Consent to Settle assignable in Bankruptcy
After the Olahs sued him for malpractice, Dr. Baird filed bankruptcy. The Olahs asked the trustee of Dr. Baird’s bankruptcy estate to “sell” them Dr. Baird’s right to consent to settlement under his medical liability insurance policy. The trustee balked, writing that by the terms of the insurance contract he did “not believe that there was any asset which the trustee could assume and assign to” the Olahs. The Olahs then sought a declaration that the “right to settle” was indeed part of the estate. When the trial court refused to so hold, they appealed. The Tenth Circuit ruled that the liability policy is properly part of the estate, and that the trustee has discretion to exercise Dr. Baird’s rights under the policy (including the consent to settle) or to assign those rights to the Olahs.
There were some interesting arguments made in this opinion. The insurance company argued that making the consent to settle clause assignable would “drastically impact the risk and burden on [it].” The Tenth Circuit didn’t buy it, noting that the insurance company had the right and duty to defend the claim, and that no one could force the insurance company to settle. If the insurance company and the plaintiffs negotiated a mutually agreeable settlement, then it would be in the insurance company’s interest to have the plaintiffs and not Dr. Baird exercise consent. Further, since Dr. Baird’s liability was discharged in bankruptcy, he had nothing to lose and everything to gain from frustrating a settlement.
In re Baird, Case No. 07-4282
