If you’ve ever heard the term, “Hammer Clause,” don’t go looking for this exact language in your Directors & Officers liability policy, as you will not find it. While it is common industry jargon used to describe the insurer’s right to settle a claim when the insurer believes it is the best course of action to take, it will be more clearly outlined in the duties and settlement options of both the insurer and insured. Language common to most forms would specify that insureds shall not admit or assume any liability, enter into any settlement agreement, stipulate to any judgment, or incur any defense costs without prior written consent of the insurer and the insurer shall not settle any claim without the consent of the insured. Obviously, in the heat of many legal battles, the last thing that insureds would prefer to do is settle a claim where they believe they are in the right. When a settlement opportunity presents itself, the hammer clause means that if an insured withholds consent to settle, they will have to pay out of their own pocket any judgement in excess of the proposed amount, which can range from the entire amount to a percentage, normally 25 to 50 percent. This protects the interests of the insurance company by potentially cutting short the litigation process and minimizing the insured’s ability to veto a settlement.
Tom Walker is area executive vice president for RPS-Bollinger— Sports & Leisure. He has served on several club boards and committees, and is a recognized authority on club insurance issues. He can be reached at 800-446-5311 (ext. 8098) or [email protected].