The Insurer's Right to Settle

Settlement Is a Matter of Insurer's Discretion

The terms of general liability policies often reserve to the insurer the decision of whether to settle a claim that has been brought against the policyholder. This provision is commonly known as the “deems expedient” clause and typically reads as follows: “The insurance company has the right to defend any suit against the policyholder seeking damages for bodily injury or property damage, even if any of the allegations of the suit are groundless, false, or fraudulent, and to make such investigation and settlement of any claim or suit as it deems expedient.”

“Expedient” is defined in Webster's New World Dictionary, College Edition as “useful for effecting a desired result,” and “based on or offering what is of use or advantage rather than what is right or just; guided by self-interest.” Accordingly, a “deems expedient” clause grants the insurer the exclusive authority to control settlement and to be guided by its own self-interest when settling the claim for amounts within the policy limits. Shuster v. South Broward Hosp. Dist. Physicians' Professional Liability Ins. Trust, 591 So.2d 174, 176-177 (Fla. 1992). The obvious intent behind placing the provision in the agreement is to grant the insurer the authority to decide whether to settle or defend the claim based on its own self-interest, and this authority includes settling for the claim's nuisance value, regardless of merit. Id. at 177. See also, Commerce & Ind. Ins. Co. v. North Shore Towers Mgmt. Inc., 617 N.Y.S.2d 632, 634 (1994) (“investigate and settle any claim or 'suit' at our discretion” language allowed insurer to settle without obtaining insured's consent); Marginian v. Allstate Ins. Co., 481 N.E.2d 600, 602 (1985) (interpreting “deems appropriate” provision to give insurer right to settle on behalf of policyholder even if claims are fraudulent or groundless); Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 837 (3rd Cir. 1995) (policy providing insurer may settle a suit it “deems expedient” is similar to “settle when appropriate” provision).

“Deems expedient” clauses, however, are not universal. Some policyholders bargain for “pride clauses,” requiring the policyholder's consent to settlement. These clauses are frequently found in professional liability policies, and may be bargained for in commercial liability policies.

Where the policy requires the policyholder's consent to settle, breach of that provision may give rise to a cause of action against the insurer. Brion v. Vigilant Ins. Co., 651 S.W.2d 183, 184 (Mo. Ct. App. E.D. 1983); Feliberty v. Damon, 527 N.E.2d 261, 262 (1988). A pride provision, however, is not without limitations. For example, it has been held that pride clauses do not permit the policyholder to unreasonably refuse to give consent. See, Transit Casualty Co. v. Spink Corp., 94 Cal. App. 3rd 124 (Cal. App. 3rd Dist. 1979).

'Deems Expedient' Language and Recouping Prospective Damages

A liability policy's purpose is to provide the insured with a defense and indemnification for third-party claims within the scope of the coverage purchased, and not to insure the entire range of the insured's well-being. Western Polymer Technology, Inc. v. Reliance Ins. Co., 32 Cal. App.4th 14, 27 (Cal. App. 1st Dist. 1995). Where the policy does not require the insured's consent to a settlement, there appears to be no precedent for holding an insurer liable for the policyholder's alleged prospective injuries. Id. This is not surprising because the policy language informs the policyholder that the insurer may settle “as it deems expedient,” or “at its discretion,” any claim or suit, even if the allegations are “groundless, false or fraudulent.” Id. No reasonable reading of this language would create an expectation that the insurer has to forgo settlement in favor of vindicating the reputation of the policyholder or its property. Id.

Courts have overwhelmingly recognized that a claim will not lie against the insurer where the settlement causes the policyholder to sustain prospective harm. This is true regardless of the nature of the damages, including loss of employment (Brown v. St. Paul Fire & Marine Ins. Co. 604 S.W.2d 863 (Tenn. App. 1980)); impairment to future insurability (Hurvitz v. St. Paul Fire & Marine Ins. Co., 109 Cal. App. 4th 918 (Cal. App. 2nd Dist. 2003)); loss of income (Shuster, 591 So.2d at 176); the possibility of administrative review or adverse publicity (Sharpe v. Physicians Protective Trust Fund, 578 So.2d 806, 808 (Fla. App. 1st Dist. 1991)); being forced out of business (Savard v. Selby 508 P.2d 773, 776 (Ariz. App. 1973)); or injury to the policyholder's reputation (Romeis v. Klingberg, Terwilliger, Wakeen, Piehler & Co. 447 N.W.2d 538 (Wis. App. 1989)).

Likewise, the policyholder is not permitted to recover for its alleged harm, regardless of whether a breach is claimed to arise from the insurer's alleged negligent investigation (Brown, 604 S.W.2d at 864; Sharpe, 578 So.2d at 809); civil conspiracy (Savard, 508 P.2d at 518; Romeis, 447 N.W. 2d at 538); or declining to take an appeal (Feliberty v. Damon, 129 A.D.2d 207, 517 N.Y.S.2d 632 (4th Dep't 1987)).

Limits to the Latitude Afforded Insurers in Effecting Settlements

There are three limited exceptions to the insurer's broad discretion to effect settlement. They apply where the settlement: 1) affords the policyholder less than a complete release to additional liability; 2) bars the policyholder from proceeding with a pending counterclaim; or 3) causes the policyholder to incur “retrospective” premium adjustments. Where bad faith is found under any one of these circumstances, the insurer could be liable for damages.

Settlement Affording Policyholder Less Than a Complete Release

In Ivy v. Pacific Automobile Ins. Co., 320 P.2d 140 (Cal. App. 1st Dist. 1958), liability was imposed where the insurer stipulated, without the policyholder's knowledge or consent, to the entry of a judgment against the policyholder in an amount that exceeded policy limits. Id. at 660-663. Although the insurer obtained a covenant not to execute against the policyholder on the stipulated judgment, the policyholder was not fully protected because the covenant did not bind assignees of the judgment, and the judgment impaired the policyholder's ability to obtain credit. Id. at 662-663.

A similar outcome could be engendered in a situation where the insurer, in bad faith, indiscriminately settles with one or more claimants for the full policy limits, but exposes the policyholder to an excess judgment from the remaining claimants. Farinas v. Florida Farm Bureau General Ins. Co., 850 So.2d 555 (Fla. Dist. Ct. App. 4th Dist. 2003). However, an insurer may settle multiparty claims in good faith, even if the settlement reduces or exhausts the amount of policy proceeds available to other claimants. See, eg, Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764-65 (5th Cir. 1999); Commercial Union Ins. Co. v. Pittsburgh Corning Corp., 789 F.2d 214, 218 (3rd Cir. 1986).

Settlement Barring Policyholder from Proceeding with a Pending Counterclaim

The insurer may be liable to the policyholder where a settlement would bar the policyholder from proceeding with a pending counterclaim. Rothtrock v. Ohio Farmers Ins. Co., 233 Cal. App. 2d 616, 618-623 (Cal. App. 4th Dist. 1965.); Barney v. Aetna Casualty & Surety Co., 185 Cal. App. 3d 966, 974-978 (Cal. App. 2nd Dist. 1986). In both Rothtrock and Barney, the insurers settled claims arising out of automobile collisions, but did so by means that barred the policyholders' pending claims for personal injuries from the collisions. The insurers were found liable to the policyholders because the insurers knew about the pending claims and had no legal right to compromise their policyholders' claims. See also, Karp v. Sun Insurance Office Ltd. (No. 2), 83 Pa. D. & C. 566 (1952). But see, Long v. Union Indem. Co., 178 N.E. 737 (Mass. 1931) (insurer not liable to policyholder for agreeing to consent judgment against the policyholder, without having obtained policyholder's consent, allegedly causing destruction of policyholder's action against claimant).

Where care is taken, however, the insurer can settle claims even though the policyholder has a pending claim. The insurer simply must structure the settlement to permit the policyholder to retain its right to proceed with its cross-complaint after the settlement. The settlement documents should specify that the policyholder denies any liability and that payment to the claimant is not to be construed as an admission in any context. See Western Polymer, 32 Cal. App.4th at 27 (where settlement documents reserved policyholder's cross-claim and specified that policyholder denied any liability, settlement did not injure policyholder's ability to pursue cross-complaint).

In addition, Rothtrock and Barney do not apply where the settlement leads only to the loss of the policyholder's potential claim for malicious prosecution, slander or other similar claims. Hurvitz v. St. Paul Fire & Marine Ins. Co., 109 Cal. App. 4th at 930; Caplan, 68 F.3d at 839.

Moreover, there is a growing trend toward finding that a liability insurer's settlement of a claim against the insured, made without the policyholder's consent and not thereafter ratified by the policyholder, will not bar an action by the policyholder against the person receiving the settlement on a claim arising out of the same facts, regardless of the principles of res judicata or estoppel. See, Couch on Insurance, Third Edition, ' 203:43, and cases cited therein.

Settlement Implicating Retrospective Premium Adjustments

A conflict of interest may exist where the insurer will be able to recoup some or all of the settlement cost in a policy which calls for “retrospective” premium adjustments on the basis of the amount paid out in claims on the policyholder's behalf during the policy period. See Security Officers Service Inc. v. State Compensation Ins. Fund, 17 Cal. App. 4th 887 (Cal. App.2nd Dist. 1993) (when policy contains retrospective premium feature, cause of action permitted where insurer's failure to reasonably adjust claims subjects policyholder to greater financial obligations in form of increased premium rates). But see Transcontinental Ins. Co. v. Century Steel Erectors Inc., 318 F.Supp.2d 276 (W.D. Pa. 2004) (no cause of action in bad faith available against insurer under retrospective premium policy).

The potential conflict can be overcome by the insurer where the evidence supports the reasonableness of settlement. U.S. Fidelity & Guaranty Co. v. Sanders Drilling & Workover Co. Inc., 396 So.2d 1353, 1357 (La. App. 3rd Cir. 1981) (policyholder liable for retrospective increases in premium where evidence supported settlement's reasonableness). The retrospective premium exception, however, does not apply to a situation where the policyholder will experience increased future premiums. L.C. Renninger Co. Inc. v. VIK Bros. Ins., Inc., 180 F.R.D. 272, 276 (E.D. Pa. 1997). Even if the insured can demonstrate that increases are certain, there is no cause of action against the insurer for exercising its right to settle. Id.

Deductibles

An interesting situation is presented where the insurer settles for an amount that is less than the deductible, or for an amount where the deductible is considerably larger than the insurer's contribution. In that instance, the cost of settlement is borne entirely (or in gross disproportion) by the policyholder, while the insurer is additionally able to limit its defense expenditures.

Some policies directly address the payment of deductibles, stating that the deductible does not affect the insurer's discretion to settle. See Casualty Ins. Co. v. Town & Country Pre-School Nursery Inc., 498 N.E.2d 1177 (Ill. App. 1st Dist. 1986); Orion Ins. Co., Ltd. v. General Elec. Co., 493 N.Y.S.2d 397 (Sup. Ct. 1985). The policy language often expressly requires that the policyholder contribute its deductible toward settlement regardless of whether the policyholder consents to settlement. Id. In those cases, insurers generally prevail in actions seeking to enforce the policyholder's payment of the outstanding deductible. See, eg, Orion, supra (right to settle extended to all or any part of deductible, notwithstanding policyholder's contention that insurer had no right to settle claim for $8 million, $5 million of which was funded through deductible); Insurance Co. of North America v. L.C. Young Painting & Decorating Co., 161 N.W.2d 24 (Mich. App. 1968) (insurer can settle claim even though amount paid is within policy's deductible provision, and can require policyholder to reimburse it for such part of the deductible amount insurer paid to effect settlement); Town & Country, 498 N.E.2d at 1179 (insurer had no duty to consider insured's interest when settling claim for $1800 where deductible was $2000).

Where the policy does not expressly address the issue, the majority of jurisdictions, likewise, do not permit a policyholder to escape the obligation to reimburse the insurer for deductibles after the insurer has settled a claim against the policyholder. See, eg, New Hampshire Ins. Co. v. Ridout Roofing Co., 68 Cal. App. 4th at 504-505 (where policy “gave the insurer the express right to settle claims and, if such settlements included the insured's deductible, to thereafter seek reimbursement from the insured,” insured's exercise of that right could not be limited). These decisions are often based, at least in part, on a judicial policy of promoting settlements in civil litigation — and therefore providing relief to crowded court dockets. But see St. Paul Fire & Marine Ins. Co. v. Edge Memorial Hosp., 584 So.2d 1316 (Ala. 1991) (liability insurer breached duty to policyholder by failing to obtain consent to settle claim for $10,000, where policyholder was required to reimburse insurer for any settlement up to $50,000 deductible; insurer was not entitled to recover deductible from policyholder).

Conclusion

Where the policyholder has contractually ceded all authority to control settlement, courts are justifiably reluctant to rewrite the policy to divest the insurer of its express right under the agreement. A contrary result would likely cause insurers to reassess their premium structure. Many policyholders' lack of experience in settling claims, coupled with refusal to settle matters based on “principle,” would likely inflate claims costs and, ultimately, increase the cost of liability insurance to all insureds. Accordingly, the judiciary's acceptance of “deems expedient clauses” serves to benefit the public good by promoting settlements and holding down the cost of insurance premiums. From the standpoint of the health care practitioner, however, caution when seeking coverage is imperative.

As a practical matter, the decision of whether to settle claims brought against a policyholder is typically left to the insurer. The interests of the insurer and the policyholder are typically aligned, whether it is because of the policyholder's inherent desire to resolve the litigation, or the insurer's vastly greater experience in defending and settling claims.

For claims falling within policy limits, however, there remains an enhanced possibility of a dispute between the policyholder and insurer over whether to settle. All litigation expenses will be borne by the insurer, as will the costs of any judgment. In contrast, continuing the litigation is a nominal cost for the policyholder. The policyholder may also have collateral interests at stake. In the most common of examples, a physician may wish to fight a malpractice claim rather than settle because of the potential damage to his or her professional reputation, a loss of business, an increase in future premiums, the potential termination of the policy, or impairment to his or her ability to obtain future coverage.

A review of the jurisprudence discloses that it is the policy language that will control, and insurers may generally look to protect their interests alone when the policy so provides.

Settlement Is a Matter of Insurer's Discretion

The terms of general liability policies often reserve to the insurer the decision of whether to settle a claim that has been brought against the policyholder. This provision is commonly known as the “deems expedient” clause and typically reads as follows: “The insurance company has the right to defend any suit against the policyholder seeking damages for bodily injury or property damage, even if any of the allegations of the suit are groundless, false, or fraudulent, and to make such investigation and settlement of any claim or suit as it deems expedient.”

“Expedient” is defined in Webster's New World Dictionary, College Edition as “useful for effecting a desired result,” and “based on or offering what is of use or advantage rather than what is right or just; guided by self-interest.” Accordingly, a “deems expedient” clause grants the insurer the exclusive authority to control settlement and to be guided by its own self-interest when settling the claim for amounts within the policy limits. Shuster v. South Broward Hosp. Dist. Physicians' Professional Liability Ins. Trust , 591 So.2d 174, 176-177 (Fla. 1992). The obvious intent behind placing the provision in the agreement is to grant the insurer the authority to decide whether to settle or defend the claim based on its own self-interest, and this authority includes settling for the claim's nuisance value, regardless of merit. Id. at 177. See also, Commerce & Ind. Ins. Co. v. North Shore Towers Mgmt. Inc. , 617 N.Y.S.2d 632, 634 (1994) (“investigate and settle any claim or 'suit' at our discretion” language allowed insurer to settle without obtaining insured's consent); Marginian v. Allstate Ins. Co. , 481 N.E.2d 600, 602 (1985) (interpreting “deems appropriate” provision to give insurer right to settle on behalf of policyholder even if claims are fraudulent or groundless); Caplan v. Fellheimer Eichen Braverman & Kaskey , 68 F.3d 828, 837 (3rd Cir. 1995) (policy providing insurer may settle a suit it “deems expedient” is similar to “settle when appropriate” provision).

“Deems expedient” clauses, however, are not universal. Some policyholders bargain for “pride clauses,” requiring the policyholder's consent to settlement. These clauses are frequently found in professional liability policies, and may be bargained for in commercial liability policies.

Where the policy requires the policyholder's consent to settle, breach of that provision may give rise to a cause of action against the insurer. Brion v. Vigilant Ins. Co. , 651 S.W.2d 183, 184 (Mo. Ct. App. E.D. 1983); Feliberty v. Damon , 527 N.E.2d 261, 262 (1988). A pride provision, however, is not without limitations. For example, it has been held that pride clauses do not permit the policyholder to unreasonably refuse to give consent. See, Transit Casualty Co. v. Spink Corp. , 94 Cal. App. 3rd 124 (Cal. App. 3rd Dist. 1979).

'Deems Expedient' Language and Recouping Prospective Damages

A liability policy's purpose is to provide the insured with a defense and indemnification for third-party claims within the scope of the coverage purchased, and not to insure the entire range of the insured's well-being. Western Polymer Technology, Inc. v. Reliance Ins. Co. , 32 Cal. App.4th 14, 27 (Cal. App. 1st Dist. 1995). Where the policy does not require the insured's consent to a settlement, there appears to be no precedent for holding an insurer liable for the policyholder's alleged prospective injuries. Id. This is not surprising because the policy language informs the policyholder that the insurer may settle “as it deems expedient,” or “at its discretion,” any claim or suit, even if the allegations are “groundless, false or fraudulent.” Id. No reasonable reading of this language would create an expectation that the insurer has to forgo settlement in favor of vindicating the reputation of the policyholder or its property. Id.

Courts have overwhelmingly recognized that a claim will not lie against the insurer where the settlement causes the policyholder to sustain prospective harm. This is true regardless of the nature of the damages, including loss of employment ( Brown v. St. Paul Fire & Marine Ins. Co. 604 S.W.2d 863 (Tenn. App. 1980)); impairment to future insurability ( Hurvitz v. St. Paul Fire & Marine Ins. Co. , 109 Cal. App. 4th 918 (Cal. App. 2nd Dist. 2003)); loss of income ( Shuster , 591 So.2d at 176); the possibility of administrative review or adverse publicity (Sharpe v. Physicians Protective Trust Fund , 578 So.2d 806, 808 (Fla. App. 1st Dist. 1991)); being forced out of business ( Savard v. Selby 508 P.2d 773, 776 (Ariz. App. 1973)); or injury to the policyholder's reputation ( Romeis v. Klingberg, Terwilliger, Wakeen, Piehler & Co. 447 N.W.2d 538 (Wis. App. 1989)).

Likewise, the policyholder is not permitted to recover for its alleged harm, regardless of whether a breach is claimed to arise from the insurer's alleged negligent investigation (Brown, 604 S.W.2d at 864; Sharpe, 578 So.2d at 809); civil conspiracy (Savard, 508 P.2d at 518; Romeis , 447 N.W. 2d at 538); or declining to take an appeal ( Feliberty v. Damon , 129 A.D.2d 207, 517 N.Y.S.2d 632 (4th Dep't 1987)).

Limits to the Latitude Afforded Insurers in Effecting Settlements

There are three limited exceptions to the insurer's broad discretion to effect settlement. They apply where the settlement: 1) affords the policyholder less than a complete release to additional liability; 2) bars the policyholder from proceeding with a pending counterclaim; or 3) causes the policyholder to incur “retrospective” premium adjustments. Where bad faith is found under any one of these circumstances, the insurer could be liable for damages.

Settlement Affording Policyholder Less Than a Complete Release

In Ivy v. Pacific Automobile Ins. Co. , 320 P.2d 140 (Cal. App. 1st Dist. 1958), liability was imposed where the insurer stipulated, without the policyholder's knowledge or consent, to the entry of a judgment against the policyholder in an amount that exceeded policy limits. Id. at 660-663. Although the insurer obtained a covenant not to execute against the policyholder on the stipulated judgment, the policyholder was not fully protected because the covenant did not bind assignees of the judgment, and the judgment impaired the policyholder's ability to obtain credit. Id. at 662-663.

A similar outcome could be engendered in a situation where the insurer, in bad faith, indiscriminately settles with one or more claimants for the full policy limits, but exposes the policyholder to an excess judgment from the remaining claimants. Farinas v. Florida Farm Bureau General Ins. Co. , 850 So.2d 555 (Fla. Dist. Ct. App. 4th Dist. 2003). However, an insurer may settle multiparty claims in good faith, even if the settlement reduces or exhausts the amount of policy proceeds available to other claimants. See, eg, Travelers Indem. Co. v. Citgo Petroleum Corp. , 166 F.3d 761, 764-65 (5th Cir. 1999); Commercial Union Ins. Co. v. Pittsburgh Corning Corp. , 789 F.2d 214, 218 (3rd Cir. 1986).

Settlement Barring Policyholder from Proceeding with a Pending Counterclaim

The insurer may be liable to the policyholder where a settlement would bar the policyholder from proceeding with a pending counterclaim. Rothtrock v. Ohio Farmers Ins. Co. , 233 Cal. App. 2d 616, 618-623 (Cal. App. 4th Dist. 1965.); Barney v. Aetna Casualty & Surety Co. , 185 Cal. App. 3d 966, 974-978 (Cal. App. 2nd Dist. 1986). In both Rothtrock and Barney, the insurers settled claims arising out of automobile collisions, but did so by means that barred the policyholders' pending claims for personal injuries from the collisions. The insurers were found liable to the policyholders because the insurers knew about the pending claims and had no legal right to compromise their policyholders' claims. See also, Karp v. Sun Insurance Office Ltd. (No. 2), 83 Pa. D. & C. 566 (1952). But see, Long v. Union Indem. Co. , 178 N.E. 737 (Mass. 1931) (insurer not liable to policyholder for agreeing to consent judgment against the policyholder, without having obtained policyholder's consent, allegedly causing destruction of policyholder's action against claimant).

Where care is taken, however, the insurer can settle claims even though the policyholder has a pending claim. The insurer simply must structure the settlement to permit the policyholder to retain its right to proceed with its cross-complaint after the settlement. The settlement documents should specify that the policyholder denies any liability and that payment to the claimant is not to be construed as an admission in any context. See Western Polymer, 32 Cal. App.4th at 27 (where settlement documents reserved policyholder's cross-claim and specified that policyholder denied any liability, settlement did not injure policyholder's ability to pursue cross-complaint).

In addition, Rothtrock and Barney do not apply where the settlement leads only to the loss of the policyholder's potential claim for malicious prosecution, slander or other similar claims. Hurvitz v. St. Paul Fire & Marine Ins. Co. , 109 Cal. App. 4th at 930; Caplan, 68 F.3d at 839.

Moreover, there is a growing trend toward finding that a liability insurer's settlement of a claim against the insured, made without the policyholder's consent and not thereafter ratified by the policyholder, will not bar an action by the policyholder against the person receiving the settlement on a claim arising out of the same facts, regardless of the principles of res judicata or estoppel. See, Couch on Insurance, Third Edition, ' 203:43, and cases cited therein.

Settlement Implicating Retrospective Premium Adjustments

A conflict of interest may exist where the insurer will be able to recoup some or all of the settlement cost in a policy which calls for “retrospective” premium adjustments on the basis of the amount paid out in claims on the policyholder's behalf during the policy period. See Security Officers Service Inc. v. State Compensation Ins. Fund , 17 Cal. App. 4th 887 (Cal. App.2nd Dist. 1993) (when policy contains retrospective premium feature, cause of action permitted where insurer's failure to reasonably adjust claims subjects policyholder to greater financial obligations in form of increased premium rates). But see Transcontinental Ins. Co. v. Century Steel Erectors Inc. , 318 F.Supp.2d 276 (W.D. Pa. 2004) (no cause of action in bad faith available against insurer under retrospective premium policy).

The potential conflict can be overcome by the insurer where the evidence supports the reasonableness of settlement. U.S. Fidelity & Guaranty Co. v. Sanders Drilling & Workover Co. Inc. , 396 So.2d 1353, 1357 (La. App. 3rd Cir. 1981) (policyholder liable for retrospective increases in premium where evidence supported settlement's reasonableness). The retrospective premium exception, however, does not apply to a situation where the policyholder will experience increased future premiums. L.C. Renninger Co. Inc. v. VIK Bros. Ins., Inc. , 180 F.R.D. 272, 276 (E.D. Pa. 1997). Even if the insured can demonstrate that increases are certain, there is no cause of action against the insurer for exercising its right to settle. Id.

Deductibles

An interesting situation is presented where the insurer settles for an amount that is less than the deductible, or for an amount where the deductible is considerably larger than the insurer's contribution. In that instance, the cost of settlement is borne entirely (or in gross disproportion) by the policyholder, while the insurer is additionally able to limit its defense expenditures.

Some policies directly address the payment of deductibles, stating that the deductible does not affect the insurer's discretion to settle. See Casualty Ins. Co. v. Town & Country Pre-School Nursery Inc. , 498 N.E.2d 1177 (Ill. App. 1st Dist. 1986); Orion Ins. Co., Ltd. v. General Elec. Co. , 493 N.Y.S.2d 397 (Sup. Ct. 1985). The policy language often expressly requires that the policyholder contribute its deductible toward settlement regardless of whether the policyholder consents to settlement. Id. In those cases, insurers generally prevail in actions seeking to enforce the policyholder's payment of the outstanding deductible. See, eg, Orion, supra (right to settle extended to all or any part of deductible, notwithstanding policyholder's contention that insurer had no right to settle claim for $8 million, $5 million of which was funded through deductible); Insurance Co. of North America v. L.C. Young Painting & Decorating Co. , 161 N.W.2d 24 (Mich. App. 1968) (insurer can settle claim even though amount paid is within policy's deductible provision, and can require policyholder to reimburse it for such part of the deductible amount insurer paid to effect settlement); Town & Country, 498 N.E.2d at 1179 (insurer had no duty to consider insured's interest when settling claim for $1800 where deductible was $2000).

Where the policy does not expressly address the issue, the majority of jurisdictions, likewise, do not permit a policyholder to escape the obligation to reimburse the insurer for deductibles after the insurer has settled a claim against the policyholder. See, eg, New Hampshire Ins. Co. v. Ridout Roofing Co. , 68 Cal. App. 4th at 504-505 (where policy “gave the insurer the express right to settle claims and, if such settlements included the insured's deductible, to thereafter seek reimbursement from the insured,” insured's exercise of that right could not be limited). These decisions are often based, at least in part, on a judicial policy of promoting settlements in civil litigation — and therefore providing relief to crowded court dockets. But see St. Paul Fire & Marine Ins. Co. v. Edge Memorial Hosp. , 584 So.2d 1316 (Ala. 1991) (liability insurer breached duty to policyholder by failing to obtain consent to settle claim for $10,000, where policyholder was required to reimburse insurer for any settlement up to $50,000 deductible; insurer was not entitled to recover deductible from policyholder).

Conclusion

Where the policyholder has contractually ceded all authority to control settlement, courts are justifiably reluctant to rewrite the policy to divest the insurer of its express right under the agreement. A contrary result would likely cause insurers to reassess their premium structure. Many policyholders' lack of experience in settling claims, coupled with refusal to settle matters based on “principle,” would likely inflate claims costs and, ultimately, increase the cost of liability insurance to all insureds. Accordingly, the judiciary's acceptance of “deems expedient clauses” serves to benefit the public good by promoting settlements and holding down the cost of insurance premiums. From the standpoint of the health care practitioner, however, caution when seeking coverage is imperative.