Settlement Obligations under Automobile Insurance Policies

Settlement Obligations under Automobile Insurance Policies

An automobile insurance policy can contain a clause that requires an insured to obtain the consent of the insurance company before settling a lawsuit with an uninsured motorist. Some states require the consent-to-settle clause by statute. In the absence of a statutory requirement, many courts have upheld consent-to-settle clauses. Those states that do not enforce such clauses often cite public policy. They fear that an insurance company will be able to avoid paying its share of uninsured motorist coverage by failing to consent to a settlement. Other courts find that such clauses can reduce settlements by creating another step for the insured take.

An insurance company cannot withhold its consent to a settlement unreasonably. It can, however, withhold its consent in good faith while it determines what will be paid in a lawsuit against others who also caused the insured’s loss. An insurance company can also protect its right to subrogation by withholding its consent. Courts will enforce a consent-to-settle clause to safeguard the subrogation rights of an insurance company.

An insured’s failure to obtain his or her insurance company’s consent to a settlement could result in a loss of coverage under the policy. While such a failure is a breach of the consent-to-settle clause, some courts require that the insurance company prove that the breach prejudiced its rights.

An insurance company can choose to waive the terms of the consent-to-settle clause. And a waiver could result if an insurance company fails to participate in negotiations to settle a claim. Of course, if an insurance company denies a claim, that denial operates as a waiver of the consent-to-settle clause.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.