A Full Hammer Clause can take emotion out of a decision
A Hammer Clause is a clause within an insurance policy that allows an insurer to force the insured to settle a claim for an amount they recommend. A Hammer Clause is also known as a blackmail clause, settlement cap provision, coinsurance or consent to settlement provision. There are multiple ways the clause can be set up. The two most common are a Full and a Modified Hammer Clause.
The Full Hammer Clause is a provision within an insurance policy that states, if the insured refuses to settle for a recommended amount, the insurance carrier will pay only the amount for which the claim could have been settled, plus defense costs incurred up to the limits of the policy. When a Full Clause is in place, the insured takes on the full amount of the additional settlement costs.
A Modified Hammer Clause gives the insured the option to refuse to settle, but they take on some of the additional costs to settle the case. In most instances, if the costs are more than the offered settlement the insurance carrier and the insured split the additional costs 50/50. Some policies even require the insured to take on a split as high as 70/30.
Why might a Full Hammer Clause be beneficial?
A Full Hammer Clause, in most cases, is in the best financial interest of the insurer. Much of the time, it is in the financial best interest of both the insurer and the insured. One thing for a business owner to remember is that insurance carriers interact with businesses facing insurance claims on a daily basis. The carriers have historical data about the costs to defend a business through the court system. This data allows the insured to make a fairly accurate assumption about how much the claim will cost to litigate. Far too often, business owners allow emotions to get in the way of sound judgment. A Full Hammer Clause gives the Insurance Carrier the ability to force the insured to take a recommended settlement in order to avoid additional costs. No matter what type of Hammer Clause is in place it is usually in the best interest of the business to take the guidance of their insurance agent and insurance carrier.