In Goodyear v. Nat’l Union Fire Ins., Goodyear sought recovery from two of its insurers for fees and costs incurred defending against an SEC investigation and a class action initiated after the company’s announcement that it would restate its earnings for certain previous years. The SEC ultimately terminated the investigation and the lawsuit was dismissed, but not before Goodyear expended approximately $30 million on legal and accounting fees. Goodyear held a $15 million liability limit insurance policy with National Union Fire Insurance Company and a supplemental $10 million policy with Federal Insurance Company, but only in excess of National Union’s policy limits. Goodyear sued both insurers to recover the policy limits, respectively.
After settling with National Union for $10 million—$5 million less than the policy limit—Goodyear continued to seek $10 million from Federal Insurance. Goodyear’s contract with Federal Insurance, however, provided that “Coverage hereunder shall attach only after [National Union] shall have paid in legal currency the full amount of the Underlying Limit for such Policy Period.” (Emphasis in original). The Sixth Circuit held that this provision was unambiguous and limited Federal Insurance’s liability. Indeed, because it was undisputed that National Union paid less than its policy limit, Federal Union was not obligated to pay anything.
Goodyear agreed the provision was unambiguous, but argued that public policy favoring settlements and the fact that Federal Insurance was not prejudiced weighed in its favor. The Sixth Circuit declined to expand the public policy of favoring settlements, reiterating that insurance agreements are to be enforced according to their terms, especially where, as here, the parties are sophisticated. Likewise, the Court rejected Goodyear’s argument that its “less-than-limits settlement” did not prejudice Federal Insurance. It held that the issue is not one of notice, but rather whether Federal Insurance contracted to provide coverage under these circumstances. Under the contract’s plain terms, it did not.