Liability insurance is third-party insurance, which means it protects a policyholder from claims by third parties. Sometimes, claims are dismissed or go away. Other times, the claims settle or result in a judgment against the policyholder. In this lesson, we’ll look at the parties’ obligations for claim settlements and the insurer’s duty to indemnify the policyholder for the cost of paying settlements and judgments.

Imagine a furniture manufacturer was sued by a class of consumers. The...