Insurer Not on the Hook for Settlement of Bad Faith Claim Involving Listeria Outbreak

Pilgrim’s Pride Corp. settled claims that its insurance carrier unjustifiably refused to pay a significant portion of coverage owed to the food company arising out of a Listeria outbreak. The insurance company that agreed to provide coverage to Pilgrim’s insurer for any bad faith claims successfully mounted against it has been granted a declaratory judgment of no liability. Cont’l Cas. Co. v. Ace Am. Ins. Co., No. 07-958 (S.D.N.Y., decided March 31, 2009).

Apparently, Pilgrim’s insurer agreed to the essential terms of a settlement proposed by a mediator before seeking Continental’s consent to settle. Under Texas law, settlement agreements are legally enforceable when the parties have agreed on the amount of consideration to be paid and the release of claims. While Pilgrim’s insurer made minor modifications to the agreement after notifying Continental, the court found that the mediator’s proposal was a binding and enforceable settlement agreement. Because Pilgrim’s insurer did not receive prior written consent, the court ruled that Continental had no liability for the Pilgrim’s Pride settlement.