Where an insurer has full knowledge of proceedings against the insured, does not take over conduct of the defence, and admits the insured's compromise was reasonable, the insurer is bound by the compromise and cannot re-litigate the insured's liability. Under professional indemnity coverage, the phrase 'arising out of any negligent act, error or omission' characterises the nature of the claim made against the insured, not the insured's actual liability. Diminution in land value without physical damage is recoverable under professional indemnity provisions where ordinary tort principles of damages apply.
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