defend, then they are not entitled to deny indemnification for reasonable settlements—insurer deemed to have waived right to insist on compliance with contractual conditions: Stevenson SCC 1956 Duty to Settle Within Policy Limits Issue Where Ratio Notes Duty Shea In keeping with the duty of utmost good Insurer must give consideration to faith, insurer has a duty to attempt to both their financial interests and settle within policy limits. the insured’s financial interests. Rationale Lecture Insurer controls defence and settlement negotiations Ensures insured does not jeopardize insurer’s interest Insurer appoints counsel, conducts litigation, settlement etc. Therefore good faith and fair dealings required in defence and settlement 3rd party claim within Insured not at risk of financial *although insured may have other policy limit liability to 3rd party interests, such as reputational Only insurer’s financial interest at interests, at stake* stake Duty easily fulfilled 3rd party claim exceeds Shea Insurers and insured’s financial Includes an offer to pay policy policy limit interests at stake limits in exchange for release of Insurer must make reasonable liability! efforts to settle within policy limits Insurer not to unreasonably refuse settlement offer within policy limit 3rd party judgment Fredrikson Not an automatic breach of good faith duty to settle over policy limit against insured exceeds Insurer only required to act fairly and openly policy limit Consequences of Dillon Liable for entire judgment amount insurer’s breach Here: 3rd party claimed $100,000 Limit $50,000 Settlement offer: $45 Insurer declined, countered with $40 Judgment against insured for 78$ Insurer liable for all. Tripartite Relationship Third party claims against insured under liability insurance policy Insurer appoints, instructs, and pays counsel Counsel to defend insured in 3rd party liability claim Common interests between insured and insurer – judgment in liability claim in insured’s favour or limit liability, for e.g. quantum of damages Potential conflict of interests: Insurer alleges breach of condition/terms; coverage dispute, mixed claims, judgment v settlement, etc. Conflict of interest: whether a reasonable person will perceive defence counsel’s ability to equally protect the insured and insurer as compromised in the circumstances. Remedy: insured appoints independent counsel at insurer’s expense Are there concerns with the insured’s appointment of independent
defend, then they are not entitled to deny indemnification for reasonable settlements—insurer deemed to have waived right to insist on compliance with contractual conditions: Stevenson SCC 1956 Duty to Settle Within Policy Limits Issue Where Ratio Notes Duty Shea In keeping with the duty of utmost good faith, insurer has a duty to attempt to settle within policy limits. Insurer must give consideration to both their financial interests and the insured’s financial interests. Rationale Lecture Insurer controls defence and settlement negotiations Ensures insured does not jeopardize insurer’s interest Insurer appoints counsel, conducts litigation, settlement etc. Therefore good faith and fair dealings required in defence and settlement 3rd party claim within policy limit Insured not at risk of financial liability to 3rd party Only insurer’s financial interest at stake Duty easily fulfilled *although insured may have other interests, such as reputational interests, at stake* 3rd party claim exceeds policy limit Shea Insurers and insured’s financial interests at stake Insurer must make reasonable efforts to settle within policy limits Insurer not to unreasonably refuse settlement offer within policy limit Includes an offer to pay policy limits in exchange for release of liability! 3rd party judgment against insured exceeds policy limit Fredrikson Not an automatic breach of good faith duty to settle over policy limit Insurer only required to act fairly and openly Consequences of insurer’s breach Dillon Liable for entire judgment amount Here: 3rd party claimed $100,000 Limit $50,000 Settlement offer: $45 Insurer declined, countered with $40 Judgment against insured for 78$ Insurer liable for all. Tripartite Relationship Third party claims against insured under liability insurance policy Insurer appoints, instructs, and pays counsel Counsel to defend insured in 3rd party liability claim Common interests between insured and insurer – judgment in liability claim in insured’s favour or limit liability, for e.g. quantum of damages Potential conflict of interests: Insurer alleges breach of condition/terms; coverage dispute, mixed claims, judgment v settlement, etc. Conflict of interest: whether a reasonable person will perceive defence counsel’s ability to equally protect the insured and insurer as compromised in the circumstances. Remedy: insured appoints independent counsel at insurer’s expense Are there concerns with the insured’s appointment of independent
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