{"id":1855,"date":"2017-12-04T14:50:15","date_gmt":"2017-12-04T14:50:15","guid":{"rendered":"https:\/\/pamstaging.securenow.in\/insuropedia\/?p=1855"},"modified":"2026-03-24T09:24:18","modified_gmt":"2026-03-24T09:24:18","slug":"professional-indemnity-insurance-allow-court-settlements","status":"publish","type":"post","link":"https:\/\/securenow.in\/insuropedia\/professional-indemnity-insurance-allow-court-settlements\/","title":{"rendered":"Does Professional indemnity insurance covers out-of-court settlements?"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><p>A professional indemnity insurance policy is also called <a href=\"https:\/\/securenow.in\/commercial-liability-insurance\/errors-and-omissions-insurance\">errors and omissions insurance<\/a>. It offers financial relief to a policyholder if they are sued for professional negligence or acts of omission\/negligence. In such cases, the policy also covers defense costs, i.e., lawyer fees as well as court-awarded compensation for the plaintiff. Notice served to the policyholder triggers the policy. In this article, we&#8217;ll get to know about Professional Indemnity insurance and out-of-court settlements.<\/p>\n<h2 data-path-to-node=\"5\">Key Takeaways<\/h2>\n<ul data-path-to-node=\"6\">\n<li>\n<p data-path-to-node=\"6,0,0\"><b data-path-to-node=\"6,0,0\" data-index-in-node=\"0\">The Consent Rule:<\/b> You are strictly prohibited from admitting liability or promising a settlement amount to a claimant without your insurer\u2019s written approval. Doing so is a breach of the insurance contract.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,1,0\"><b data-path-to-node=\"6,1,0\" data-index-in-node=\"0\">Insurer\u2019s Prerogative:<\/b> Insurers often prefer out-of-court settlements to avoid the unpredictable costs of a trial and the risk of a high court-awarded judgment. However, they must be convinced that the settlement is the most economical path.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,2,0\"><b data-path-to-node=\"6,2,0\" data-index-in-node=\"0\">The &#8220;Jayant Kumar&#8221; Lesson:<\/b> As seen in the first case study, even if a professional error is clear (like a faulty layout), settling independently to save time can lead to a total loss of insurance protection.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,3,0\"><b data-path-to-node=\"6,3,0\" data-index-in-node=\"0\">Strategic Closure:<\/b> For professionals like Dr. Shyam Prasad, an approved out-of-court settlement is a tool for &#8220;reputation management&#8221; and career continuity, allowing them to resolve disputes quickly without the public record of a trial.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,4,0\"><b data-path-to-node=\"6,4,0\" data-index-in-node=\"0\">Legal Fees Coverage:<\/b> If the insurer approves the settlement path, they will also cover the costs of the specialist advocates required to draft the settlement deed and negotiate with the plaintiff&#8217;s lawyers.<\/p>\n<\/li>\n<\/ul>\n<h2><strong>Are out-of-court settlements covered in Professional Indemnity Insurance?<\/strong><\/h2>\n<p>While professional indemnity insurance is a vital tool for professionals, it usually does not offer coverage for out-of-court settlements. So, if a policyholder negotiates with the plaintiff and settles a case before it reaches court, the insurer can refuse to cover the insured. Moreover, if the policyholder pays compensation to the other party, they cannot claim reimbursement from the insurance company.<\/p>\n<p>However, in some instances, it is possible to inform the insurer of a proposed out-of-court settlement and get approval for the same. In such cases, if the <a href=\"https:\/\/securenow.in\/insuropedia\/what-are-insurers-rights-professional-indemnity-insurance-case-loss\/\">insurance company<\/a> agrees to the out-of-court settlement, it will also pay the sum. Also, if the policyholder hires a lawyer to assist with the out-of-court settlement, the insurance will pay for legal expenses too.<\/p>\n<h3><strong>Case study: No cover for out-of-court settlement<\/strong><\/h3>\n<p>A renowned building firm, KS Construction, bagged a contract for constructing a four-story building in Pune. It hired architect Jayant Kumar to draw up the layout for the office.<\/p>\n<p>Jayant took nearly ten days to complete the task. After he submitted the office layout plan, the construction company started work. However, a few days into construction, the structure collapsed. Subsequently, the construction company initiated an investigation. And its final report concluded that the accident was the result of a faulty layout. Thus, the construction company filed a case against Jayant for professional negligence.<\/p>\n<p>Jayant had a professional indemnity insurance policy. So, when the case took a long time to reach court, he opted for an out-of-court settlement. Accordingly, he agreed to pay KS Construction a compensation of Rs 25 lakh. Thereafter, he approached the insurance company to settle this claim.<\/p>\n<p>Read More: <a href=\"https:\/\/securenow.in\/insuropedia\/libel-slander-clause-professional-indemnity-insurance\/\"><strong>What is libel and slander clause in professional indemnity insurance?<\/strong><\/a><\/p>\n<p>However, Jayant had entered into the out-of-court settlement without obtaining the permission of the insurance company. Therefore, the insurer refused to settle his claim. It refused to reimburse either the compensation amount Jayant had paid or the legal expenses he had incurred.<\/p>\n<h3><strong>Case study: Pre-approval for out-of-court settlement<\/strong><\/h3>\n<p>Recently, the family of a patient filed a case of medical negligence against Dr. Shyam Prasad. The patient, Jeevan, had complained of severe chest pain and his family had brought him to the hospital. There, Dr. Shyam, who was on duty at that time, immediately started treatment. He administered some medicines, soon after which Jeevan lost consciousness and died. Later, the investigation revealed that Jeevan was allergic to some medicines. Unfortunately, Dr. Shyam had not checked Jeevan&#8217;s medical history before treating him.<\/p>\n<p>When the family filed a case of medical negligence, Dr. Shyam approached his professional indemnity insurance provider. In this case, Dr. Shyam requested the insurer to allow him to opt for an out-of-court settlement. This was because he was planning to move to another country and could not deal with a lengthy judicial process.<\/p>\n<p>Read more: <a href=\"https:\/\/securenow.in\/insuropedia\/how-insurers-liability-decided-professional-indemnity-insurance\/\"><strong>How is Insurer\u2019s liability decided under Professional Indemnity Insurance<\/strong>?<\/a><\/p>\n<h3>Summary Table: Out-of-Court Settlements in PII<\/h3>\n<table data-path-to-node=\"3\">\n<thead>\n<tr>\n<td><strong>Feature<\/strong><\/td>\n<td><strong>Without Insurer Consent<\/strong><\/td>\n<td><strong>With Insurer Consent<\/strong><\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><span data-path-to-node=\"3,1,0,0\"><b data-path-to-node=\"3,1,0,0\" data-index-in-node=\"0\">Coverage Status<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,1,1,0\"><b data-path-to-node=\"3,1,1,0\" data-index-in-node=\"0\">Excluded:<\/b> The insurer can legally reject the entire claim.<\/span><\/td>\n<td><span data-path-to-node=\"3,1,2,0\"><b data-path-to-node=\"3,1,2,0\" data-index-in-node=\"0\">Included:<\/b> Insurer pays both settlement and legal fees.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,2,0,0\"><b data-path-to-node=\"3,2,0,0\" data-index-in-node=\"0\">Compensation<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,2,1,0\">Borne entirely by the policyholder.<\/span><\/td>\n<td><span data-path-to-node=\"3,2,2,0\">Paid by the insurer up to the policy limit.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,3,0,0\"><b data-path-to-node=\"3,3,0,0\" data-index-in-node=\"0\">Legal Expenses<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,3,1,0\">Paid by the policyholder out-of-pocket.<\/span><\/td>\n<td><span data-path-to-node=\"3,3,2,0\">Reimbursed\/Paid by the insurer.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,4,0,0\"><b data-path-to-node=\"3,4,0,0\" data-index-in-node=\"0\">Negotiation Control<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,4,1,0\">Policyholder acts independently.<\/span><\/td>\n<td><span data-path-to-node=\"3,4,2,0\">Insurer\u2019s lawyers lead or approve the negotiation.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,5,0,0\"><b data-path-to-node=\"3,5,0,0\" data-index-in-node=\"0\">Primary Risk<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,5,1,0\">&#8220;Admission of Liability&#8221; without authorization.<\/span><\/td>\n<td><span data-path-to-node=\"3,5,2,0\">Strategic closure to avoid larger court-awarded damages.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Then, the insurer carefully analyzed the situation and consented to an out-of-court settlement. With the help of its lawyer, Dr. Shyam negotiated with the plaintiff\u2019s lawyer and arrived at a compensation amount.<\/p>\n<p>The doctor had taken the consent of the professional indemnity insurer for the out-of-court settlement. Thus, the insurer not only paid the compensation to the plaintiff but also covered Dr. Shyam\u2019s legal fees.<\/p>\n<h3 data-path-to-node=\"8\">Frequently Asked Questions (FAQs)<\/h3>\n<h4 data-path-to-node=\"9\"><b data-path-to-node=\"9\" data-index-in-node=\"0\">1. If I know I made a mistake, why can&#8217;t I just pay the client and get reimbursed?<\/b><\/h4>\n<p data-path-to-node=\"9\"><strong>A)<\/strong> Insurance is a &#8220;Third-Party&#8221; contract. The insurer has the right to defend you and potentially prove you weren&#8217;t negligent, or negotiate a much lower amount than what you might offer. If you pay upfront, you take away their right to defend the case, which voids the policy.<\/p>\n<h4 data-path-to-node=\"10\"><b data-path-to-node=\"10\" data-index-in-node=\"0\">2. Can my insurer force me to settle out of court if I want to fight the case?<\/b><\/h4>\n<p data-path-to-node=\"10\"><strong>A)<\/strong> This depends on the &#8220;Hammer Clause&#8221; in your policy. Some policies state that if an insurer recommends a settlement and you refuse, they will only pay up to the amount of the proposed settlement in the future, leaving you to pay the difference if the court awards a higher amount.<\/p>\n<h4 data-path-to-node=\"11\"><b data-path-to-node=\"11\" data-index-in-node=\"0\">3. What is the first thing I should do if a client suggests a settlement?<\/b><\/h4>\n<p data-path-to-node=\"11\"><strong>A)<\/strong> Tell them you need to consult your legal team\/insurers and <b data-path-to-node=\"11\" data-index-in-node=\"133\">do not<\/b> agree to any numbers. Immediately notify your insurance advisor or the insurer\u2019s claims department with the details of the proposal.<\/p>\n<h4 data-path-to-node=\"12\"><b data-path-to-node=\"12\" data-index-in-node=\"0\">4. Does an out-of-court settlement count as an &#8220;admission of guilt&#8221;?<\/b><\/h4>\n<p data-path-to-node=\"12\"><strong>A)<\/strong> Legally, most out-of-court settlements are drafted with a &#8220;No Admission of Liability&#8221; clause. This means you pay a sum to end the dispute without technically admitting you were negligent. This is a major benefit that insurers help facilitate.<\/p>\n<h4 data-path-to-node=\"13\"><b data-path-to-node=\"13\" data-index-in-node=\"0\">5. Will my insurer pay for a mediator to help us settle?<\/b><\/h4>\n<p data-path-to-node=\"13\"><strong>A)<\/strong> Yes, if the insurer agrees that mediation is the best way to resolve the claim. They will typically appoint and pay for the legal experts and mediators required to reach a formal agreement.<\/p>\n<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"FAQPage\",\n  \"mainEntity\": [\n    {\n      \"@type\": \"Question\",\n      \"name\": \"If I know I made a mistake, why can't I just pay the client and get reimbursed?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Insurance is a \\\"Third-Party\\\" contract. The insurer has the right to defend you and potentially prove you weren't negligent, or negotiate a much lower amount than what you might offer. 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Immediately notify your insurance advisor or the insurer\u2019s claims department with the details of the proposal.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Does an out-of-court settlement count as an \\\"admission of guilt\\\"?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Legally, most out-of-court settlements are drafted with a \\\"No Admission of Liability\\\" clause. This means you pay a sum to end the dispute without technically admitting you were negligent. This is a major benefit that insurers help facilitate.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Will my insurer pay for a mediator to help us settle?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Yes, if the insurer agrees that mediation is the best way to resolve the claim. They will typically appoint and pay for the legal experts and mediators required to reach a formal agreement.\"\n      }\n    }\n  ]\n}\n<\/script><\/p>\n<h4><b>About The Author<\/b><\/h4>\n<p><strong>Amit<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">MBA Finance<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Amit<\/span><span style=\"font-weight: 400;\"> is an experienced insurance professional with 7 years in the industry, specializing in Errors &amp; Omissions Insurance. Writing for SecureNow, he provides clear and insightful blogs and articles to help professionals understand the importance and nuances of E&amp;O coverage. His expertise ensures that readers receive practical advice on protecting themselves from potential liabilities and professional risks. Dedicated to making complex insurance topics accessible, <\/span><span style=\"font-weight: 400;\">Amit<\/span><span style=\"font-weight: 400;\">\u00a0stays updated on industry developments, delivering valuable content that empowers professionals to make informed decisions about their E&amp;O insurance needs.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A professional indemnity insurance policy is also called errors and omissions insurance. It offers financial relief to a policyholder if they are sued for professional negligence or acts of omission\/negligence. In such cases, the policy also covers defense costs, i.e., lawyer fees as well as court-awarded compensation for the plaintiff. Notice served to the policyholder [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"no","_lmt_disable":"no","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1071,698],"tags":[203,260,1139],"class_list":["post-1855","post","type-post","status-publish","format-standard","hentry","category-product-features-errors-omissionss","category-errors-omissionss","tag-professional-indemnity-insurance","tag-professional-liability-insurance","tag-out-of-court-settlements"],"acf":[],"modified_by":"SecureNow","_links":{"self":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1855","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/comments?post=1855"}],"version-history":[{"count":15,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1855\/revisions"}],"predecessor-version":[{"id":35849,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1855\/revisions\/35849"}],"wp:attachment":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/media?parent=1855"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/categories?post=1855"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/tags?post=1855"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}