A common feature of many liability insurance policies is a specification that the policyholder may not settle a claim without the insurer’s advance consent. However, some policies, particularly professional liability insurance policies, may require the insurer to obtain the policyholder’s consent to settlement before settling a claim. A recent ruling in a litigated coverage dispute concluded that an insurer that had not obtained the policyholder’s consent before settling a claim on behalf of one but not all defendants had breached the insurance contract, as discussed below.
The Northern District of Illinois’s May 26, 2026, decision in the case, applying Illinois law, can be found here. A May 29, 2026, LinkedIn post by Geoffrey Fehling of the Hunton Andrews Kurth law firm can be found here.
Background
Kinsey & Kinsey is a consulting company. Brad Kinsey is one of the firm’s principals. Brian Thome was an employee of the firm. In 2015, Bellin Memorial Hospital retained the firm to install new software for the hospital. Problems ensued. Bellin sued the firm, Kinsey, and Thome in Wisconsin state court.
The firm submitted the lawsuit to its professional liability insurer. The insurer defended all three of the defendants. Thome had defense counsel separate from the firm and Kinsey. During the course of the underlying lawsuit, the insurer sought to settle on behalf of all three defendants, but Bellin rejected that proposed settlement. On the eve of trial, Bellin offered to settle solely with Thome, in exchange for the $1 million policy limits. The insurer accepted the proposed settlement, but it did not seek the consent of the firm or of Kinsey, though it did inform them it intended to accept the settlement. Kinsey and the firm objected to the settlement.
The underlying case went forward for the two remaining defendants. The insurer continued to defend the firm and Kinsey. Trial in the case resulted in a judgment against the firm for over $780,000. A variety of court proceedings followed, involving considerable procedural complexity. Ultimately, Kinsey sued its insurer, seeking to have the insurer reimburse the firm for the amount the firm paid pursuant to the underlying judgment. The parties filed a number of potentially dispositive motions, including cross-motions for summary judgment. Among other things, the firm argued that the insurer had breached its contract by failing to seek the firm’s consent before agreeing to the settlement.
Relevant Policy Language
The policy states that the insurer “shall not settle any claim without your consent, such consent not to be unreasonably withheld.” The policy defines “you” and “your” to mean: “1. The named entity. 2. Any subsidiary. 3. Any independent contractor while acting on your behalf but solely as respects the provision of professional services. 4. Any individual insured.”
The Court’s Opinion
In a May 26, 2026 opinion, applying Illinois law, Northern District of Illinois Judge Sharon Johnson Coleman entered a variety of rulings, including granting the firm’s motion for summary judgment as to the question of whether the insurer’s settlement of the claim against Thome without the other defendants’ consent breached the contract.
The firm had argued that the policy’s use of “your” in the consent-to-settlement provision required the consent of the named insured (in this case, Kinsey, the firm), as well as the settling individual insured.
In ruling on this argument, the court found that the policy’s use of the word “your” in the consent to settlement provision was ambiguous. Indeed, the court observed, the word “you” in and of itself can be “grammatically ambiguous even in every day usage.” It can be singular or plural, the court observed. The policy further “compounded” this “inherent ambiguity” by its inclusion of four different kinds of entities that the term could refer to. The insurer, the court observed, “could easily have drafted the contract to make clear that only the party to a settlement has the power to refuse consent. Instead, it chose to use a pronoun of inherently ambiguous grammatical number.”
The court noted policy concerns the insurer raised to the firm’s interpretation of the provision, noting that it was “hesitant to issue a ruling that might be read to give an employer absolute veto power over its insured employees’ ability to settle.” However, the court concluded that it was not required to make general pronouncements applicable to similar circumstances, observing that “the Court merely finds that this contract features ambiguous language concerning whose consent to settle must be sought.”
The court concluded that the insurer was “prohibited from approving the Thome Settlement without Kinsey’s consent,” and therefore that the insurer “breached the contract when it settled Mr. Thome’s case.”
Discussion
D&O insurance practitioners may be more familiar with the standard provision found in most D&O insurance policies requiring the insurer’s consent to settle. However, it is not uncommon for professional liability insurance policies (particularly those written on a duty to defend basis) to have policy provisions requiring the insured’s consent to settle. These insured consent provisions reflect concerns insured professionals may have about their professional reputation if the insurer were to settle a claimant’s allegations of underlying professional malfeasance or misfeasance.
The parties seemed to be aware of the insured’s consent to settlement provision at the time the Thome settlement was under consideration, but the parties apparently had different understandings of what it meant. The insurer also operated on its understanding that under Illinois law it was permitted to pay the entire policy limit for a single insured, even if that would leave co-defendants without indemnification.
What caused the problems here are some basic problems with the English language. As the court pointed out, in common usage, the words “you” and “your” are “inherently ambiguous,” as they can be either singular or plural, and it is, as the Court observed, “often unclear whether a speaker intends to refer to one person or multiple persons.” This consent to settlement provision further compounded this ambiguity by specifying four different kinds of entities to whom the terms could refer.
Having found that the consent to settlement provision to be ambiguous, the Court, applying Illinois law, construed the provision against the insurer, observing that the insurer “could easily have drafted the contract to make clear that only the party to a settlement has the power to refuse consent.”
As a lifetime student of the law, I am an ardent believer in the power and importance of language, and in particular, the critical importance of individual words to express and convey meaning. But words can be slippery things; meaning is often dependent on context, and even intent. This court’s consideration of the language involved here is a sobering lesson for anyone called upon to draft policy language. Among the many problems that lie in wait to ambush even a cautious policy draftsperson are the hidden snares that the inherent ambiguities of language itself can create.
Another important lesson here is that insurers, like policyholders, can have contractual obligations that may apply in the course of claims administration. Insurance practitioners may be more familiar with such policyholder requirements as provision of notice, cooperation, and so on. This case is a reminder that under some policies, depending on how they are written, the insurer may also have duties in the course of the administration of claims, including even, as was the case here, the duty to obtain the policyholder’s consent to settlement.