November 6, 2023

VIZIO’s Multi-Million-Dollar Insurance Claim Denied Over Communication Issue

It’s been said that in business, silence isn’t golden, it’s deadly. The same holds true for insurance, where communication with your insurer (or the lack thereof) can be the difference between coverage or a denial.

On Oct. 30, 2023, in an unpublished decision, Vizio, Inc. v. Arch Insurance Company, case number 22-55755, the U.S. Court of Appeals for the Ninth Circuit reemphasized this rule when it affirmed the dismissal of a multi-million-dollar claim against an insurer—because of the insured’s failure to communicate.

Vizio purchased an excess insurance policy from Arch, which “follows form to” a primary directors and officers liability policy issued by Navigators Insurance Company, containing a standard written consent provision that prohibits the insured from settling any claim without the “express prior written consent” of the Insurer. Between November 2015 and October 2017, dozens of lawsuits were filed against Vizio, alleging that it improperly collected and shared millions of consumers’ viewing habits (the “Smart TV Litigation”).  

Vizio only communicated with Arch three times about the Smart TV Litigation. The first was an email from Vizio’s broker to Navigators and Arch about the incoming lawsuits. Arch acknowledged the notice and requested additional information, while Navigators denied coverage. The second and third communications were also emails from Vizio’s broker, forwarding Navigators’ denial letter to Arch. Arch never issued a coverage decision to Vizio, although its internal records show it had decided to deny coverage. Two years later, after spending close $10 million in defense costs, Vizio settled the Smart TV Litigation for $17 million; Vizio never informed Arch about the negotiations, or the settlement.

Vizio admits that it did not obtain Arch’s consent prior to settling, but argued that it was excused from doing so because Arch breached the policy first when it denied coverage without notifying Vizio of its decision.   

The Ninth Circuit rejected Vizio’s argument.

A policyholder can be excused from complying with a policy’s written consent provision, but only when it “has requested and has been denied [coverage].”  See, e.g. Low v. Golden Eagle Ins. Co., 110 Cal. App. 4th 1532, 1544 (2003). Here, according to the Ninth Circuit, because Arch never informed Vizio that it would deny coverage, Vizio was not excused from its obligation to seek Arch’s consent to the settlement. Vizio’s breach of the policy meant that no benefits were due, and Arch was relieved of any duty to cover the claim.

The Ninth Circuit’s emphasis on Vizio’s failure to communicate underscores the importance of clear and timely communication with your insurers. While Arch should have communicated its denial to Vizio, and it seems reasonable for Vizio to equate Arch’s silence with a coverage denial, this assumption proved costly. 

This case reminds us that even when coverage is questionable, policyholders should maintain constant communication with their insurers, at least until coverage is expressly denied. This can be as easy as regular reminders to the insurer during its investigation, and instructing litigation counsel to copy the insurer on all status reports. These are simple steps but, as Vizio learned the hard way, they can be the difference between coverage and a multi-million-dollar loss.