The Pennsylvania Superior Court recently answered (in the negative) a long-standing question under Pennsylvania law as to whether a policyholder can settle a claim over the insurer’s objection and later obtain reimbursement for that settlement, where the insurer had agreed to defend under a reservation of rights. Babcock & Wilcox Co. v. Am. Nuclear Insurers, 2013 Pa. Super. 174 (Pa. Super. Ct. 2013). The Superior Court held that the policyholder has two options in the event the insurer agrees to defend the claim subject to a reservation of rights. First, the policyholder may accept the insurer’s defense. As a result, the insurer retains control of the litigation and the policyholder is bound by the terms of the so-called “consent to settle” provision within the policy. In such circumstances, the policyholder’s protection against any injuries arising from the conduct of the insurer is an action for bad faith. Second, the policyholder may instead reject the insurer’s defense and furnish its own defense at its own expense. Here, the policyholder retains control of the litigation, including the option to settle the claim under the terms it believes to be best. Should coverage later be found to exist, the policyholder may recover its defense and settlement costs from the insurer, to the extent such costs are deemed reasonable and non-collusive.