{"id":893217,"date":"2017-11-16T12:16:06","date_gmt":"2017-11-16T19:16:06","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=893217"},"modified":"2017-11-16T12:16:06","modified_gmt":"2017-11-16T19:16:06","slug":"can-settle-third-party-claim-coverage-purgatory","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/can-settle-third-party-claim-coverage-purgatory\/","title":{"rendered":"Can You Settle Your Third-Party Claim While in Coverage Purgatory?"},"content":{"rendered":"<p>P. Wesley Lambert | <a href=\"https:\/\/www.lexology.com\/library\/detail.aspx?g=7d54ed68-9299-4426-8a2b-7437b10892aa&amp;utm_source=lexology+daily+newsfeed&amp;utm_medium=html+email+-+body+-+general+section&amp;utm_campaign=lexology+subscriber+daily+feed&amp;utm_content=lexology+daily+newsfeed+2017-11-14&amp;utm_term=\" target=\"_blank\">Brouse McDowell<\/a> | November 13, 2017<\/p>\n<p>Most commercial general liability (CGL) policies grant control over the defense and settlement of third party claims to the insurer. Thus, the right to settle, or not settle, a third-party claim against the policyholder resides with the insurer. However, when an insurance company breaches its policy, for example by wrongfully refusing its duty to provide a defense to its policyholder, the policyholder may settle the claim against it without securing the insurer\u2019s consent.<em>\u00a0Sanderson v. Ohio Edison Co<\/em>., 69 Ohio St. 3d 582, 635 N.E.2d 19 (1994). Conversely, when the insurance company is honoring its defense obligation, even under a reservation of rights to later contest coverage, the policyholder must respect the policy\u2019s grant of control of the settlement process to the insurer or risk losing coverage for any settlement reached without the insurer\u2019s consent.<\/p>\n<p>But, what happens when the insurer is providing a defense to the insured, and thus technically complying with the policy\u2019s terms, yet has made it clear that it will not actually indemnify the policyholder for any settlement or judgment? These situations leave the policyholder in a sort of coverage purgatory \u2013 it is receiving the defense coverage it bargained for, but not the indemnity coverage. Policyholders may want to resolve the claims against them in order to limit their liability, but may also be afraid that doing so will result in a forfeiture of coverage for the settlement amount.<\/p>\n<p>Fortunately, courts have constructed an alternative path for policyholders stuck in these situations, holding that insures may not leave their policyholders in limbo by controlling\u00a0the policyholder\u2019s defense but unequivocally refusing to indemnify the policyholder for any settlement or judgment. In\u00a0<em>Ward v. Custom Glass &amp; Frame, Inc.<\/em>, 105 Ohio App.3d 131 (8th Dist. 1995) and Patterson v. Cincinnati Ins. Cos., 2017-Ohio-2981, 2017 WL 2291605 (8th Dist. Aug. 22, 2017), the Eighth District Court of Appeals held that when an insurer clearly indicates that it will not indemnify the policyholder, the policyholder is relieved from the obligation to secure the insurer\u2019s consent prior to settling the claim against it.<\/p>\n<p>In both cases, the policyholder was subject to a third-party claim that the insurer had agreed to defend. However, the insurer in both cases stated, in no uncertain terms, that it would not indemnify the policyholder if there were a judgment against it. Thus, the insurance companies maintained that they had the right to control the policyholder\u2019s defense, and its ability to settle the claim, but that it would not actually fund any settlement or ultimate judgment. The policyholder, left with no other option, settled the claim itself, while at the same time keeping the insurer apprised of the settlement negotiations.<\/p>\n<p>The insurers in both cases argued that the policyholder\u2019s disregard of the policy\u2019s consent to settle provision relieved the insurers from the obligation to cover the settlements. Both courts disagreed. The\u00a0<em>Ward<\/em>\u00a0court was particularly critical of the insurer\u2019s conduct, holding that \u201c[w]hen an insurance company refuses to provide coverage and at the same time seeks to maintain control of the same litigation, it . . . creates a frustration of purpose. Such conduct would compel a person of reasonable faculties to cut his costs and settle a lawsuit to avoid the possibility of a higher judgment.\u201d\u00a0<em>Ward<\/em>, 105 Ohio App.3d at 137. Thus, when an insurance company maintains that coverage does not exist, it \u201cmust make a clean break from the case and should not subject the insured to a guessing\u00a0game or by its conduct cause the insured to incur more expenses than necessary.\u201d Id. The Patterson similarly noted the \u201cfrustration of purpose\u201d created when the insurer controls the defense of an action while at the same time disclaiming its duty to indemnify.\u00a0<em>Patterson<\/em>, 2017-Ohio-2981 at \u00b630.<\/p>\n<p>Thus, policyholders trapped in coverage purgatory may look to\u00a0<em>Ward\u00a0<\/em>and\u00a0<em>Patterson\u00a0<\/em>for support when deciding whether they may settle a case against them without violating their policy\u2019s consent to settle provision. It is important to note, however, that in both cases the policyholder kept the insurer apprised of the settlement negotiations and offered them the opportunity to remain involved in the process. While it is unclear whether this impacted the courts\u2019 analysis of the case, policyholders would be well-advised to keep the lines of communication open with their insurer despite the ostensible breach of the policy\u2019s indemnification obligation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>P. Wesley Lambert | Brouse McDowell | November 13, 2017 Most commercial general liability (CGL) policies grant control over the defense and settlement of third party claims to the insurer. Thus, the right to settle, or not settle, a third-party claim against the policyholder resides with the insurer. However, when an insurance company breaches its&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/can-settle-third-party-claim-coverage-purgatory\/\">Continue reading <span class=\"screen-reader-text\">Can You Settle Your Third-Party Claim While in Coverage Purgatory?<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9914],"tags":[9895,4739,23,8930],"class_list":["post-893217","post","type-post","status-publish","format-standard","hentry","category-insurance-coverage","tag-advise-consult","tag-commercial-general-liability-policy","tag-insurance-coverage","tag-third-party-claims","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Can You Settle Your Third-Party Claim While in Coverage Purgatory? 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