Source: http://dutytodefend.com/control-of-settlement/
Timestamp: 2019-04-22 08:33:51+00:00

Document:
As long as the insurer is faithfully providing a defense to its policyholder, a lawsuit cannot be settled at an insurer’s expense without the insurer’s consent. As a party to a lawsuit, a defendant has an initial legal right to settle, but not necessarily at the insurer’s expense. Liability insurance policies require the policyholder to defer to the insurer regarding any settlement that the insurer must pay. Standard policy language excuses the insurer’s obligation to pay for any settlement to which it does not consent.
But, an insurer that does not faithfully defend its policyholder may be unable to enforce some or any of the several contractual provisions of a standard liability policy that empower the performing insurer to take control of settlement. If an insurer wrongfully fails to defend, the policyholder and the plaintiff are free to negotiate a reasonable, non-collusive settlement and then seek payment from a defaulting insurer, unimpeded by contract language to the contrary. The rationale is that the insurer’s breach of the duty to defend leaves an abandoned policyholder to fend for oneself.
A liability insurer’s implied “duty to settle” is an obligation arising from the broader duty of good faith and fair dealing. The implied duty to settle recognizes the insurer’s obligation to avoid unreasonably exposing the policyholder to liability in excess of the policy limit and typically only arises when a plaintiff makes an offer to settle within policy limits. However, no insurer is required to accept a settlement offer simply because is it within policy limits. Instead, the penalty for an insurer failing to accept a reasonable offer to settle withing policy limits is that it may be obligated to pay a covered judgment, even in excess of the stated contractual limit. An attorneys’ consent to settlement is not required.
However, “the assured cannot force the carrier to accept a settlement offer it does not wish to accept. For better or worse, like a married couple, assured and carrier must make the best of each other.” “[A] defending insurer cannot be bound to a settlement to which it has not agreed and in which it has not participated.” Thus, a policyholder may not settle at the insurer’s expense without a performing insurer’s consent.
Standard policy language requires the policyholder to notify the insurer of a lawsuit. Courts freely enforce this provision since an insurer cannot be expected to discharge its contractual promises until it learns of a claim. However, the notice-prejudice rule excuses a policyholder of giving timely notice unless the insurer can demonstrate prejudice. “[P]rejudice must be shown [by the insurer] with respect to breach [by the policyholder] of notice clause.” Separately from the notice provision of the policy, the enforceability of a settlement reached by a policyholder whose insurer has failed to defend may often be influenced by whether the policyholder has kept the insurer informed.
 Some policies require the insurer to obtain the consent of policyholder to settle.
 Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1407.
 Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 871 (ellipsis omitted).
 Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, 722 (Hamilton).
 Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 882.
 Insua v. Scottsdale Ins. Co. (2002) 104 Cal.App.4th 737, 745.
 Hamilton, supra, 27 Cal.4th at 722.
 Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 516 (ellipsis omitted).
 Kershaw v. Maryland Casualty Co. (1959) 172 Cal.App.2d 248, 257 (ellipsis omitted).
 Lamb v. Belt Casualty Co. (1935) 3 Cal.App.2d 624, 630.
 Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 791 (ellipses omitted).
 Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 787 (Safeco).
 Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1233.
 Safeco, supra, 71 Cal.App.4th at 789.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.