Thursday, July 3, 2008

Critical Coverage Concept - Consent to Settle (6/19/08 Knowledge Knugget)

  • Most professional liability policies contain what is known as a "consent to settle" clause. This coverage provision extends to the Insured control of the settlement of a claim. The insuror may negotiate a potential settlement, but cannot settle without the Insured's agreement.
  • This provision arises from recognition of the potential reputational harm that can be done to a professional by virtue of a carrier settling a claim, thereby imputing liability where none may have existed.
  • This reputational harm can have a negative impact on the professional's ability to earn a living, and can also be a magnet for additional claims. Carriers are very cognizant of this slippery slope and endeavor to avoid it by seeking the insured's agreement to any proposed settlement.
  • In policies where the carrier does not assume the duty to defend, there is generally no consent to settle provision, as the carrier does not take control of the settlement negotiations. There are just a handful of exceptions to this rule.
  • I have heard some people opine that the consent to settle provision is mere window dressing. After all, GL policies do not provide such an enhancement to their insureds. True, but GL claims do not speak to the reputation of the professional, do they? In any situation where all other things are equal, I would definitely prefer to provide the consent to settle to our insured, rather than underestimate its importance. Certainly, the decision to forego such an enhancement should be made by the insured. Not by his or her broker

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