What is consent-to-settle and why does it matter?

A consent-to-settle provision is a clause in your malpractice policy that requires the insurance company to obtain your approval before settling a claim on your behalf. This provision is significant because a settlement, even when it involves no admission of wrongdoing, can have lasting consequences for your professional reputation, your ability to obtain future insurance, and your standing with clients and referral sources.

Without a consent-to-settle clause, the insurer has the unilateral right to settle claims at its discretion. The insurer's primary motivation is financial, as settling a claim early is often less expensive than litigating it to conclusion. However, an attorney may have strong reasons to contest a claim, particularly when the allegation is baseless and a settlement could be perceived as an admission of fault.

Most quality legal malpractice policies include a consent-to-settle provision as a standard feature. However, the strength of this provision varies. A pure consent-to-settle clause gives you an absolute veto over any proposed settlement. If you refuse to settle, the insurer must continue defending the claim regardless of cost.

A more common version includes what is known as a hammer clause or modified consent-to-settle provision. Under a hammer clause, you retain the right to reject a proposed settlement, but if you do so and the claim ultimately resolves for more than the rejected settlement amount, you bear some or all of the excess cost. The most common hammer clause limits the insurer's liability to the amount of the rejected settlement offer, leaving you responsible for any additional defense costs, judgment, or settlement above that figure.

The severity of hammer clauses varies. A soft hammer might require you to pay only 50 percent of the excess, while a hard hammer holds you responsible for 100 percent. Some policies include a modified hammer that caps your additional exposure at a specified dollar amount.

When evaluating malpractice policies, the consent-to-settle provision deserves careful attention. Ask your broker to explain the specific mechanics of the clause, including any hammer provisions and their financial implications. A policy with a strong consent-to-settle clause and no hammer provision, or a soft hammer, provides the greatest protection for your professional autonomy and reputation.