The Insurer’s duty to defend ends if an Insured refuses to consent to a settlement that the Insurer recommends. The Insurer’s liability shall not exceed the amount for which the Insurer could have settled such Claim had such Insured consented, plus Defense Costs incurred prior to the date of such refusal…
The wording is written to protect the insurer in the event of a bad outcome while giving the insured a voice in the claim settlement process. The practical effect is more important. As pointed out by Curt Pearsall in Agents E&O Tips (see here):
The Consent to settle provision is beneficial for all parties. For the carrier, it is designed as protection and to ensure a settlement that is financially reasonable. For the insured, this ensures that the E&O carrier does not just settle the E&O matter without consultation and input from the policyholder…It is rarely applied. I have seen situations where the carrier rethought their position after further consultation with the policyholder.
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