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Issues Regarding the Reasonableness of Settlement in London Coverage Arbitration

By Kenneth A. Remson

It is an all too common scenario. A policyholder is the target of a lawsuit and makes a claim to its insurer. Even though the claim appears to be covered, the insurer ultimately refuses to participate in the defense of the lawsuit and denies the claim, leaving the policyholder to fend for itself. The policyholder decides it is in its best interest to settle the lawsuit. The policyholder informs the insurer and asks it to participate in the settlement. The insurer reiterates its denial of coverage and refuses to participate in, or contribute to, the settlement. The policyholder negotiates a settlement, and the court approves the settlement as reasonable and enters judgment based on the negotiated settlement. In some instances, the court expressly indicates that the settlement is to be binding on all parties, including insurers. The policyholder then pursues the insurer for the insurance coverage it believes it is entitled to.

This is sometimes referred to as “pay and chase,” where the insured pays the settlement or judgment and then chases its insurer for coverage. But what some policyholders may not realize is that the provision in their policy requiring that all disputes relating to the policy, including coverage disputes, be arbitrated in London, will likely change some of the applicable rules and create some additional hurdles to obtain coverage for their settlement.

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