(Previously published in Anderson Kill's Policyholder Advisor, Volume 25, Issue 1 (January/February 2016))
A policyholder purchases liability insurance coverage to protect itself in the event it gets sued. Assuming a claim against the policyholder triggers its liability insurance policy, the insurance company will have a duty to defend the policyholder in the litigation against it and pay for a judgment against the policyholder. At some point in the litigation, the policyholder's liability may become clear. The insurance company, however, may prefer to roll the dice and proceed to trial. The policyholder, on the other hand, may want the insurance company to pay to settle the dispute. While the insurance company's liability is generally capped at the policy's limit of liability, the policyholder could end up liable for amounts in excess of policy limits.
To read the full article: Your Insurance Company's Duty to Settle