Should it stand, the Superior Court's opinion in Babcock & Wilcox v. American Nuclear Insurers, 2013 PA Super 174, — A.3d —- (2013), will have a greater impact on Pennsylvania coverage disputes than any case decided by our appellate courts in decades. Of great interest, however, is what the court did not decide. While an admirable attempt at reconciling the bitter unfairness inherent in coverage disputes, Judge David Wecht's opinion leaves important questions unanswered.
In Babcock & Wilcox, the court held that when an insured is presented with an offer to defend subject to an insurer's reservation of rights related to coverage, the insured has two mutually exclusive options: (1) accept the defense; however, if it does so, the insured must obtain the insurer's permission to settle and stay "unqualifiedly bound" to the insurer's defense strategy, or, alternatively, (2) decline the insurer's defense, settle the case without the insurer's permission and, if coverage exists, thereafter institute an action to recoup the fair, reasonable and noncollusive amount of settlement.
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