Imagine for a moment that you have two customers, Diane and George. Diane and George each owe you money for products they have purchased. Each of them raises some concerns about the bill. Being a wise business owner, you assess your likelihood of collection. Due to some concerns about Diane’s ultimate ability to pay, you confidentially agree to resolve the matter and release your claim against her for 75% of her bill and initiate a collection action against George.

George’s lawyer argues that his obligation is entirely excused because you released Diane without full payment. Absurd, right? In the insurance context, the answer is: not always. In a small but growing number of cases, courts have held that a below limits settlement with one carrier has the effect of releasing all of the insurers excess that policy of their obligations. Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal. App. 4th 184 (2008); Forest Labs., Inc. v. Arch Ins. Co., 953 N.Y.S.2d 460 (2012); JP Morgan Chase & Co. v. Indian Harbor Ins. Co., 2012 WL 2105915, at *2-3 (N.Y. App. Div. June 12, 2012); Bally Total Fitness Holding Corp., No. 06 C 4554, 2010 WL 25452191, at *5 (N.D. Ill. June 22, 2010); Comerica Inc. v. Zurich Am. Ins. Co., 498 F. Supp. 2d 1019 (E.D. Mich. 2007).

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