Opinion ID: 1198150
Heading Depth: 3
Heading Rank: 4

Heading: ISLIC Settlement

Text: 43. Lexington asserts that ISLIC, having reached a settlement for merely $1.65 million, should not be permitted credit for the full $5,000,000 guaranteed by its policy. However, nothing in Lexington's policy precludes an underlying insurer-once it has been held liable to pay [20] from settling for an amount less than its policy limits, and being credited for the balance. Several courts have permitted such settlements, although under policy language that differs from that before us. See, e.g., Teigen v. Jelco of Wis., Inc., 124 Wis.2d 1, 367 N.W.2d 806, 809-12 (1985); Gasquet v. Commercial Union Ins. Co., 391 So.2d 466, 472 (La.Ct. App.1980); Stargatt v. Fidelity & Cas. Co., 67 F.R.D. 689, 690-91 (D.Del.1975), aff'd, 578 F.2d 1375 (3d Cir.1978); Zeig, 23 F.2d at 665-66; see also 1A Rowland H. Long, The Law of Liability Insurance § 5A.15 (1995) (Where the primary insurer settled with the claimant for an amount less than its policy limits, but that settlement provided that the entire amount of the policy limits would be deducted from any recovery in order to determine the excess carrier's liability under its policy, the primary insurer did not breach any duty to settle which might have been owed to the excess carrier.). 44. There are strong public policy reasons for permitting the underlying insurer to settle for less than its policy limits. For example, the excess insurer has no rational interest in whether the primary policies are collected in full, as long as it is only required to pay the loss for which it would otherwise have been liable under the terms of its contract. Zeig, 23 F.2d at 666. Additionally, [t]o require an absolute collection of the primary insurance to its full limit would in many, if not most, cases involve delay, promote litigation, and prevent an adjustment of disputes which is both convenient and commendable. Id. Also, settlements made by claimants with their primary insurers are less burdensome both on the judicial system and on the parties to an insurance contract. See Critz v. Farmers Ins. Group, 230 Cal. App.2d 788, 41 Cal.Rptr. 401, 408 (1964) (The law favors settlements.); Gasquet, 391 So.2d at 471.