer's payment is not voluntary when it acts with a "personal interest in making th[e] payment." Id. at 1395 n. 6. The examples of "personal interest" quoted by the court are: (1) "subsequent encumbrancers paying off a prior encumbrance, though only when they do so to protect their own interest;" and (2) "where the payor and his property is obligated and the creditor has the right to pursue him or his property." Id. In the former example, the payor would not be a volunteer where it assumed the role of creditor in order to protect its own interest in a debtor's property. In this case, Kafrissen did not have a preexisting obligation to which Coregis merely assumed the role of creditor. In fact, Coregis created the alleged obligation by settling the case with Clark. The latter example cited in Weir is not applicable because the payor in this case, Coregis, was not under any obligation to pay Clark. Coregis would only have become liable to Clark if: (1) Clark prevailed in her claim against Kafrissen; and (2) this court found that Coregis was not entitled to rescind its insurance contract with Kafrissen. As neither one of these conditions, let alone both, were fulfilled, Coregis was not under any obligation to pay. Therefore, the rationale for the self interest exception to the volunteer rule does not support Coregis's position in this case.
Coregis also relies on Arkwright, 932 F.2d at 447, a case from the Fifth Circuit that involved an excess insurer who was forced to defend a claim against its insured when the primary insurer became insolvent. The court in that case found that the claim against the insured was so strong that the excess insurer had "no practical probability of avoiding liability," and thus faced "exposure . . . between $2,000,000 and $5,000,000." Id. In the instant case, Coregis was under no immediate time pressure to settle, because Clark's action had been stayed pending resolution of Coregis's declaratory judgment action, and the threat of the entry of a consent judgment by Kafrissen was illusory. See discussionsupra. Therefore, Coregis was never faced with the dire and immediate circumstances that forced the insurer in Arkwright to settle the underlying claim in that case.
The result reached in this case is supported by the well-reasoned disposition of the Alabama Supreme Court on nearly identical facts inMt. Airy Ins. Co. v. Doe Law Firm, 668 So.2d 534 (Ala. 1995) ("Mt. Airy"). In Mt. Airy, as in this case, an insurance company sought to recover the amount that it had paid a third party to settle a legal malpractice suit brought by the third party against a law firm that had a malpractice insurance policy with the insurance company. The law firm had refused to consent to the settlement negotiated by the insurance company because the insurance company would not agree, as a condition of the law firm's consent to the settlement, that it would waive any right to seek reimbursement from the law firm. The Alabama Supreme Court held that the insurance company was not entitled to recover from the law firm the amount that it paid in the settlement because the insurance company "voluntarily" made the payment, and a voluntary payment in satisfaction of a colorable legal demand on another is not recoverable absent fraud, duress, or extortion. See id. at 537.
Coregis attempts to distinguish Mt. Airy by pointing out that the law firm in that case did not threaten to cut off the insurer's right to offer a defense against the underlying claim by entering into a consent judgment with the plaintiff in the underlying malpractice claim. As the court has previously discussed, however, even if Kafrissen had entered into the consent judgment with Clark, the judgment would have no legal effect on Coregis because "any judgment secured by the insured [without the insurer's consent] cannot be enforced against the insurer." Sands, 404 Pa. Super. at 248, 590 A.2d at 765 (Pa.Super.Ct. 1991). Therefore, the apparent threat by Kafrissen to enter a consent judgment with Clark would not have cut off Coregis's right to offer a defense that it was not required to make payment to Clark based on the underlying claim. Accordingly, Mt. Airy is not distinguishable from the instant case.
Given the Pennsylvania Superior Court's holding in Sands, it appears unlikely that any claim brought by Clark against Coregis in an attempt to execute on the judgment would survive a motion to dismiss.
For the reasons stated above, Kafrissen is entitled to summary judgment on Coregis's claim for reimbursement of the $800,000 paid to Clark to settle Clark's claims against Kafrissen.
Coregis also relies on Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442 (5th Cir. 1991) ("Arkwright"). In that case, a plaintiff reached a settlement with a number of defendants in a personal injury case. A single defendant, Aries Marine, refused to settle for more than $25,000, the amount of its deductible, despite its later admission that the terms of the settlement were reasonable. See id. at 447. Aries was covered by two insurance policies, one of which was a "primary policy" that provided coverage for claims up to $500,000, and the other was an "excess policy" that provided coverage for claims above $500,000 up to $20 million. The primary policy insurer became insolvent. The excess insurer decided to pay the full amount of the portion of the settlement owed by Aries, $982,000, and brought suit against Aries to recover the $475,000 that the primary insurer would have been obligated to pay under the primary policy. The Fifth Circuit found that the excess insurer's payment was not a voluntary one, and ordered Aries to pay the excess insurer $475,000.
Arkwright is distinguishable from the instant case for several reasons. First, the Fifth Circuit in Arkwright found that the excess insurer had "no practical probability of avoiding liability," and faced "exposure . . . between $2,000,000 and $5,000,000." Therefore, it was inevitable, regardless of whether it had agreed to the settlement, that Aries would have had to pay $500,000 as a result of the lawsuit. In the instant case, Coregis had not taken any discovery in the underlying suit by Clark against Kafrissen for malpractice, other than to review documents. Because Clark's malpractice claim turned on the extent to which Kafrissen explained the consequences of an agreement Clark reached with the health care providers in the case that gave rise to Clark's legal malpractice claim, Coregis would have had to take the depositions of Kafrissen and Clark in order to assess the strength of Clark's claim against Kafrissen. Whatever the strength of Clark's claim, it cannot be said that Coregis faced no "practical possibility of avoiding liability."
Second, because Aries had admitted that the terms of the proposed settlement were reasonable, Aries' refusal to settle was, conversely, unreasonable given the strength of the plaintiff's case. Sanctioning such conduct would completely frustrate the public policy of encouraging settlement. By contrast, Kafrissen's refusal to consent to the settlement was reasonable. Although the settlement offered the benefit to Kafrissen of capping the amount for which Kafrissen herself could be liable, it brought no finality for Kafrissen because she knew that Coregis intended to seek reimbursement from her for the amount of the settlement. Furthermore, to the extent that Kafrissen would have to defend the suit brought by Coregis on the ground that she did not commit legal malpractice, the cost of making that defense would shift from Coregis to Kafrissen if Kafrissen consented to the settlement without getting Coregis to waive any claim against her.
Third, the Fifth Circuit in Arkwright made no reference to any contractual provision in the excess insurance policy that gave Aries a right to withhold its consent to a settlement. It is therefore in clear whether Aries even had a contractual right to withhold its consent to the settlement. The existence of the "consent to settle" clause in Kafrissen's policy with Coregis thus makes Arkwright factually distinguishable from the instant case.
The insurance company in Mt. Airy argued that the payment was not voluntary because it gave notice to the law firm prior to entering into the settlement that it disputed the firm's claim under the policy and intended to file a legal action to recover the payment. The court rejected that argument, noting that the line of California cases relied upon by the insurance company require that in order for an insurer to preserve a right to be reimbursed by its insured for the money its pays to settle a claim against the insured, the insurer must first obtain either a written agreement with its insured that it does not waive such a right by making the payment, or obtain a court order granting the insurer the authority to participate in the settlement without waiving any right to reimbursement.Id. (citing Maryland Cas. Co. v. Imperial Contracting Co., 212 Cal.App.3d 712, 260 Cal.Rptr. 797 (Cal.Ct.App. 1989); Val's Painting Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 126 Cal.Rptr. 267 (Cal.Ct.App. 1975)). In Mt. Airy, as in this case, the insured did not consent to any nonwaiver, and the insurer did not obtain a court order that would allow the insurer to take part in the settlement without waiving a right to reimbursement. The Alabama Supreme Court also distinguished the facts presented in Mt. Airy from cases applying the doctrine of subrogation. That doctrine allows an insurance company to "stand in the shoes" of its policy holder. An insurance company is thus permitted to sue a third party for injuries to a policy holder caused by the third party, even after the insurance company has reached a settlement with the policy holder. The court in Mt. Airy distinguished an insurer suing a third party, effectively on behalf of the insured, as occurs under the doctrine of subrogation, and an insurer suing an insured without the insured's consent to be sufficiently different so as to warrant a finding that "the doctrine of subrogation was not applicable. . . ." Id.
This court elects to follow the rule adopted by the Alabama Supreme Court in Mt. Airy in holding that an insurance company may not settle a claim against one of its policy holder's without the policy holder's consent and then seek reimbursement from the policy holder for monies paid pursuant to the settlement when the policy expressly provides that the consent of the policy holder to any such settlement is required. The doctrine of subrogation does not apply in this case, because Coregis is not permitted to "stand in the shoes" of a party asserting a claim against one of its policy holders. As an insurer, Coregis owes both fiduciary and contractual duties to its policy holders vis a vis any party making a claim against the policy holder. Allegiance to these duties prevents Coregis from assuming the adverse position of Ms. Clark in her claim against Kafrissen. In addition, permitting Coregis to assume Clark's position would shift the burden of paying for the cost of Kafrissen's defense from Coregis to Kafrissen.
Coregis's reliance on Weir v. Federal Ins. Co., 811 F.2d 1387, 1395 (10th Cir. 1987), is misplaced. In Weir, the insurer's agent orally agreed to double the coverage limits of the insureds' policy one day before a fire damaged the insureds' home. The insurer at first denied coverage at the higher limits, but then reversed its position. The insurer then sued the appliance manufacturer whose product allegedly caused the fire. The Tenth Circuit permitted the insurer to pursue its claim against the appliance manufacturer. The facts of Weir are distinguishable from the instant case because Weir presents a typical application of the subrogation doctrine. The insurer in Weir did not sue its insured, but instead a third party whose product had allegedly injured its insured. As the court in Mt. Airy noted, the doctrine of subrogation does not apply in the facts presented by the instant case.
Coregis focuses on the statement by the Weir court that the insurer's payment is not voluntary because it acts with a "personal interest in making th[e] payment." Id. at 1395. The court cited 73 A. Jur. 2D Subrogation § 25 (1974), in support of that proposition. The examples given in that source are: (1) "subsequent encumbrancers paying off a prior encumbrance, though only when they do so to protect their own interest;" and (2) "where the payor and his property is obligated and the creditor has the right to pursue him or his property." Id. Those examples provide no support for finding that Coregis had a personal interest in settling Clark's claim, because Clark's claim did not represent a definite obligation on Coregis, only a potential obligation. In addition, neither payor in the cited examples would be under a contractual duty to obtain the consent of the debtor prior to settling the obligation.
Coregis also relies on Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442 (5th Cir. 1991) ("Arkwright"). The facts of that case are unusual and bear no resemblance to the straight-forward facts of this case. The court in Arkwright did not address the central issue of this case, which is whether a "consent to settle" clause in the policy prevents an insurer from proceeding against the insured after the insurer has settled the claim of a third party against the insured without the insured's consent. In addition, Arkwright was decided under Texas law, as opposed to Pennsylvania law.
Coregis's argument that Kafrissen did not give her consent to the settlement is without merit. The letter from Kafrissen's attorney to Coregis dated March 24, 2000 upon which Coregis relies states that Kafrissen authorized Coregis to pay Clark $800,000 "in full and final settlement of all claims, including (a) [Clark's] claims against [Kafrissen] in the underlying malpractice action in the Court of Common Pleas of Philadelphia County and (b) Coregis's claims against [Kafrissen]." Defs.' Mot. for Summ. J. Ex. F (emphasis in original). The plain meaning of the letter thus provides that Kafrissen's consent to the settlement was conditioned on Coregis's release of any claims it had against Kafrissen.
The court notes with disapproval Coregis's attempt to argue that Kafrissen did consent to the settlement by quoting this same sentence within the March 24, 2000 letter but omitting the latter portion of the sentence referring to Coregis's claim against Kafrissen. See Supplemental Resp. to Defs.' Mot. for Summ. J. at 5.
Finally, Coregis contends that it was coerced into settling the case by Kafrissen's alleged threat to enter into a $3 million "consent judgment" with Clark. This argument is puzzling because it is obvious that such a "consent judgment" would have no legal effect against Coregis. Under the terms of Kafrissen's policy, Kafrissen had no authority to enter into a settlement without Coregis's consent, see Defs.' Mot. for Summ. J. Ex. D at 2 ("[N]o INSURED shall, without the prior written consent of [Coregis], . . . settle any CLAIMS. . . ." (emphasis in original)), and any settlement Kafrissen entered into with Clark without Coregis's consent would in no way be binding on Coregis. Nor does Coregis cite to any legal rule which, even in the absence of the specific contract language requiring Coregis's consent to Kafrissen's settlement of any claim against her, would bind Coregis to satisfy any judgment entered pursuant to an agreement reached by Kafrissen and Clark without its consent. Accordingly, the alleged threatened consent judgment in no way renders Coregis's payment to Clark an involuntary one.
In the other case cited by Coregis, Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442 (5th Cir. 1991) ("Arkwright"), an insured's primary insurer, who provided coverage up to $500,000, became insolvent. The insured had an excess insurance policy which provided coverage for liability above $500,000 up to $20 million. At the close of evidence in the trial in the matter, the excess insurer and all of the other defendants in the case reached agreement on a settlement. The insured's obligation under the settlement was $982,000, but the insured refused to pay the $500,000 portion that its primary insurer would have paid, but for the fact that it was insolvent. Rather than allowing the settlement agreement to fall through, the excess insurer paid the insured's entire $982,000 portion and sought to recover $500,000 from the insured. The Fifth Circuit held that the insured had to pay the insurer the $500,000, and that the excess insurer was not a volunteer because it "reasonably believed that it was furthering its own personal interest in paying [the insured's] retained limit." Id. at 447. Arkwright is distinguishable from the instant case for several reasons. First, the Fifth Circuit in Arkwright found that the excess insurer had "no practical probability of avoiding liability," and thus faced "exposure . . . between $2,000,000 and $5,000,000." Therefore, it was inevitable, regardless of whether it had agreed to the settlement, that the insured would have had to pay $500,000 as a result of the lawsuit. In the instant case, Coregis had not taken any discovery in the underlying suit by Clark against Kafrissen for malpractice, other than to review documents. Because Clark's malpractice claim turned on the extent to which Kafrissen explained the consequences of a settlement agreement Clark reached with some of the defendants in the case that gave rise to Clark's legal malpractice claim, Coregis would have had to take the depositions of Kafrissen and Clark in order to assess the strength of Clark's claim against Kafrissen. Whatever the strength of Clark's claim, however, it cannot be said that Coregis knew at the time that it entered into the settlement that it faced no "practical possibility of avoiding liability."
Second, because the insured in Arkwright had admitted that the terms of the proposed settlement were reasonable, its refusal to settle was, conversely, unreasonable given the strength of the plaintiff's case. Sanctioning such conduct would completely frustrate the public policy of encouraging settlement. In the instant case, by contrast, Coregis had no basis for determining that Kafrissen's refusal to consent to the settlement was unreasonable because it had not taken any discovery in the case.
Third, the Fifth Circuit in Arkwright made no reference to any contractual provision in the excess insurance policy that gave Aries a right to withhold its consent to a settlement. It is therefore unclear whether Aries even had a contractual right to withhold its consent to the settlement. The existence of the "consent to settle" clause in Kafrissen's policy with Coregis thus makes Arkwright factually distinguishable from the instant case.
Finally, the excess insurer was under a serious time constraint, in that the case was about to go to the jury. Coregis faced no such time pressures, because Clark's underlying claim against Kafrissen was stayed pending resolution of the question of whether Coregis was entitled to rescission of its policy with Kafrissen. Therefore, Arkwright is distinguishable from the instant case.