Relative Allocation or Larger Settlement Rule? That is the Question

Silicon Storage Tech, Inc. v. National Union Fire Insurance Company (N.D. Cal., November 19, 2015)

A federal judge for the Northern District of California ruled on a policyholder’s motion in limine seeking a ruling that while they bear the initial burden of proving a portion of the settlement payment falls within the policy, the insurer bears the burden of proving the application of policy limitations. The issue before the court was the applicable legal standard for determining allocation: the larger settlement rule or relative allocation. Under the larger settlement rule, the insurer pays the entire settlement, so long as the underlying case includes at least one covered defendant and it is alleged that all defendants are jointly and severally liable. Alternatively, under relative allocation, the insurer’s obligations towards payment of the settlement are allocated where the wrongful acts solely attributable to uninsured parties has increased the costs of the underlying litigation. The court, following a Ninth Circuit decision, held that the larger settlement rule applied, but only if the policyholder can show the settlement was reasonable and the insurer cannot prove a breach by the policyholder of the policy’s cooperation clause.