To Settle or Not

Many policyholders have large deductibles or retentions in their liability policies. Insurers that agree to defend policyholders against a claim falling within the coverage of a liability policy typically also want to control the litigation strategy and/or settlement discussions. What happens when the insurer wants to settle a claim within the deductible or retention amount, making the policyholder liable for the entire settlement, but the policyholder does not want to settle? Does the insurer have to obtain consent of the policyholder before settling the claim? While the scenario seems to present an academic question, the reality is that given the large amount of retentions and deductibles that are common today, policyholders and insurers often disagree about whether a case should be settled. As described below, the answer to the question of who decides whether to settle a case within a policy retention or deductible will depend upon the specific policy language at issue and the applicable state law.