Dr. Papudesu was sued for medical malpratice. His insurance company settled the case with the defendant, and the doctor objected, arguing that it would injure his reputation and raise his premiums and that the insurance contract required the insurer to litigate the case. The insurance policy stated: “The [insurance]

company may make such investigation and settlement of any claim or suit as it deems expedient.” The court decided that the contract vested full discretion in the insurer with respect to the issue of settlement. The insurer fully performed its duties in accordance with the unambiguous language of the contract by defending the suit against Dr. Papudesu and by exercising its discretion in investigating and settling that suit in a manner that was deemed expedient and within the policy limits.

CASE QUESTIONS

1. Was the language in the insurance policy vague? Explain your answer.

2. Should insurance companies take the insured party’s settlement preferences into account? Explain your answer.