Here is a situation that comes up quite a bit in the world of business contracts containing indemnification provisions, and in the insurance industry as well. First, a party (“Party A”) gets sued, or threatened with a suit, and settles the claims against it. Party A then seeks indemnification from another party (“Party B”) for all, or a portion of, the settlement payment that Party A made. Party B, in addition to challenging in other ways whether it owes Party A anything at all, believes it is able to show that some portion of the settlement payment relates to issues outside the scope of the indemnification provision, and/or that other parties are the ones truly responsible for some or all of whatever amount of indemnification Party A might be owed. This fairly common situation raises a host of complex issues, requiring analysis of all potentially applicable contracts, the specific claims that were asserted against Party A, the basis for its settlement, and other legal considerations like causation.
In late 2017, the U.S. Court of Appeals for the Eighth Circuit issued an order dealing with indemnification for prior settlements, and it could have a hugely beneficial impact on potential indemnitors, including sellers of mortgage loans as well as insurers. UnitedHealth Group Inc. v. Executive Risk Specialty Insurance Company, 870 F.3d 856 (8th Cir. 2017) (rehearing and rehearing en banc denied) addressed an insured’s burden to allocate between “covered” and “non-covered” claims when seeking reimbursement from its insurer for settlement payments. The Eighth Circuit affirmed the District of Minnesota’s holding that, when an insured seeks indemnification for settlements that encompassed both covered and non-covered claims, the insured must present sufficient evidence to establish with reasonable certainty the value that the settling parties attributed to the covered claims. Moreover, the insured’s allocation must be predicated on “what the parties knew at the time of settlement.” Id. at 863. In other words, the insured cannot point to evidence or case law identified or arising after the settlement in order to justify an allocation that deviates from the settling parties’ reasonable valuation of the various claims at the time of settlement. Continue Reading