Written Consent Must be in Writing: Insured Breaches Consent Requirement and Loses Coverage

Applying Georgia law, a federal district court has held that an insured’s failure to seek consent to incur defense costs pursuant to a consent provision relieved the insurer from any obligation to provide coverage for those costs. Savaseniorcare, LLC v. Starr Indem. & Liab. Co., 2021 WL 4429088 (N.D. Ga. Sep. 27, 2021). The court also held that the insurer did not waive its right to assert the consent provision as a coverage defense because its decision to enforce a $1 million sublimit in its policy did not constitute a denial of coverage. 

Between August 26, 2011 and November 20, 2013, three sealed qui tam lawsuits were filed against the insured, a healthcare provider, by its former employees alleging violations of the False Claims Act (“FCA”). The federal government investigated the allegations and ultimately moved to intervene in the suit. 

The healthcare provider sought coverage from its E&O carrier, which asserted that coverage was limited to $1 million because of a “Government Funding Sublimit,” which limited coverage for claims relating to “the return of any funds from any federal, state or local governmental agency and any interest, fines or penalties arising out of the return of such funds.” The E&O carrier also asserted that no coverage was available for defense costs incurred without its consent because the insured did not specifically seek consent to incur those costs.

On summary judgment, the court held that the Government Funding Sublimit applied because the allegations in the consolidated complaint filed by the government clearly demonstrated that the government was seeking “the return of funds.” The court also held that the insurer could enforce the consent clause in its policy, which required the insured to seek the insurer’s “prior written consent’ before incurring defense costs. The court rejected the healthcare provider’s argument that certain oral conversations between representatives of the insured and the insurer were sufficient to confer this consent, as those communications were not in writing. The court also rejected an argument that the insurer’s reliance on the Government Funding Sublimit operated as a waiver of its right to rely upon the consent clause; the court observed that the insurer did not deny coverage, but rather insisted on compliance with a sublimit.