Introduction

In a significant clarification for “fronting” insurance programs, the Sixth Circuit, applying Ohio law, affirmed summary judgment for Ironshore Indemnity, Inc., holding that an insurer operating under an unambiguous fronting policy with a discretionary settlement clause may settle covered claims over the insured’s objection and promptly recoup those payments—without any implied requirement to prove the reasonableness of the settlements. The court also rejected the insured’s arguments that the insurer’s duty to defend or right to investigate operate as conditions precedent to settlement, declined to graft an implied reasonableness requirement into the policy, and held that neither equitable estoppel/waiver nor course-of-dealing principles altered the contract.

The dispute arose from two serious product-liability suits against Evenflo Company, Inc. in Florida and California involving injuries to children in booster seats. Despite Evenflo’s contrary litigation assessments, Ironshore settled both cases pursuant to a policy provision stating the insurer “may, at [its] discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result,” and then demanded reimbursement, consistent with the policy’s matching-deductible structure. Evenflo refused, and Ironshore sued for breach of contract. The district court granted summary judgment to Ironshore; the Sixth Circuit affirmed.

Summary of the Opinion

• Policy governs. Applying Ohio’s text-first contract principles, the court enforced the policy’s unambiguous language granting Ironshore discretion to settle and requiring Evenflo to “promptly reimburse” Ironshore up to the applicable limits.
• Marginian controls. The court relied on the Ohio Supreme Court’s decision in Marginian v. Allstate Insurance Co., which permits an insurer to settle within limits “contrary to the wishes of the insured,” and extended that reasoning to the fronting-policy context.
• No conditions precedent. The insurer’s duty to defend and right to investigate are not conditions precedent to settlement. Even if they were, the court concluded, the record showed they were satisfied.
• No standalone good-faith claim. Under Ohio law, there is no independent cause of action for breach of the implied covenant of good faith and fair dealing absent breach of a specific contractual provision. Marginian further bars a bad-faith claim where the insurer settles within policy limits.
• No implied reasonableness term. The policy’s discretionary-settlement language does not contain or imply a “reasonableness” requirement as a prerequisite to recoupment.
• No estoppel, waiver, or modification. The record did not support equitable estoppel or waiver, and the parties’ course of conduct did not clearly and convincingly modify the contract.
• Result. Summary judgment for Ironshore affirmed; Evenflo must reimburse the settlements within the $5 million per-occurrence (car-seat) and $5 million annual aggregate limits.

Background and Procedural Posture

Evenflo manufactures children’s safety products. To satisfy state financial-responsibility requirements while largely self-insuring, it purchased a “fronting policy” from Ironshore with a matching deductible: Ironshore would defend and could settle suits, and Evenflo would reimburse Ironshore’s payments up to specified limits (here, $5 million per occurrence for car-seat matters and a $5 million annual aggregate). Above those limits, an Ironshore Europe umbrella policy and an AGLIC excess policy each provided up to $25 million of additional coverage.

Two lawsuits followed:

• Florida case. A child was seriously injured in a car seat. A trial ruling barred the jury from assigning comparative fault to the child’s mother for booster-seat or seatbelt misuse (fault could be assessed only for driving and the accident), narrowing Evenflo’s misuse defense and increasing exposure.
• California case. A similar accident spawned a strict-liability claim under California law. Because California retains joint-and-several liability for economic damages, any degree of liability could expose Evenflo to the child’s full economic losses, including a substantial life-care plan, amplifying risk for Evenflo and its insurers.

Invoking its discretionary-settlement right, Ironshore settled both suits and demanded reimbursement from Evenflo for the combined settlement amounts (redacted in the opinion). Evenflo refused. Ironshore sued for breach of contract. The district court dismissed the parties’ declaratory-judgment claims but granted Ironshore summary judgment on its breach claim. Evenflo appealed. The Sixth Circuit affirmed.

Detailed Analysis

Standards and Governing Law

• Standard of review: De novo review of summary judgment; evidence viewed in the nonmovant’s favor; summary judgment appropriate when no rational factfinder could side with the nonmovant on the record as a whole.
• Choice of law: Ohio law governs the policy’s interpretation.
• Contract interpretation: Ohio courts enforce the plain meaning of unambiguous policy language and avoid importing extra terms.

Precedents and Authorities Cited and Their Roles

• Marginian v. Allstate Insurance Co., 481 N.E.2d 600 (Ohio 1985): The cornerstone. Marginian upheld an insurer’s right to settle within limits “contrary to the wishes of the insured” based on a clause materially similar to Ironshore’s. The Sixth Circuit applied Marginian directly and also cited an Ohio appellate decision applying Marginian to a fronting policy (American Casualty Co. v. Atlantic Painting & Contracting, Inc., 1990 WL 100398).
• White v. Insurance of the State of Pa., 405 F.3d 455 (6th Cir. 2005): Explained fronting policies; used to frame the policy structure—fronting with matching deductible effectively renders the insured self-insured up to the deductible while satisfying state financial responsibility rules.
• Contract law guideposts:
  • Tera, L.L.C. v. Rice Drilling D, L.L.C., 248 N.E.3d 196 (Ohio 2024); Sutton Bank v. Progressive Polymers, L.L.C., 163 N.E.3d 546 (Ohio 2020): Plain-meaning, text-first interpretation; no extrinsic evidence when unambiguous.
  • Wildcat Drilling, L.L.C. v. Discovery Oil & Gas, L.L.C., 222 N.E.3d 621 (Ohio 2023): Courts do not lightly imply conditions precedent.
  • Smith v. Erie Ins., 69 N.E.3d 711 (Ohio 2016): Ambiguity threshold—language must be reasonably susceptible to competing interpretations.
  • Dictionary sources (OED) to confirm the ordinary meaning of “may” and “at [its] discretion” as conferring permission and judgment-based choice, not a duty.
• Defense obligations:
  • Twin Maples Veterinary Hosp., Inc. v. Cincinnati Ins., 824 N.E.2d 1027 (Ohio Ct. App. 2005) (citing GuideOne): Duty to defend is triggered by insured’s demand and is a “prior” obligation—used in considering Evenflo’s “conditions precedent” arguments.
• Implied covenant of good faith:
  • Lucarell v. Nationwide Mut. Ins. Co., 97 N.E.3d 458 (Ohio 2018): No standalone cause of action for breach of implied covenant; must tie to a breached contractual duty.
  • Zoppo v. Homestead Ins. Co., 644 N.E.2d 397 (Ohio 1994) and Hoskins v. Aetna Life Ins. Co., 452 N.E.2d 1315 (Ohio 1983): Define good faith as requiring reasonable justification and prohibiting arbitrary or capricious conduct.
  • Scott Fetzer Co. v. American Home Assurance Co., 229 N.E.3d 70 (Ohio 2023) and Harmon v. Fifth Third Bancorp, 858 F. App’x 842 (6th Cir. 2021): Confirm choice-of-law framing and bar standalone implied-covenant claims.
  • Marginian again: No bad-faith claim lies where insurer settles within policy limits.
• Reasonableness of settlements:
  • Travelers Ins. v. Motorists Mut. Ins., 178 N.E.2d 613 (Ohio Ct. App. 1961); Globe Indem. Co. v. Schmitt, 53 N.E.2d 790 (Ohio 1944); Convention Ctr. Inn, Ltd. v. Dow Chem. Co., 590 N.E.2d 898 (Ohio Ct. App. 1990): Reasonableness requirements arise from equitable principles where the insurer has breached or where no indemnity agreement exists; not applicable here because a binding, unbreached contract expressly governs settlement and reimbursement.
  • Santo’s Italian Café LLC v. Acuity Ins., 15 F.4th 398 (6th Cir. 2021): Courts honor coverage as written; no judicial rewriting to insert absent terms like “reasonableness.”
• Equitable estoppel and waiver:
  • Turner Liquidating Co. v. St. Paul Surplus Lines Ins., 638 N.E.2d 174 (Ohio Ct. App. 1994); Glidden Co. v. Lumbermens Mut. Cas. Co., 861 N.E.2d 109 (Ohio 2006): Estoppel generally requires actual or constructive fraud or inducement; the record lacked such facts here.
  • State ex rel. Madden v. Windham Exempted Vill. Sch. Dist. Bd. of Educ., 537 N.E.2d 646 (Ohio 1989): Silence/inactivity is not waiver absent a duty to speak; State Farm Mut. Auto. Ins. v. Ingle, 904 N.E.2d 934 (Ohio Ct. App. 2008): waiver must be intentional.
• Course-of-dealing/performance modification:
  • City of St. Marys v. Auglaize Cnty. Bd. of Comm’rs., 875 N.E.2d 561 (Ohio 2007); City of Cincinnati v. Cincinnati Gaslight & Coke Co., 41 N.E. 239 (Ohio 1895); Barclay Petroleum, Inc. v. Bailey, 96 N.E.3d 811 (Ohio Ct. App. 2017): Implicit modification requires clear and convincing evidence of a uniform, mutual, and intentional departure; not shown here.
• State tort exposure context:
  • Evangelatos v. Superior Court, 753 P.2d 585 (Cal. 1988) and Cal. Civ. Code § 1431.2(a): California’s joint-and-several liability for economic damages—boosting the potential exposure Evenflo faced in the California case.

Legal Reasoning

1) The Contract’s Plain Text Controls

The policy states Ironshore “may, at [its] discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result,” and Evenflo must “promptly reimburse” Ironshore for payments up to the limits. No party disputed that the Florida and California actions were “suits,” or that the settlements were within the $5 million per-occurrence and aggregate limits. On these facts, the policy’s clear text compelled reimbursement.

2) No Conditions Precedent to Settlement

Evenflo argued that Ironshore’s duty to defend and right to investigate were conditions precedent to settlement, thereby thwarting recoupment. The court rejected that reading: the policy did not label either clause as a condition to settlement, and Ohio courts do not “lightly” imply conditions precedent. The dictionary-confirmed meaning of “may” and “at [its] discretion” underscored that investigation is permissive, not mandatory. Moreover, even if those obligations were conditions, the undisputed record showed Ironshore engaged in sufficient defense and investigation activity to satisfy them.

3) No Standalone Good-Faith Claim; No Bad-Faith Liability for Settling Within Limits

Ohio does not recognize an independent cause of action for breach of the implied covenant of good faith and fair dealing; it must attach to a specific contractual breach. Because Ironshore acted within the policy’s express settlement discretion, there was no breach to support an implied-covenant claim. Marginian also forecloses a bad-faith claim when the insurer settles within policy limits. Evenflo’s contention that fronting policies should be treated differently found no supporting authority.

4) No Implied “Reasonableness” Requirement

Evenflo urged the court to read a reasonableness requirement into the policy before Ironshore could recoup settlements. The court declined, emphasizing that the contract vested discretion to settle without such a qualifier. Cases imposing reasonableness standards—Travelers, Globe Indemnity, and Convention Center Inn—arise from equitable principles applicable when an insurer breaches or when no contract governs indemnity. Here, a clear, unbreached contract did; inserting a reasonableness term would rewrite the parties’ agreement.

5) Estoppel and Waiver Fail

Evenflo’s equitable theories also fell short. Estoppel generally requires inducing conduct or fraud; none was shown. Waiver must be knowing and intentional; the record did not establish that Ironshore voluntarily relinquished its settlement right. Ironshore’s alleged passivity did not create a reasonable belief that it had surrendered contractual rights—particularly where the policy text preserved those rights.

6) No Modification by Course of Dealing or Performance

Evenflo argued the parties’ historical practices amended the policy to require its consent to settlements. But implicit modification requires clear and convincing evidence of a uniform and mutually accepted departure. Sporadic nonuse of a discretionary power does not transform it into a surrendered right, nor does late-stage invocation of a discretion contradict its nature. The court found no mutual intent to modify.

Why the Result Fits the Litigation Risks

The court’s outcome aligned with the underlying risk landscape:

• Florida: A key trial ruling prohibited apportioning comparative fault to the mother for seat misuse, undermining a central defense and heightening Evenflo’s exposure.
• California: Strict liability plus joint-and-several economic damages made Evenflo potentially responsible for a substantial life-care plan if found even minimally liable.

Against this backdrop, and within the policy’s limits, the insurer’s decision to settle was within the discretion the parties contracted for, regardless of Evenflo’s alternative risk assessment.

Impact and Practical Implications

Key Holding in Practical Terms

• Under Ohio law, when a fronting policy expressly grants the insurer discretion to settle and authorizes reimbursement, the insurer may settle within limits over the insured’s objection and recoup without proving settlement reasonableness.
• Duties to defend and investigate will not be implied as preconditions to settlement absent clear contractual language; permissive “may” language is not a duty.
• No standalone good-faith claim lies absent breach; settling within limits precludes bad-faith liability under Marginian.
• Equitable reasonableness standards for recoupment do not apply when an unambiguous contract governs and has not been breached.
• Estoppel/waiver and course-of-dealing theories require strong proof; sporadic nonuse of a discretionary right is not relinquishment.

For Insurers

• Drafting leverage: This decision validates discretionary-settlement clauses paired with reimbursement obligations in fronting/SIR programs under Ohio law.
• Documentation: Although reasonableness need not be proved, documenting defense activity and risk assessment remains wise to defeat “conditions precedent” or bad-faith arguments in future cases.
• Coordination with excess layers: In high-exposure jurisdictions (e.g., California’s joint-and-several regime for economic damages), early consultation with umbrella/excess carriers can inform settlement timing to contain aggregate exposure.

For Insureds (Fronting/SIR Programs)

• Negotiate explicit constraints ex ante: If consent or reasonableness is important, negotiate for:
  • “No settlement without insured’s consent (not to be unreasonably withheld),”
  • “Insurer must act reasonably” or “commercially reasonably” in settling,
  • Consultation and defense steering/mediation participation clauses, and
  • Defined investigation efforts or notice periods before settlement.
• Recognize regulatory tradeoffs: Fronting satisfies state financial-responsibility requirements by “renting” the insurer’s paper; the tradeoff is reduced control over settlements unless the contract restores it.
• Course-of-dealing is weak medicine: Do not assume historic deference by the insurer will necessarily bind it later; clear contractual terms control.

Broader Legal Landscape

• Persuasive authority: The opinion is “not recommended for publication,” so it is not binding precedent, but it is persuasive in federal and Ohio courts, especially given its reliance on Ohio Supreme Court authority (Marginian) and recent Ohio contract-interpretation cases.
• Jurisdictional variation: Some jurisdictions may imply reasonableness or require consent for reimbursement in certain indemnity contexts, particularly absent explicit contractual language. Parties should evaluate choice-of-law provisions carefully.
• Bad faith boundaries: The decision leaves intact traditional “failure to settle” bad-faith exposure where an insurer unreasonably refuses to settle within limits; here, the posture was the converse—settling within limits pursuant to an express grant of discretion.

Complex Concepts Simplified

• Fronting policy: A policy that satisfies regulatory proof-of-insurance requirements but shifts the economic risk back to the insured through reimbursement (matching deductible), effectively making the insured self-insured up to a threshold.
• Matching deductible: The insured reimburses the insurer for defense and indemnity payments dollar-for-dollar up to an agreed limit.
• Discretionary-settlement clause: Policy language authorizing the insurer to settle claims “at its discretion,” typically without needing the insured’s consent.
• Conditions precedent: Contractual conditions that must occur before a duty to perform arises; courts do not imply them lightly.
• Implied covenant of good faith: An obligation to act honestly and not arbitrarily in performing a contract; in Ohio, it does not create standalone claims absent breach of a specific contractual duty.
• Equitable estoppel: Prevents a party from contradicting earlier conduct if another reasonably relied on that conduct to its detriment; often requires inducement or fraud.
• Waiver: The intentional relinquishment of a known right.
• Course of dealing/performance: A pattern of prior or contemporaneous conduct that may interpret or sometimes modify contract terms if mutual and clear.
• Per-occurrence/aggregate limits: Caps on coverage per event and per policy year.
• Joint and several liability (economic damages): In California, if a defendant is at all liable for economic damages, it can be liable for the whole economic amount, regardless of fault apportionment among defendants.

Unresolved Questions and Limits of the Decision

• Scope of discretion when settlements approach or implicate excess layers: The opinion did not address disputes with excess insurers or the dynamics when settlements threaten to pierce primary limits.
• Extra-contractual conduct: The court did not confront allegations of fraud, collusion, or settlements outside coverage—situations where different rules and remedies may apply.
• Other states’ approaches: The decision turns on Ohio law and Marginian; other states may impose different constraints on discretionary settlements and recoupment.
• Published-precedent effect: Because the opinion is not recommended for publication, its precedential weight is limited; however, its alignment with Ohio Supreme Court law makes it a strong persuasive reference.

Conclusion

Ironshore v. Evenflo reinforces a straightforward but powerful principle in Ohio: when sophisticated parties agree that the insurer may, at its discretion, settle suits and the insured will reimburse within limits, courts will enforce that bargain as written. The decision:

• Affirms that discretionary-settlement clauses in fronting policies are fully operative even over the insured’s objection;
• Rejects attempts to import implied reasonableness or consent requirements absent text;
• Confirms there is no standalone implied-covenant claim and no bad-faith liability for settling within limits under Marginian; and
• Declines to find estoppel, waiver, or modification without clear, convincing evidence.

The opinion offers clear drafting lessons: if an insured wants control or a reasonableness check on settlements that it must ultimately fund, it must negotiate for those terms explicitly. Conversely, insurers can rely on unambiguous discretionary-settlement and reimbursement provisions to manage litigation risk efficiently—especially in high-exposure jurisdictions—so long as they act within policy limits and the four corners of the contract.

Note: The court issued a redacted, not-for-publication opinion on May 9, 2025, with an effective filing date of April 25, 2025.