An insurance company's responsibilities to its insureds are defined by the insurance contract, statutes and regulations. Case law further refines an insurer's duties. The primary responsibilities of the insurer defined by the insurance contract are the duty to defend and the duty to indemnify.
In what is certainly going to prove to be a significant decision that affects the landscape for insurers and insureds alike, the Pennsylvania Superior Court recently issued an opinion addressing the legal standard to be applied when evaluating an insurer's duty to indemnify an insured for an unauthorized settlement made by the insured while being defended under a reservation of rights. In Babcock & Wilcox Co. v. Am. Nuclear Insurers & Mut. Atomic Energy Liab. Underwriters, 2013 Pa. Super. LEXIS 1630 at *6-7 (Pa. Super. June 10, 2013), the court was called on to decide whether the settlement should be evaluated under the "bad faith" standard articulated in Cowden v. Aetna Casualty and Surety Co., 134 A.2d 223 (Pa. 1957), or the "fair and reasonable" standard formulated in Alfiero v. Berks Mutual Leasing Co., 500 A.2d 169 (Pa. Super. 1985).