The follow-the-settlements doctrine in insurance requires the insurer to agree with the decisions made by the insured party when settling claims. This also applies to reinsurers, who must follow the actions of the reinsured.
The follow-the-settlements doctrine is a principle in insurance that mandates an indemnitor to acknowledge and support the actions taken by the indemnitee in resolving claims. This principle is particularly significant in reinsurance, where a reinsurer must adhere to the actions of the reinsured. For instance, if a primary insurer settles a claim with a policyholder for $100,000, the reinsurer, who has agreed to cover a portion of the risk, must accept the settlement and fulfil their share of the claim. Even if the reinsurer disagrees with the settlement amount, they are obligated by the follow-the-settlements doctrine and must respect the decision of the primary insurer. Another scenario could involve a policyholder suing an insurance company for damages. If the insurance company chooses to settle the case outside of court, the reinsurer must accept the settlement and fulfil their share of the settlement amount. These examples exemplify the practical application of the follow-the-settlements doctrine. It ensures that all parties involved in an insurance contract are held responsible for their actions and decisions, and that the risk is equitably distributed among them.
The Follow-The-Settlements Doctrine is a legal principle that requires an insurer to honor a settlement made by its insured, even if the insurer disagrees with the settlement decision.
This doctrine is important because it promotes the efficient resolution of claims by allowing insured parties to settle disputes without fear of their insurer refusing to cover the settlement amount.
The application of this doctrine may vary depending on the jurisdiction and the specific terms of the insurance policy. However, it generally applies to most types of insurance policies, including liability, property, and professional indemnity insurance.
In certain circumstances, an insurer may challenge a settlement made by its insured if it can prove that the settlement was made in bad faith or was fraudulent. However, such challenges are generally difficult to succeed.
Yes, the Follow-The-Settlements Doctrine applies to both primary and excess insurance policies. It ensures that both insurers are bound by the settlement decisions made by the insured.
Under the Follow-The-Settlements Doctrine, an insurer cannot refuse to pay a settlement solely based on its belief that the insured was negligent. The doctrine requires the insurer to honor the settlement, regardless of the insured’s negligence.
Yes, if an insurer unreasonably refuses to follow a settlement made by its insured, it may be held liable for breach of contract or acting in bad faith. The insured may be entitled to damages resulting from the insurer’s refusal.
Yes, the Follow-The-Settlements Doctrine applies to both court-ordered settlements and settlements reached outside of court through negotiation or alternative dispute resolution methods.
In some cases, an insurer may seek reimbursement from its insured if it can prove that the settlement was not covered under the insurance policy or that the insured breached the policy terms. However, such reimbursement claims are subject to specific legal requirements and may not always be successful.
If an insurer becomes insolvent, the insured party may face difficulties in relying on the Follow-The-Settlements Doctrine. In such cases, the insured may need to seek legal advice and explore alternative options for recovering their losses.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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