## Facts

- Payless Cashways, Inc. had a $10 million primary D&O policy issued by National Union and an excess D&O policy issued by Federal Insurance Company.
- Federal’s excess policy required Federal’s consent to any settlement, and stated consent “shall not be unreasonably withheld.”
- Hilco sued Payless and its directors and officers; the parties participated in a court-ordered mediation that did not immediately resolve the case.
- The mediator proposed a settlement structure using a two-tier approach with a single-issue arbitration on whether any insured “should have known” inventory numbers were falsified.
- Under the proposal, National Union would pay Hilco $5 million immediately; if Hilco lost arbitration, recovery would remain within the primary layer; if Hilco prevailed, the result could exhaust the primary limits and reach Federal’s excess layer.
- National Union participated in negotiations and approved the proposal; Federal did not participate and insisted the primary insurer first offer its limits before Federal would engage.
- To avoid Federal’s consent requirement, the parties restructured the arrangement so the insureds had no personal liability and assigned their rights under Federal’s policy to Hilco.
- Hilco won the arbitration and obtained an award reaching Federal’s excess layer; Federal refused to pay, asserting the insureds breached the consent-to-settlement provision by proceeding without Federal’s consent.
- Federal filed a declaratory judgment action seeking a determination of no coverage obligation under the excess policy.

## Issues

1. Whether the trial court correctly instructed the jury to assess the reasonableness of Federal’s refusal to consent by considering the “totality of the facts and circumstances” known to Federal when it declined consent.
2. Whether the jury could consider Federal’s tactical reasons for non-participation and refusal to consent in evaluating reasonableness under the policy’s consent clause.
3. Whether, as assignee of the insureds’ policy rights, Hilco could recover despite a finding that the insureds breached the consent-to-settlement provision.

## Decision

- The Delaware Supreme Court affirmed the judgment for Federal.
- The Court held the “totality of the facts and circumstances” jury instruction correctly stated the standard for evaluating whether an insurer unreasonably withheld consent.
- The Court concluded the jury was permitted to consider Federal’s litigation-risk assessment and tactical reasons for refusing the proposed settlement structure.
- Because the jury found Federal did not unreasonably withhold consent and the insureds breached the consent provision, Hilco (as assignee) could not recover under the excess policy.

## Legal Principles

- Where a policy requires the insurer’s consent to settlement and provides that consent shall not be unreasonably withheld, reasonableness is evaluated based on the totality of the facts and circumstances known to the insurer at the time of the decision.
- Relevant circumstances may include the proposed settlement’s structure, the insurer’s assessment of liability and damages exposure, and litigation strategy considerations; there is no per se rule that refusal is unreasonable merely because a proposal appears favorable in hindsight.
- An assignee of policy rights stands in the shoes of the insured and cannot enforce greater rights than the insured possessed after application of policy conditions and jury findings.

## Conclusion

The court upheld a verdict for the excess insurer, ruling that a jury may assess an insurer’s refusal to consent under a broad, time-of-decision totality-of-circumstances standard, and that an assignee cannot recover when the insured breached the policy’s consent condition and the insurer’s refusal was not unreasonable.


Hilco Cap. LP v. Fed. Ins. Co., 978 A.2d 174 (Del. 2009)