not unreasonably withheld

In an interesting development in a long-running legal battle in which for-profit education company Apollo Education Group is seeking D&O insurance coverage for its $13.125 million settlement of an options backdating-related securities class action lawsuit, the Ninth Circuit has certified to the Arizona Supreme Court the question of the standard of law to be applied to the insurance policy’s consent to settlement provisions. The Arizona Court’s response to the certified question potentially could have important implications for the meaning and application of similar provisions in other D&O insurance policies. The Ninth Circuit’s August 15, 2019 opinion certifying the question to the Arizona court can be found here.
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D&O insurance policies typically specify that the insurer’s written consent is required for a policyholder to settle a claim, such consent not to be unreasonably withheld. This consent-to-settlement clause is the not infrequent source of coverage disputes, usually involving circumstances where the policyholder has gone ahead and settled a claim without seeking the requisite consent. A less frequent but no less troublesome circumstance involves the situation where the policyholder sought consent but the insurer declined to consent. The question then becomes whether the insurer’s withholding of consent was (or was not) reasonable.

In an interesting recent ruling, an Arizona district court judge held that Apollo Education Group’s D&O insurer’s withholding of consent to the company’s $13.125 million settlement of an options backdating-related securities class action lawsuit was reasonable. There are a number of interesting aspects to this ruling, as discussed below. Judge Stephen Logan’s October 26, 2017 decision in the Apollo Education Group coverage lawsuit can be found here.
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