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If you have a professional liability policy, you should be aware of your rights to settle in the event that a claim occurs. Many policies include what's called a "hammer clause". This allows the insurance company to cap its liability to the amount for which the claim could have been settled plus any claims expenses incurred. If the insured chooses to continue to fight the matter, he or she will be responsible for any additional settlement and fees incurred.

A sample "hammer clause" may read:

"Insurer will not settle or compromise any claim without the consent of the insured. If, however, the insured refuses to consent to a settlement or compromise recommended by insurer and elects to contest such claim or continue legal proceedings in connection with such claim, then insurer's liability for the claim shall not exceed the amount for which the claim could have been so settled, plus claims expenses incurred up to the date of such refusal." 

A policy that does not have a hammer clause allows the insured to have more control in a claim and the insurance company must respect the insured's "final say". In our Lawyer's Professional Liability program through CNA, the policy form has recently been revised to remove the hammer clause. According to CNA, "the prior language gave the Company the option to walk from a claim at the amount that the claim could have been settled, thereby limiting its exposure to an acceptable settlement regardless of the consent of the insured. [...] Having it [the hammer clause] in the policy was a Company advantage. Having it removed is an insured's advantage." Make sure you read your professional liability policy's insuring agreement so that you know what your rights are around settling a claim.

By Natasha Lueder
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