What is a Settlement?
A Settlement is an agreement between parties to resolve a legal claim or lawsuit without going to trial. In the insurance context, settlements occur when your insurance company negotiates with a claimant (or their attorney) to pay a specific amount of money in exchange for the claimant releasing you from liability and dismissing their claim.
What you need to know
Settlements can occur at any stage—before a lawsuit is filed (pre-litigation settlement), during the lawsuit process, or even after a trial has begun. Settlement agreements typically include:
- A payment amount negotiated between the parties
- A release of liability stating the claimant cannot sue you again for the same incident
- Confidentiality provisions limiting public disclosure
- No admission of fault on your part
Your insurance company handles settlement negotiations for covered claims, and while they typically need your consent to settle, most policies give them significant authority to settle claims they believe should be resolved.
Why it matters for restaurant owners
Understanding how settlements work is important because 95% or more of claims settle before reaching a jury verdict. Settlements benefit everyone: you avoid the time, expense, and uncertainty of trial; the claimant receives compensation more quickly and with certainty; and your insurance company reduces their legal costs and avoids the risk of a large jury verdict.
However, settlements also mean you’re paying money (through your insurer) for claims that might have been defensible in court—your insurer may recommend settling a questionable claim for $50,000 simply because the cost to defend it through trial would be $75,000 with uncertain results. You should be involved in major settlement decisions and understand your rights under your policy. Some policies require your consent to settle (giving you the right to refuse settlement and force the claim to trial, though you may become responsible for costs exceeding the settlement offer), while others give the insurer the right to settle without your consent.
Settlements don’t mean you were at fault—they’re often business decisions made to avoid greater expense and risk. However, repeated settlements do affect your insurance costs and renewability, as insurers view restaurants with frequent claims as higher risks. This is why prevention through strong risk management is so important—every claim you prevent through good safety practices is a settlement you avoid and a reduction in your long-term insurance costs.