by Thomas Strup, SORSA Executive Director
Insurance liability claims arise when one party is alleged to be legally responsible for causing injury, property damage, or financial loss to another. Deciding when to settle such claims is one of the most important strategic choices for insurers and policyholders alike. Settling too early may result in overpayment, while waiting too long can increase costs and risks. Understanding the key factors that influence settlement timing helps all parties make informed decisions.
A liability claim typically involves three main elements. The first is liability, whether the insured is legally responsible for the loss. The second is damages, the extent of injuries or losses suffered. The third is coverage, whether the insurance policy applies to the claim. Settlement discussions usually begin once these elements are reasonably clear.
Key factors that influence when to settle include:
- Clarity of Liability. Claims are often settled earlier when liability is clear. For example, if evidence strongly shows that the insured caused an accident, prolonging the claim may only increase legal expenses. Conversely, if liability is disputed, insurers may delay settlement until more facts are gathered.
- Extent of Damages. A claim should generally not be settled until damages can be accurately evaluated. In injury cases, this often means waiting until medical treatment is complete or the injured party’s condition stabilizes. Settling before damages are known can lead to unfair compensation for either side.
- Cost of Litigation. Legal defense costs can be significant. Even when an insurer believes it can win in court, settling can sometimes be more cost-effective than continuing litigation. Claims are often settled when projected legal costs approach or exceed the likely settlement amount.
- Risk and Uncertainty. Trials carry uncertainty. Juries can be unpredictable, and court decisions may result in higher-than-expected awards. When the risk of an unfavorable outcome is high, settlement may be the safer option.
- Policy Limits. Settlement decisions are heavily influenced by insurance policy limits. If potential damages exceed coverage limits, insurers may seek early settlement to protect both themselves and the insured from excess liability.
- Willingness of the Parties. Settlement requires agreement from both sides. Claims are often resolved when each party reassesses its position, expectations, and tolerance for risk. Mediation or negotiations can help move discussions forward.
If early settlement is the decided course of action, advantages that may be gained include reduced legal and administrative costs, a quicker resolution of the claim, and reduced stress for all parties involved.
The advantages of settling a claim later in the process include a more complete investigation, a clearer valuation of damages, and a stronger negotiating position.
There is no single right time to settle an insurance liability claim. The decision depends on liability clarity, damage assessment, litigation costs, and risk tolerance. Effective claims settlement occurs when enough information is available to make a fair evaluation, and when settlement offers a better outcome than continued dispute. Thoughtful timing benefits insurers, insured parties, and claimants by promoting efficiency, fairness, and resolution.