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Simple English definitions for legal terms
follow-the-settlements doctrine
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A quick definition of follow-the-settlements doctrine:
The follow-the-settlements doctrine is a rule in insurance that says the company that provides insurance must agree with the decisions made by the person or company they are insuring when it comes to settling claims. This means that if the person or company being insured decides to settle a claim, the insurance company must follow their decision. The same rule applies to reinsurers, who must follow the actions of the reinsured.
A more thorough explanation:
The follow-the-settlements doctrine is a principle in insurance that requires an indemnitor to accept and agree with the actions taken by the indemnitee in settling claims. This principle is particularly relevant in reinsurance, where a reinsurer must follow the actions of the reinsured.
Suppose a primary insurer settles a claim with a policyholder for $100,000. The reinsurer, who has agreed to cover a portion of the risk, must accept the settlement and pay their share of the claim. Even if the reinsurer disagrees with the settlement amount, they are bound by the follow-the-settlements doctrine and must honor the decision of the primary insurer.
Another example could be a situation where a policyholder sues an insurance company for damages. If the insurance company decides to settle the case out of court, the reinsurer must accept the settlement and pay their share of the settlement amount.
These examples illustrate how the follow-the-settlements doctrine works in practice. It ensures that all parties involved in an insurance contract are held accountable for their actions and decisions, and that the risk is shared fairly among them.