It is in the best interest of physicians and other healthcare professionals to understand the consent to settle clause contained in their professional liability insurance policy. Carriers have varying appetites for allowing physicians to choose to defend themselves in the event of a lawsuit arising from a claim as opposed to settling.
Hammer Clause
The insurer has the exclusive right to investigate, negotiate and defend claims seeking damages against the insured for which this policy provides coverage. The insured may not negotiate or agree to a settlement of any claim without the carrier’s prior consent. There is no coverage under this policy to pay any part of a settlement of a claim made without the carrier’s consent.
Soft Hammer
The insurer shall not settle any claim without the consent of the insured. If, however, the insured refuses to consent to any settlement recommended by the Insurer and elects to contest or continue the legal proceedings in connection with such claim, the insurer’s liability for the claim shall not exceed the amount for which the claim could have been settled plus legal expenses incurred up to the date of such refusal.
The soft hammer clause means that if an insured withholds consent to settle, the insured will have to pay out of their own pocket any judgment in excess of the proposed settlement amount. This saves the insurance company money by cutting short the litigation process and reducing the insured’s ability to veto a settlement.
For example, consider a healthcare professional or entity facing a $200,000 settlement who has a $1 million limit on his policy. If the liability policy contains a soft hammer clause, the insurance company can invoke the clause for that settlement, in essence reducing the $1 million limit to $200,000 and forcing the professional to decide: either settle the claim on those terms or risk paying his own money.
Full consent to settle
The insurer will obtain written consent from the insured before settling a claim against that insured arising from a medical incident. It the insured does not approve the settlement amount, the consent to settlement clause states that the insurer will not be liable for any additional money required to settle the claim or for additional defense costs related to the claim.
