Most lawyers don’t even know the hammer clause is tucked away deep, somewhere within the wording of their policy. It’s usually under the defense and settlement clause or provision in the policy. Most professional liability policies contain a “hard hammer” consent to settle clause. This clause forces the insured to comply with the insurance carrier’s desire to settle a claim.
With a hard hammer clause, if you decide to go against the carrier’s settlement recommendation you (the insured) would be on the hook for any additional out-of-pocket costs or litigation expenses beyond what the carrier recommended in its original settlement offer. For example, if the carrier wanted to settle the claim for $100,000 and the insured decides to take the case to trial and loses a jury verdict of $200,000, the insured would be solely responsible for the additional $100,000 of the trial verdict. In essence, the insurer is putting the “hammer” to the insured if you do not agree to their settlement recommendation.
In order combat this situation, you might consider finding a professional liability policy with a “soft” or “softer” hammer clause. Consent to settle options with a soft hammer clause could include 50/50, 70/30 or 80/20. A soft hammer clause will ensure the carrier, not the insured, is responsible for some or most of the litigation costs, even after the insured refuses the settlement recommendation. This gives the insured more control over the direction and handling of their claim. Using the example above with a 50/50 soft hammer, the insured would be on the hook for $50,000 of the additional $100,000 (instead of the full $100,000) from the trial verdict and the carrier would pay the remaining half.
Because this type of harsh language exists in professional liability policies, we encourage you to visit with us about your malpractice insurance.