## Facts

- Residents living near nuclear fuel processing facilities owned or operated by The Babcock & Wilcox Company (B&W) and Atlantic Richfield Company (ARCO) filed a federal class action in 1994 alleging bodily injury and property damage from radioactive and other emissions.
- The litigation expanded to over 500 named plaintiffs; B&W and ARCO denied causation and wrongdoing.
- A 1998 jury trial of eight test cases produced a verdict exceeding $36 million; a new trial was later granted and a retrial did not occur.
- American Nuclear Insurers (ANI) and Mutual Atomic Energy Liability Underwriters (MAELU) issued nuclear liability policies and provided a defense under a reservation of rights, disputing coverage for certain categories of damages and remedies.
- ANI/MAELU repeatedly refused to consent to settlement opportunities, asserting a strong likelihood of a defense verdict based on perceived weaknesses in plaintiffs’ proof and favorable rulings in the underlying case.
- In 2008 and 2009, after being denied consent, B&W and ARCO settled the class action without insurer consent for a total of $80 million and sought indemnification under the policies.
- ANI/MAELU denied reimbursement, asserting that the settlements breached consent-to-settle and cooperation conditions and therefore forfeited coverage.

## Issues

1. Whether an insured forfeits coverage by settling an underlying tort action without the insurer’s consent when the insurer is defending under a reservation of rights.
2. What standard governs an insured’s right to reimbursement for a non-consensual settlement in the reservation-of-rights context.

## Decision

- The Pennsylvania Supreme Court reversed the Superior Court and reinstated the trial court’s judgment for the insureds.
- The Court held that a defense under a reservation of rights does not, by itself, bar an insured from settling without insurer consent and later seeking indemnification.
- The Court adopted a rule permitting reimbursement if the insured proves the settlement was fair, reasonable, and non-collusive under the circumstances and the settled claims are covered.
- The Court upheld the jury’s determination that the $80 million settlement met the required standard.

## Legal Principles

- When an insurer defends under a reservation of rights, the insured may protect itself by entering a settlement without insurer consent without automatic forfeiture of coverage.
- To obtain reimbursement for such a settlement, the insured bears the burden to prove the settlement was fair, reasonable, and non-collusive in light of the claims and the circumstances.
- The reasonableness inquiry may consider the hazards of trial, the strengths and weaknesses of liability and damages evidence, the range of possible verdicts, and the insured’s potential exposure given uncertain coverage.
- The insured need not prove insurer bad faith refusal to settle to recover; the governing focus is the objective fairness and reasonableness of the insured’s settlement decision in the reservation-of-rights posture.

## Conclusion

Pennsylvania law permits an insured defended under a reservation of rights to settle without the insurer’s consent and recover indemnification if the insured proves the settlement is covered and was fair, reasonable, and non-collusive; the judgment requiring reimbursement for the $80 million settlement was reinstated.


Babcock & Wilcox Co. v. American Nuclear Insurers, 131 A.3d 445 (Pa. 2015)