Section 9.33 Settlements

• Library: Insurance Practice 2015

The typical policy definition of “loss” explicitly acknowledges coverage for an insured’s liability under a settlement of the claimant’s cause of action. See Int’l Ins. Co. v. Johns, 874 F.2d 1447, 1453–54 (11^th Cir. 1989). But if the insured enters into a settlement without the insurer’s consent, the language of the policy’s cooperation clause and any provisions dealing with control of the defense may determine whether the settlement is covered. The Eighth Circuit has held that the failure of an insured to give notice of and obtain consent for a settlement, when a policy provision so requires, relieves the insurer of its obligation to fund the settlement. Central Bank v. St. Paul Fire & Marine Ins., 929 F.2d 431, 433–34 (8^th Cir. 1991). Cooperation clauses of this type have been upheld even under a policy that provides the insurer with no right or no duty to defend. Waste Mgmt., Inc. v. Int’l Surplus Lines Ins. Co., 579 N.E.2d 322, 333–34 (Ill. 1991). But it has been held that, if the insurer withholds consent unreasonably, it breaches the policy, thus enabling the insured to make a settlement that will be covered...