Hammer Clause
Key Takeaway
A policy provision that limits the insurer's liability if the insured refuses to consent to a recommended settlement. If the insured rejects a settlement within policy limits and the case later resolves for more, the insurer's obligation is capped at the amount of the refused settlement.
Definition
A policy provision that limits the insurer's liability if the insured refuses to consent to a recommended settlement. If the insured rejects a settlement within policy limits and the case later resolves for more, the insurer's obligation is capped at the amount of the refused settlement. This creates financial pressure on the insured to accept reasonable settlement offers.
Why This Matters for Law Firms
Understanding this concept is essential for law firms because it directly affects how your coverage responds when a claim is filed. Misunderstanding policy structure terms can leave your firm exposed to uninsured losses, particularly during carrier transitions or when claims surface years after the underlying work was performed.
Example Usage in Context
A managing partner reviewing the firm's renewal materials might ask the broker: "Can you confirm our hammer clause aligns with what we had under the prior carrier? We want to make sure there are no gaps in our retrospective protection."
Related Q&A
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