Law students — please be aware that this is understatement:
Unsurprisingly, caselaw on coverage for inserting boar tusks into anesthetized patients is rather thin.
Actually, the whole article from which this is drawn Can This Pig Fly? How A Dentist Assaulted A Patient And Made A Million Dollars: Part One in a Two-Part Series and especially part two is pretty interesting and will teach you something about insurance law.
Why are the damages for failure to defend higher than the amount of the actual settlement?
This does not seem to me to be a case where punitive damages against the insurer are justified. It is not right for the dentist to commit malpractice and end up richer as a result.
I suspect it is to discourage the insurance company from engaging in what would otherwise be economically rational efficient breach. The policy makes systemic sense if we consider the power/wealth disparity between the insurance company and the ordinary insured — even if it makes for potentially odd results in particular cases.