Insurance Issues in Settlement Discussions
A Review of the Insurer's Duty to Settle and the Effect of Mediation Confidentiality Laws on Mediated Settlements
So, it’s time to try to settle a lawsuit? Where does an insurer fit in the process? Does it matter whether it’s an informal discussion, a settlement conference, or a mediation? The answers to these questions can determine how and whether lawsuits get settled.
The answers aren’t always as simple as they might seem. Indeed, insurance coverage issues – couched in reservations of rights, disputes over covered and uncovered claims, who controls what, and how to ensure that there’s an appropriate “record” of settlement communications – are becoming more prevalent as time passes.
Here are five key issues – and suggestions to help get lawsuits settled while minimizing coverage disputes.
An Insurer’s Duty to Settle
One of the benefits of liability insurance is, of course, the fact that an insurer has a duty to fund reasonable settlements of lawsuits against its insured – at least if those lawsuits are potentially covered. The exact contours of the insurer’s duty to settle are fairly well defined now and have been since the California Supreme Court’s landmark decision in Comunale v.
Traders & General Insurance Co. (1958) 50 Cal.2d 654. There, the court stated, “the implied obligation of good faith and fair dealing requires the insurer to settle in an appropriate case although the express terms of the policy do not impose such a duty.” (Id. at p. 659.) “The duty to settle is implied in law to protect the insured from exposure to liability in excess of coverage as a result of the insurer’s gamble – on which only the insured might lose.” (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 941.)
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