In August 2025, a US district court held that when an insurer takes over and settles a claim with a third party that is covered by a liability policy, the law does not require insurers to give equal consideration to the interests of their insured. The insurer must give due regard to the insured’s interests, but this does not mean that the insurer must give more consideration or weight to the interests of the insured than its own interests. Good faith requires that the insurer take into consideration the insured’s interests as well as its own when making decisions as to settlement, but the insured’s interests are not placed ahead of its own in negotiating settlements.
The insurer has a duty to carry out in good faith its contracts of insurance including the insurer’s right to agree to a settlement. The insurer may act in its own interests in settlement of the claim but has a duty to consider that the insured’s interests are not unreasonably affected.
The insurer took over negotiations of a claim by a third party who was injured when a front-end loader operated by an employee of the insured collided with a railcar on which he was riding. The deductible under the policy was $3 million. After taking over the negotiations, the insurer settled for $2.5 million. According to the policy the insurer “will have the right and duty to defend the insured against any suit seeking damages … Insurer may, at their discretion, investigate any “occurrence” and settle any claim or suit that may result.”
It was held that the settlement negotiated by the insurer was not made in bad faith and was binding on the insured.
In South African law, an insurer’s right to control handling of the claim must take into account the interests of both insurer and insured. The insurer is not entitled to act arbitrarily or in its sole interests. Where the insurer acts in good faith and does not unnecessarily or unreasonably prejudice the interests of the insured, the insurer’s conduct of any proceedings and effecting a settlement will be binding on the insured.