Hammer clause
A hammer clause is a consent-to-settlement provision that limits an insurer's responsibility when the insured rejects a settlement the insurer recommends. Depending on the wording, the insurer may cap payment at the proposed settlement and defense costs, share the excess risk, or stop funding defense; the policy text controls.
Hammer clause is the short name for a consent-to-settlement provision. In a professional-liability policy, the insurer may recommend resolving a claim for a stated amount while the insured wants to keep defending or reject the offer. The clause determines who bears the additional risk created by that decision.
The settlement risk shifts in several ways
IRMI’s definition describes the common result: if the insured refuses a recommended settlement, the insurer’s obligation may be limited to the proposed settlement and defense costs, leaving the insured exposed to later amounts. The ABA’s policy-conditions primer describes full, modified, and defense-cost variants. Some versions share the excess risk; some can permit the insurer to withdraw from defense after a rejected recommendation.
“Hammer” therefore is not a standardized promise. The provision may require consent, say consent cannot be unreasonably withheld, specify a proposed amount, or address defense costs separately. Read the exact clause alongside the definition of claim, defense provision, and any allocation language.
The allegation is often a professional one
The clause matters when a client, patient, customer, or regulator alleges that a lawyer, consultant, accountant, or other professional gave negligent advice, missed a deadline, or produced deficient work. The business has a reputational and control concern in addition to the amount at issue: settling may protect the practice, while rejecting a settlement may preserve a position the insured believes is defensible.
The First Circuit’s Clauson v. New England Insurance Co. shows why the wording matters. The court examined the policy’s consent standard and whether the insured’s rejection was reasonable. A different jurisdiction, policy, or clause can produce a different result.
What to flag before a claim
Identify who has consent, what happens after an unreasonable or reasonable refusal, whether defense costs are inside the limit, and whether defense can end after the insurer’s recommendation. Those are contract and policy questions, not matters a certificate answers. For claims-notice and policy mechanics, use the sister library’s claim decision guide; the PDS issue is the professional’s exposure when settlement control is shared.
Sources
- Context source: IRMI — Consent-to-settlement clause — Defines the consent-to-settlement or hammer clause and the risk of excess amounts or defense costs after an insured rejects a recommended settlement.
- Context source: American Bar Association — Insurance 101: Don't forget policy conditions — Explains full, modified, and defense-cost settlement variants and why professional-liability policy wording changes the allocation.
- Primary source: U.S. Court of Appeals for the First Circuit — Clauson v. New England Insurance Co. — Primary decision illustrating how the policy's consent wording and a reasonable rejection of settlement can control the parties' dispute.