On July 21, 2015, the Pennsylvania Supreme Court issued its much-anticipated decision in Babcock & Wilcox Company et. al. v. American Nuclear Insurers et. al, No. 2 WAP 2014. Reed Smith filed an amicus brief in the case urging the court to adopt a “reasonable settlement” standard. Under that standard, an insured is permitted to enter into a reasonable settlement over an insurer’s objection without forfeiting coverage when an insurer is defending under a reservation of rights. The court adopted the reasonable settlement standard. Under Babcock, policyholders now may enter into a reasonable settlement over the insurer’s objection, rather than risk a substantial and adverse verdict at trial, without forfeiting coverage. At the same time, insurers may still contest coverage for a settlement that is unreasonable or one that is not covered under the terms of the policy. The court’s “reasonable settlement” standard balances the rights and interests of the parties and is a strong and fair statement of Pennsylvania law.
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