Full Clarity on Partial Releases

When the value of a liability claim clearly exceeds the primary insurance limit, but the excess insurer is not quite ready or willing to settle, tensions can arise as to how long the primary insurer must incur defense costs when it is prepared to pay its own limit.

Typically, the law prohibits a primary insurer from paying its own limits to ‘cut and run’ if the overall claim against the policyholder remains unsettled. However, certain states expressly allow such a primary insurer to use its limits toward a ‘partial settlement’ with the claimant, thereby keeping the claim alive against both the excess and primary insurer as well as the policyholder (although the policyholder’s personal assets become protected).

The extent to which a primary insurer can avail itself of this law -- and the recourse an excess insurer may have against the primary, if any -- is highly fact- and state-dependent.

A partial release allows a primary insurer to pay some or all of its limit of liability in exchange for a ‘partial settlement’ that releases the primary insurer and releases all claims against the policyholder’s personal assets. In other words, the claimant’s suit can continue, but damages are only collectible against the excess insurer.