United States: Five Things You Need To Know About General Liability Insurance: 5) Don't Fall For The Consent To Settle Trap (Video Content)

Last Updated: July 20 2016
Article by Mark Miller

To view this video please click here.

In our last "Five Things You Need To Know About General Liability Insurance" episode, we address one of the most onerous traps that an insurance company can set for a policyholder – the consent to settle trap.  Many a policyholder has fallen into this trap.  The unfortunate thing for policyholders is that this classic setup oftentimes works, and policyholders are unsuspectingly forfeiting coverage.

The problem is also widely prevalent.  The consent to settle trap is raised in most every piece of litigation that is being defended by an insurance company.  Whenever there is mediation or talk of settlement, policyholders should expect that this trap will be set.

Recognizing the trap is only the first step.  Once the trap is recognized, certain strategies need be applied to achieve full coverage.  To learn more, please watch the video.

To see the transcript of today's video, see below:

Five Things You Need to Know About General Liability Insurance: 5) Don't Fall For The Consent To Settle Trap

Point number five under general liability insurance policies. Let's say you've got it down the road. You're all the way down there. You're ready to settle this thing or get this thing over with, and you've got everything set up. Point number five, don't fall for the consent to settle trap. Do not. What's that trap? Well, it's a good trap, and it's one that many folks fall into unsuspectingly.

This is a preventable thing. If you know what you're doing here, you don't have to fall into this trap and lose coverage. So what's the trap?

Mediation's coming up in a week. We got a chance to settle this thing. Defense counsel's like, "I got them. I got them. I think they're going to come down. I got a good mediator. I think we can get this thing done." Client's like, "Well, is the insurance company coming?" "Oh, yeah. They're coming. They're coming." "Well, what are they offering to pay?" Defense counsel says, "Well, they said $200,000. It's going to be a much bigger claim, but we can work it out perhaps. I'm not sure."

That's the opening dynamic. You're ready for a big mediation. You've got the possibility of settling it, and everybody's going. You show up to the mediation. You have defense counsel there. Defense counsel's client's there. That's the company that's sued. The insurance company's there, and plaintiff's counsel, and plaintiffs are there screaming at you for being bad actors and all that stuff. As a client, you're think, "Well, this is an opportunity to settle. Let's see if we can get it done."

Sure enough, you get it done. You may be happy. You may not be happy, but you got a deal you can live with, and you can move on and not worry about the case.

Then what happens? You're sitting there. You're the client, and you're like, "I'm ready to pay." They've set you up by offering too little, and putting you in a position where you want to pay and get it done. I'm not saying it's a bad thing to get it done, but what I'm saying is you've been set up because if you take that, and you do what a normal person would do, which is, "I'm going to pay this thing, you know. Whatever. Deal with the insurance later." The insurance company has you exactly where they want you, and that place is they've got no obligation whatsoever going forward. By settling, you've allowed them to walk. You've allowed them to walk free on the whole claim.

That's not a good strategy if you understand what you're getting into, but there's ways around it. The ways around it are to create proper leverage. The leverage is there at the mediation. The insurance company is smiling because it's going exactly as they planned. They've offered very little. You're walking down the plank and you're ready to jump off. As soon as you jump off, they're free.

You're happy too, because you're going to get this massive problem done, but unless you're thinking about the insurance, and unless you care about the insurance, you're going to lose it. The reason you're going to lose it is because of something called a voluntary payments clause in the policy. It doesn't look that onerous. It says if you voluntarily make any payments that the insurance carrier doesn't consent to, sometimes in writing, the insurance carrier doesn't have to pay. The unfortunate thing is language is usually pretty clear, and many courts have upheld it, meaning that even though the insurance carrier was offering a terrible amount for the settlement, and even though the policy holder did basically everything they could to try to get the insurance company up, even though, breaching that one condition has caused a number of courts to say, "You're out. You get nothing." Don't fall into the consent to settle trap.

The better approach is to leverage it. Tell the insurance company, "Look. You don't want to settle. We get it. We won't settle. That's fine." You know what that does if you say that, the insurance company says, "This is bad. Now I'm in a bad place." They know they're in a bad place, but you can do more to set them up. You can tell them, "Look, hey, look. We get it. You don't want to settle, but here's what we're going to do. We're not settling. You have an offer to settle within policy limits. You can take it. You need to pay, but you can take it. You're not taking it, hey, so sorry. We're not going to settle. As a result, you're going to pay all costs over policy limits."

When you do that, you've got the insurance guy sitting in the chair, or the insurance woman sitting in the chair, and they're not thinking they're walking free at that point. What they're thinking is, "Oh, my God! What's my boss going to do if I screw this up? I'm going to lose my job!" All of a sudden, they're making calls back to the home office. Home office folks are pretty bright. They know what's going on. They're all like, "You know, it's not worth it. Give them 800,000. See if they'll take it." All of a sudden you have a dynamic that works. Create the dynamic that works, and don't fall for the consent to settle trap.

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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