In working to settle coverage actions, insurers often seek to include non-monetary terms in a settlement that insureds may resist. Such non-monetary terms often are as hotly debated as the amount of money to be paid.
Insurers often seek to include an indemnity term in a settlement whereby the insured must indemnify the insurer against future claims. Despite resistance from insureds, an indemnity provision is important because some states, like Oregon, allow claims for contribution by non-settling insurers against settling insurers under certain circumstances. Certain Underwriters v. Mass. Bonding and Ins. Co., 235 Or. App. 99, 230 P.3d 103 (2010). In addition to potential claims by non-settling insurers, complicated claims often involve situations where one or two parties are left standing for trial. Depending on the nature of the settlement, indemnity could be necessary to prevent a direct action.
Insurers sometimes also seek policy buy backs, but a buy-back may not be available in states like Washington. See, RCW 48.18.320. One way around this issue is to include the underlying claimant in the settlement. This alternative is often not practical in environmental claims where one of the “claimants” could be the federal or state agency guiding the remediation. If the settlement also includes a release of future claims, that may be enough given that the injured party could only pursue the insurer through the insured, and the insured’s release of the insurer should be effective. The statute should be limited to situations where there is a cancellation or annulment, which should not be considered the same as a release of insurance liability for a particular claim.
Some courts will also allow the entry of a claims bar order as part of a finding that a settlement was reasonable. See, e.g., Cadet Mfg. Co. v. Am. Ins. Co., Case No. 04-5411, docket no. 245 (W.D. Wash. March 30, 2006). Upon proper notice to other parties, the claims bar order can be more effective than indemnity, since it does not depend on the financial ability of the indemnitor to provide the promised indemnity.