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Question:

I am told my Lawyers Professional Liability Insurance Policy has a “Hammer Clause”—what is a “Hammer Clause”?

Response:

There is no Lawyers Professional Liability policy that actually states or has a defined term for a “Hammer Clause”. 

Follow-up Question:

So I am told my “Lawyers Professional Liability Insurance Policy” has one and that it is a bad thing.  So what is a “Hammer Clause”?

Response:

This is the clause contained in many Insuring Agreements or Defense & Settlement sections stating that even though the insurer will not settle a claim without the insured’s consent, the insurer’s exposure to the loss is limited to the amount that would have been paid if the insured had taken the insurer’s recommendation.  In other words, if an insured does not accept the insurer’s recommendation, then the insured is liable for any additional costs.  In essence the insurer can put the “Hammer” to you if you do not settle when they recommend.

This is a sample of what is commonly referred to as a “Hammer Clause” from a Valiant Lawyers Professional Liability policy form:

“C.    Settlement

The  Company  shall  have  the  right  to  negotiate  a settlement  or  compromise  of  a  claim  as  it  deems appropriate but shall not commit to settlement of a claim  without  the  written  consent  of  the  Named Insured. If the Named Insured refuses to consent to a settlement   or   compromise   recommended   by   the Company  and  acceptable  to  the  claimant,  then  the Company’s Limits of Liability under this Policy shall be reduced to the amount for which the claim could have been compromised or settled, plus all claim expenses incurred  up  to  the  time  the  Company  makes  its recommendation, which amount shall not exceed the remainder of the Limits of Liability specified in Section III. A”

 

This is a sample Lawyers Professional Liability policy from Professional Solutions policy that does not contain a “Hammer Clause”.

“Section II. DEFENSE AND SETTLEMENT

 

3.   We will not settle a Claim without the Insured’s written, faxed, or emailed consent. Your consent shall not be required to make a settlement or payment after a judgment has been entered against you.”

 

 

Given this it is better to not have then to have a “Hammer Clause”.  Reality is that in most cases, you will want to get on with life and follow the insurer’s recommendation anyway.  So the practical impact usually does not come into play.

 

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