What is a hammer clause in a legal malpractice insurance policy?

It’s a great question that I get asked a lot. Simply put, a hammer clause in a legal malpractice policy is the carrier’s ability to force you to settle a claim that you really don’t want to settle.

How does the carrier do this?

The carrier basically just says, look, we can settle this claim for X number of dollars. You say, well, no, I don’t want to settle it for X number of dollars. And the carrier says, okay, we won’t settle it, we’ll keep fighting it, but if the end result is a settlement larger than what we could have settled it for back here, you’re responsible for the difference. You’re on the hook.