What is a Hammer Clause, and is it beneficial to an insured? Understanding the Hammer Clause enables an agent to point out potential extra expenses to a prospect. Improving this clause can help win the account.

Knowing that the Consent to Settlement provision is often called a Blackmail Clause or Hammer Clause tells us that it probably is not beneficial to the insured. A Hammer Clause is so-called because it enables the insurer to “hammer” the insured into submission, as the tool does with a nail. This is a common provision in liability policies such as:

• Professional
• Cyber
• Employment Practices
• Product
• Directors and Officers
  
  

If the carrier decides to settle a claim with a third party, but the insured does not agree to settle, the provision is triggered. The carrier is no longer contractually responsible for 100% of defense costs. Instead, the carrier must fund 50% to 90% of the costs, with the insured undertaking the remainder. Splits of 90/10, 80/20, and 70/30 are usual.

The Consent to Settlement provision works against the insured’s wishes in case of a claim. Pointing this out to a prospect, and improving on the clause, may encourage the prospect to purchase from you.