Consent to Settle

In Baird v. Olah (07-4282) the Tenth Circuit held that a bankruptcy trustee has the right to assign a bankrupt doctor’s right to consent to settlement under a medical malpractice insurance policy to the medical malpractice plaintiff. The Olahs sued Baird for medical malpractice. While the case was pending, Baird declared bankruptcy. The Olahs sought to purchase from the bankruptcy trustee Baird’s right to consent to settlement under Baird’s malpractice insurance. Baird objected, arguing that this right could not be assigned and that the transfer contemplated by the Olahs was contrary to public policy. In addition the insurer argued that the policy was an executory contract which had been rejected by the trustee. Both the bankruptcy court and the federal district court held that the policy was an executory contract. On appeal to the Tenth Circuit, the court first clarified the definition of an executory contract, formally adopting the “Countryman” definition set forth in Executory Contracts in Bankruptcy: Part 1, 57 Minn. L. Rev. 439, 460 (1973). Under this definition, the court held that the policy was not an executory contract. The court further held that the non-assignability clause of the policy did not apply after the event triggering the loss had occurred and set this date at the time of the events triggering the duty to defend. The Tenth Circuit thus concluded that nothing in the policy language prevented the right to consent to settlement from being exercised or assigned by the trustee. The Tenth Circuit noted that assignment of Baird’s right to settle to the Olahs would not increase the risk for the insurer, which could not be forced to settle. Rather it noted that “now that Dr. Baird has received his discharge in bankruptcy and will not be personally liable for any malpractice judgment, he has an inefficient and one-sided incentive to frustrate settlement and to insist that UMIA take the case to trial.”