Austin Co. v. Royal Insurance Co.
The Austin Company, an insured party, appealed a Chancellor's decision that its insurer, Royal Insurance Company, was authorized to settle a claim in good faith. Under a "retrospective premium" liability policy, Austin Company was responsible for claims up to $250,000, while Royal investigated and administered them. A key dispute arose from a clause requiring Royal to "consult with" Austin Company before settlements exceeding a certain amount, which Austin Company interpreted as granting it veto power. Royal settled an automobile accident judgment against Austin Company for $170,000, despite Austin Company's strong objections to appealing the original $152,000 judgment (which grew to nearly $190,000 with interest). The appellate court affirmed the Chancellor's ruling, finding the policy unambiguously gave Royal the right to settle, not Austin Company veto power, and that Royal's actions, including filing an appeal to keep options open and seeking indemnity for an appeal, were reasonable and in good faith. The court rejected Austin Company's argument that the burden of proof for good faith rested with the insurer, citing Tennessee precedents.