Conflict of interest – a solution

Public Liability insurance cover should protect against the possibility of being successfully sued for damages. If a claim is made against you equalling or exceeding the cap on your insurer’s liability under the policy, then there is a risk that your insurer will want to resist an offer of settlement.

The reason for that is because in the event of the matter proceeding to court, the insurer will incur no further expense in the claim beyond the amount of the settlement already offered. Their contribution can be no higher than the cap in the policy. Therefore they will have nothing to lose in refusing to settle the claim, and pursuing it to a full hearing. They may well want to do this because you may in the end win a contested case outright in which case there will be no pay-out by your insurers.

Therefore, they will have a contrary interest to yours, on the assumption that you want to accept the settlement so that the whole thing is over and done with. There is a duty on insurers to act in good faith, and that is generally taken to include a duty to accept a reasonable settlement: nonetheless there is potential for conflict.

If you have taken out an umbrella policy, that should take the sting out of any such situation. If your primary insurer does not wish to settle the case, then you can leave the two insurance companies to decide between themselves what would be a reasonable settlement, and what amount if any should be accepted. If the matter continues to be a contested one, then you will have a claim against the umbrella company for the excess over the cap on your principal policy. Always make sure that you check thoroughly the terms of both policies before the time arrives when you have to make a claim. By then it is too late to do anything about it , should the cover not be sufficient.