In The Goodyear Tire & Rubber Company v. National Union Fire Insurance Company of Pittsburgh, et al., Goodyear sought reimbursement from its directors and officers liability policies issued by National Union Insurance Company of Pittsburgh (“National Union”) and Federal Insurance Company (“Federal”) for legal costs incurred in defending numerous securities class action and derivative lawsuits and an SEC investigation.  The National Union Policy had an aggregate limit of liability of $15 million, and a $5 million retention for Securities Claims.  The Federal Policy had an aggregate limit of liability of $10 million, which is excess of the National Union Policy.  Goodyear eventually settled with National Union for $10 million.  The Federal Policy contained an exhaustion provision which stated that the policy “shall attach only after the insurers of the Underlying Insurance shall have paid in legal currency the full amount of the Underlying Limit for such Policy Period.” 

Federal argued that because National Union’s settlement with Goodyear for $10 million did not fully exhaust the primary policy, its excess policy was not implicated.  Goodyear argued that Federal’s exhaustion provision was unenforceable, because the interest in enforcing it was outweighed by the strong Ohio public policy favoring settlements.  The Northern District of Ohio rejected Goodyear’s argument and held that “although there is a substantial public interest in encouraging settlements, the Court finds an equally potent interest in fostering freedom of contract and holding parties to the agreements they make.”  The plain language of the Federal Policy did not mean “any lesser amount,” and as a sophisticated party, Goodyear could have negotiated with Federal for a broader exhaustion clause.  Goodyear filed its notice of appeal on October 11, 2011, Case No. 11-4145. The Sixth Circuit will soon have a chance to review this decision and balance the public policy favoring settlements with the freedom of contract.  We will keep you posted as this case progresses.