What Is A Hammer Clause?

What is a hammer clause

If you have a legal malpractice policy or have been looking for one, I’m sure you have heard the term “Hammer Clause:”.  It has been and is a widely discussed term. Well what is a hammer clause anyway? Great question!

Simply put, the hammer clause which is located in the consent to settle provision of the policy is the carrier’s ability or attempt to force you to settle a reported claim.  In its strictest form, you, the insured, must accept the negotiated settlement of the carrier.  You have no input. 

Over the years, the consent to settle provision and hammer clause have been revised and modified. Today, some carriers state that they will not settle any claim without the consent of the insured, who’s consent shall not be unreasonably withheld.  What’s unreasonable right?  It is not defined in the policy.  

Other carriers state that you, the insured, can refuse to settle a claim agreed to by both the claimant and the carrier.  However if that claim continues and settles for a higher amount than what was originally agreed to by the carrier and the claimant, you are responsible for the difference! Yiokes, that could be expensive.  

Still there are other types of modified versions of the “clauses.”  These versions allow you to reject a settlement the carrier and claimant agree to. and if that claim settles/closes for a higher amount than the original settlement agreed to, the carrier will agree to pay a certain percentage of the increased settlement.  You will be responsible for the rest.  This is kind of a middle of the road hammer clause.

The best type of consent to settle provision for you, the insured, is to have no hammer clause.  Some, not many carriers do offer this.  They give the insured the absolute right to refuse to settle with no consequence or hammer!

How do you know what you have in your policy?  Best way to find out is to read the policy and discuss it with your broker.

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