I am told my Lawyers Professional Liability Insurance Policy has a “Hammer Clause”—what is a “Hammer Clause”?
There is no Lawyers Professional Liability policy that actually states or has a defined term for a “Hammer Clause”.
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”?
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:
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.