November 02, 2015 Articles

Settling Safely: The Pitfalls of Settlement in Multiparty Coverage Litigation

The failure to carefully consider how the settlement with one carrier affects a policyholder’s rights and remedies as to other parties can quickly turn a settlement celebration sour

by Jacqueline M. Brettner [1] and Harry M. Barton [2]

The goal of any attorney representing a policyholder in a coverage action against a carrier is to obtain payment from the carrier for the policyholder’s loss. Many times, the policyholder’s counsel achieves this goal by negotiating a favorable settlement, rather than obtaining a favorable judgment. Depending on just how favorable the settlement is, the policyholder and counsel will no doubt see the successful settlement as cause for celebration. However, in complex cases involving multiple carriers and a policyholder’s claims against brokers, agents, and other potentially responsible parties, the failure to carefully consider how the settlement with one carrier affects the policyholder’s rights and remedies as to other parties can quickly turn the settlement celebration sour.

This article explores some significant pitfalls that a policyholder’s counsel can stumble on if a settlement agreement is not carefully considered and drafted. While the scope of the article does not permit exploring every possible way that counsel can snatch defeat from the jaws of victory, the issues analyzed are among the most significant that can occur with respect to the documentation of partial settlements in complex insurance coverage litigation. Specifically, the article discusses how a policyholder’s settlement with a carrier can negatively affect or even foreclose the policyholder’s claims against its insurance broker, other potentially responsible parties, and their insurers, among others.

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