03/05/2009 07:51:39 PM EST
FREE DOWNLOAD - Chapter 23 of the New Appleman Insurance Law Practice Guide - Insurance Settlement Disputes by Saul B. Goodman, Benedict M. Lenhart, and Jarrett A. Williams
Most coverage disputes are resolved by settlement between the insurer and the insured, either before or after coverage litigation is filed. Unlike coverage litigation, settlement involves creating a new contract to govern the relationship between insured and insurer rather than simply interpreting and enforcing the terms of an existing insurance policy. This makes settlement a much more flexible means of resolving coverage disputes than litigation. The parties can, for example, completely renegotiate the terms on which underlying liability claims will be indemnified by the insurer through a coverage-in-place agreement that essentially replaces the existing insurance policies. But this greater flexibility also raises issues different from those presented in coverage litigation.
The goal of this chapter is to assist counsel in anticipating the various issues that can arise when insureds and insurers attempt to settle their coverage disputes rather than to describe one right way to negotiate and draft a settlement agreement. Settlements are custom documents rather than standard forms. The appropriate way to address a settlement issue in one context may not work in another, and the sample forms provided at the end of this chapter are only one way that such agreements can be drafted. Nevertheless, counsel should know what issues are likely to arise, and what options are available to them, in order to make a reasoned decision how to proceed. The issues discussed in this chapter largely reflect the authors' own experiences in negotiating settlements of complex insurance coverage claims on behalf of insureds under liability insurance policies such as Comprehensive General Liability, directors' and officers' liability, errors and omissions, and other commercial liability forms. Where first-party policies such as property insurance raise different issues, however, we have so noted in the discussion.
This chapter begins with a discussion of the issues involved in valuing a coverage claim and the techniques for applying appropriate discounts to the elements of the claim. We then review different structures of settlements -- such as the release of specific claims, the policy buy-back, the coverage-in-place agreement, and others -- that are commonly used. Next, we discuss the process of negotiating a settlement and the techniques that the parties can use to encourage settlement and preserve the confidentiality of the negotiations. The chapter then addresses the drafting of term sheets and formal settlement agreements, with an emphasis on the issues that counsel should consider and address in each of the standard clauses in the agreement. Negotiating the rules that will govern the pursuit of subrogation claims is discussed in its own section. The chapter concludes with a discussion of various ways in which settlement may affect the rights and obligations of non-parties to the settlement.
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