3 New Appleman on Insurance Law Library Edition § 16.07

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Summary

  • [1]
     Liability Insurance Protects the Insured Against Adverse Judgments
    • [a]
       No Contractual Duty Is Owed to the Injured Party Unless and Until There Is a Judgment or Settlement Agreed to By the Insurer

      Although it is true that almost all cases settle, and although insurers constantly settle directly with third-party claimants without involving their insureds, it is important to remember that the insurance contract as written only obligates the insurer to pay damages that the insured is “legally obligated to pay,” which refers to a final judgment for damages in a civil action.617

      See, e.g., CA—Certain Underwriters at Lloyd’s London v. Superior Court, 16 P.3d 94, 105–106 (Cal. 2001) (“the insurer’s duty to indemnify the insured for ‘all sums that the insured becomes legally obligated to pay as damages’ is limited to money ordered by a court”).

      Cf. US/PR—Lopez & Medina Corp. v. Marsh USA, Inc., 667 F.3d 58 (1st Cir. 2012) (in case in which travel and tour company sued coinsurers of direct air ...