Enforcement of Consent‐to‐Settle Clauses and Reporting Obligations in E&O Policies

Introduction

eQHealth AdviseWell, Inc. (“eQHealth”) provides managed‐care and prior‐authorization services to state Medicaid agencies. After approving an out‐of‐state neurological rehabilitation for a Florida Medicaid patient (B.N.), eQHealth arranged 180 days of inpatient care at Brookhaven Hospital, then denied a second 180‐day extension. When Brookhaven billed the State of Florida’s Agency for Health Care Administration (“AHCA”) $262,500, AHCA asserted eQHealth’s initial authorization was wrongful and pressed eQHealth to pay. eQHealth negotiated and signed a settlement, paid that amount, then sought coverage under its “Managed Care Organizations Errors and Omissions Liability Policy” (“the Policy”) issued by Homeland Insurance Company of New York (“Homeland”).

The core issues on appeal were:

Whether eQHealth gave timely “claim” notice or at least notice of circumstances “likely to give rise to a claim” under the Policy;
Whether eQHealth’s unilateral settlement without Homeland’s prior written consent triggered the Policy’s consent‐to‐settle exclusion;
How Louisiana contract law and pertinent precedents govern policy interpretation and exclusion clauses.

Summary of the Judgment

The Fifth Circuit affirmed the district court’s grant of summary judgment to Homeland on two independent bases:

The Policy unambiguously required eQHealth to secure Homeland’s prior written consent before settling any covered claim. eQHealth negotiated and paid the settlement without such consent, invoking Section IV(C)’s exclusion for “any settlement made without [Homeland’s] prior written consent.”
Even assuming arguendo that eQHealth’s April and June 2019 communications satisfied the Policy’s notice‐of‐circumstances or claim‐reporting requirements, those communications occurred before eQHealth had fully negotiated and executed a binding settlement. The Policy barred coverage for any expenses, payments, admissions of liability or obligations assumed without insurer consent, irrespective of notice issues.

Analysis

1. Precedents Cited

Colony Ins. Co. v. First Mercury Ins. Co., 88 F.4th 1100 (5th Cir. 2023): Established de novo review of summary judgments in insurance disputes and the requirement that movant show absence of genuine fact issues.
Richard v. Dolphin Drilling Ltd., 832 F.3d 246 (5th Cir. 2016): Confirmed that under Louisiana law an insurance policy is interpreted like any contract, focusing on the parties’ expressed intent.
Cadwallader v. Allstate Ins. Co., 848 So.2d 577 (La. 2003): Reinforced that policy terms govern coverage scope, and exclusions are narrowly construed against the insurer once coverage is established.
Reynolds v. Select Properties, Ltd., 634 So.2d 1180 (La. 1994): Emphasized that an insurer may limit coverage by clear, unambiguous policy provisions so long as they do not violate public policy.
Maldonado v. Kiewit Louisiana Co., 146 So.3d 210 (La. App. 1 Cir. 2014): Articulated the insured’s burden to prove coverage and the insurer’s burden to prove exclusions apply.
Central Crude, Inc. v. Liberty Mut. Ins. Co., 51 F.4th 648 (5th Cir. 2022): Noted that while insurers can draft policy limits as they wish, policies must be construed to effectuate coverage rather than to deny coverage.
Yount v. Maisano, 627 So.2d 148 (La. 1993): Articulated the principle that liability insurance should afford the insured protection from damage claims and policies are construed accordingly.

2. Legal Reasoning

Under Louisiana law, insurance policies are contracts whose clear terms control. Here, the Court analyzed in particular:

Claims‐Made & Reported Framework: The Policy covered only “claims first made against eQHealth during the policy period and reported to Homeland.” It also required notice of circumstances likely to give rise to a claim.
Insurer’s Duties and Rights—Section IV: Section IV(A) gives Homeland the exclusive right and duty to investigate, direct defense, negotiate, and settle any covered claim. Section IV(C) then expressly prohibits the insured from “incur[ring] any expense, mak[ing] any payment, admit[ting] any liability, assume[ing] any obligation, or settl[ing] any Claim without [Homeland’s] prior written consent.”
Consent‐to‐Settle Exclusion: By negotiating and executing a binding settlement agreement with Brookhaven and AHCA, and then paying $262,500, eQHealth violated Section IV(C). That violation, the Court held, barred coverage regardless of whether a formal claim had been reported.
Notice Contentions: eQHealth argued it had given timely notice of circumstances and a claim via April 30 and June 17 emails. Homeland treated them as “circumstance” notices, not formal notices of an actual claim—and in any event the subsequent December 2019 notice came after the settlement. The Court declined to decide definitively on the notice timing when it could rest the decision on the consent‐to‐settle exclusion.

3. Impact

This decision sends a clear message to insureds under claims‐made‐and‐reported professional/E&O policies:

Insureds must strictly comply with policy notice provisions—both for claims made and for circumstances likely to give rise to claims.
Consent‐to‐settle clauses are enforceable, and unilateral settlements or admissions of liability without prior insurer consent will be excluded from coverage.
Insurers retain substantial control over defense and settlement under well‐drafted policies. Insureds risk forfeiting coverage if they negotiate or pay damages without insurer involvement.

Future litigants and policy drafters will look to eQHealth AdviseWell as authority that policy provisions preserving insurer prerogatives over investigation and settlement are not illusory—courts will enforce them according to their plain language.

Complex Concepts Simplified

Claims‐Made & Reported Policy: A policy that covers only claims first made against the insured during the policy period and formally reported to the insurer in writing.
Notice of Circumstances: A provision allowing the insured to inform the insurer about events likely to lead to a claim, so that subsequent actual claims arising from those events are deemed timely reported.
Consent‐to‐Settle Clause: A contractual term requiring the insured to obtain the insurer’s written consent before settling, paying, or admitting liability on a claim. Breach of that clause triggers an exclusion.
Exclusion Clause: A policy provision that negates coverage for certain acts or events—even if the general insuring clause would otherwise cover them.

Conclusion

eQHealth AdviseWell v. Homeland Ins. firmly establishes that under Louisiana law and Fifth Circuit precedent:

An insured’s failure to secure an insurer’s prior written consent before settling or paying a claim invokes clear policy exclusions.
Strict compliance with claims‐made reporting and consent‐to‐settle provisions is imperative for coverage.
Courts will enforce these contractual requirements according to their plain terms, emphasizing the insurer’s right to control defense and settlement.

For insureds and insurers alike, this decision underscores the critical importance of policy discipline: timely written notices and insurer participation in all settlement negotiations are not optional—they are prerequisites to coverage.