Learn about the Consent to Settle Clauses in Automobile Insurance and Liability
An insurance company cannot withhold its consent to a settlement unreasonably. It can, however, withhold its consent in good faith while it determines what will be paid in a lawsuit against others who also caused the insured’s loss. An insurance company can also protect its right to subrogation by withholding its consent. Courts will enforce a consent-to-settle clause to safeguard the subrogation rights of an insurance company.
An insured’s failure to obtain his or her insurance company’s consent to a settlement could result in a loss of coverage under the policy. While such a failure is a breach of the consent-to-settle clause, some courts require that the insurance company prove that the breach prejudiced its rights.
An insurance company can choose to waive the terms of the consent-to-settle clause. And a waiver could result if an insurance company fails to participate in negotiations to settle a claim. Of course, if an insurance company denies a claim, that denial operates as a waiver of the consent-to-settle clause.
Where the insured settles with a tortfeasor without the insurer’s consent, the insurer must demonstrate prejudice before it can invoke a “consent to settle clause”. Cerankowski v. State Farm Mut. Auto Ins., 783 A.2d 343 (Pa. Super. 2001). In that case, insured, injured in automobile accident, settled her lawsuit against the manufacturer of the surgical equipment used to treat her. Her insurance company refused to pay the UIM claim on the basis that she had violated the consent to settle clause. See also Nationwide Mut. Ins. Co., v. Lehman, 743 A.2d 933 (Pa. Super. 1999). Insurance carrier was not prejudiced when it withheld consent and did not pursue evaluation of tortfeasor’s assets.
Insurer’s use of “consent to settle” clause cannot deprive insured of benefits for which insured paid. Daley-Sand v. West American Ins. Co., 564 A.2d 965 (Pa. Super. 1989). Insured, who had UIM coverage with insurer, requested insurer consent to settle claim against other driver. Insurer, who had paid nothing, refused to sign consent to settle due to ongoing investigation. Insurer would not provide UIM benefits if insured settled with driver without insurer’s consent. Court held the clause was against public policy.