San Francisco Bay Area Rapid Transit District v. National Union Fire Insurance…

Background

BART sought coverage from excess insurers National Union Fire Insurance Company, Westport Insurance Company (also identified as Employers Re), and Midwest for losses connected to BART employee Michael Gonsolin’s workers’ compensation claim. Gonsolin, a former BART police officer, was diagnosed with multiple myeloma in 2006 and alleged that the disease resulted from cumulative workplace exposure to carcinogens. In December 2007, BART and Gonsolin entered a settlement approved by a workers’ compensation judge. BART agreed to pay $200,000 and to pay reasonable and necessary medical care related to the industrial injury. The agreement stipulated to an injury period from November 1, 1990, through October 31, 1991.

BART later sought coverage from the excess insurers after a prior related proceeding determined that General Reinsurance Company was not bound by the workers’ compensation board’s injury date. BART’s action asserted breach of contract and sought a declaration of coverage. The parties filed cross-motions for summary judgment on three groups of issues: the policies’ consent, settlement, and notice provisions; the statute of limitations; and whether California’s cancer presumption applied for insurance-coverage purposes.

Ruling on the Consent Provisions

The insurers’ policies prohibited BART from making a voluntary settlement involving a loss to an insurer without that insurer’s written consent. The policies also gave the insurers rights to participate in, associate in, or otherwise protect their interests in the defense or settlement of claims.

The court held that BART’s agreement with Gonsolin was a voluntary settlement within the meaning of those provisions. The court rejected BART’s argument that the provisions did not apply because the settlement did not create a loss to the insurers on the date it was signed. The settlement required BART to pay future medical expenses, and the court concluded that those obligations could exceed the applicable self-insured retentions and create losses for the excess insurers.

The court also rejected BART’s arguments that the terms “voluntary” and “settlement” were ambiguous, that the agreement was only a partial settlement, and that approval by a workers’ compensation judge transformed the agreement into an adjudication. The court found that BART chose to settle after considering the litigation risks, and that judicial approval did not change the agreement’s character as a voluntary settlement.

BART further argued that extraordinary circumstances excused its failure to obtain consent. The court rejected that argument, concluding that BART knew the identities of its insurers and could have notified them before settling. The court found no special circumstances that prevented enforcement of the consent provisions.

Notice-Prejudice Issue

BART argued that the insurers had to show prejudice—actual harm from BART’s failure to obtain consent—before they could rely on the consent provisions. The court distinguished first-party insurance, which covers loss suffered directly by the insured, from third-party insurance, which covers the insured’s liability to another person.

The court held that the policies were third-party policies because they covered BART’s liability under workers’ compensation law for bodily injury or disease suffered by an employee. The policies’ consent provisions protected the insurers’ ability to participate in and protect their interests in resolving the workers’ compensation claim. Applying California law, the court concluded that the insurers did not have to prove prejudice before enforcing those provisions. The court also noted that BART’s earlier notice to Midwest did not seek Midwest’s consent to settle and therefore did not satisfy the policy requirement.

Disposition

The court concluded that BART entered into a voluntary settlement without the defendants’ consent and therefore was precluded from pursuing coverage claims against them. The court granted defendants’ motions for summary judgment, Docket Nos. 76, 77, and 80, and denied BART’s motion for summary judgment, Docket No. 78. The court entered judgment for defendants and directed the Clerk to close the case. Because the consent-provision ruling resolved all of BART’s claims, the court did not address the statute-of-limitations issue or the cancer-presumption issue.