Sensible commercial settlements: Push for cover - DAC Beachcroft

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Sensible commercial settlements: Push for cover

Published On: 2 September 2014

Brokers are pushing for insurers to provide clarity that when an insured has an opportunity to reach a sensible commercial settlement it will be entitled to recover under its D&O or professional indemnity policy.

The question is whether cover is available where liability is in doubt but the settlement is nonetheless advisable. These issues have become the subject of the attention of brokers, in large part as a result of the recent Court of Appeal decision in AstraZeneca v ACE/XL. Brokers are pushing for clarification that an insured who settles a claim for sensible commercial reasons will be entitled to an indemnity in relation to the settlement sum. If liability is in doubt, when will a settlement be commercially sensible and when will it be ex gratia? What if the settlement is driven by reputational issues or only to maintain a key commercial relationship? Is insurer consent a condition precedent? Real differences exist between wordings of leading insurers on these issues and insurers' appetite to extend cover is not uniform either.