This article originally appeared in Anderson Kill's Policyholder Advisor (March/April 2006).
Liability insurance policies routinely provide that the insurance company has the right to control the defense of the policyholder, including the right to control the settlement of the underlying claim. Such provisions are common in nearly all liability policies, including general commercial liability policies, automobile policies, professional liability policies, and Directors and Officers liability policies.
In theory, and in the best of conditions, the insurance company and the policyholder have parallel interests in the quick and efficient resolution of claims, including settlement. In theory, the policyholder’s interests are adequately served by such an arrangement, because insurance companies have a fiduciary duty to their policyholders, including a duty of good faith and fair dealing in connection with their obligations. Moreover, the defense counsel hired by the insurance company also has an independent duty to represent the policyholder’s interest.