CertainCert Insurance Certificate Management Blog

Professional Liability Insurance Tracking - Consent to Settle & Hammer Clause

  

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Unlike general liability policies where insurers control defense and settlement without the consent of the insured, nearly all professional liability policies do not allow the insurance carrier to settle any claim without the agreement of the insured. This provision has evolved to protect the reputational harm of the insured. The hammer clause is a policy provision intended to encourage the consent of the insured to reasonable settlement offers suggested by the professional liability insurer. Hammer clauses are common on professional liability policies. They can vary in scope and severity. Every hammer clause addresses the indemnity and defense responsibilities of the professional liability insurer if the insured does not consent to a settlement suggested by the insurer. In most cases the insurance company will not pay for any indemnity amount greater than the amount of the proposed settlement. Likewise, the insurance company is not responsible for paying any further defense expenses. While variations do exist in some policies, the insured should expect to be responsible for 100% of any indemnity amount and defense expenses after rejecting the settlement offer suggested by their professional liability insurance carrier. Some insurance policies may not contain a hammer clause, but beware, these same policies may not contain a consent to settle provision either.

Insurance Certificate Tracking

Regrettably, these provisions are common to professional liability insurance policies but not typically referenced anywhere on insurance certificates or other proof of insurance reasonable for insurance certificate tracking and monitoring. Requesting a copy of the entire insurance policy is possible, but problematic and cumbersome. Furthermore, what should you do if you find that the consent to settle and hammer clause are not satisfactory to you? Alternative clauses or insurers more palatable to you may not exist. Choosing not to contract with someone based on these provisions may also be excessive.

Insurance Requirements

Your insurance requirements are likely the best remedy. If you require professional liability insurance from people and firms you business with, it is essential that your insurance requirements address these two provisions if you intend to rely on the professional liability coverage provided by such firms. Do these firms have sufficient resources to pay for excess defense and/or settlement expenses if they do not agree to the settlement offer proposed by their insurance company? With a qualified attorney, you should consider if your insurance requirements should contain a provision that addresses both consent to settle and hammer clauses. Can you require participation and approval of any settlement negotiations for third party claims? Should you make it clear who is responsible if the insurance carrier will not pay for excess indemnity and defense expenses? Should you require that the professional secure a surety bond or other financial guarantee for a reasonable amount for such future expenses before the professional may waive their consent to settle? Your insurance requirements should be modified accordingly to address these and other issues.