Consent to Settle language within a malpractice insurance policy is important for insureds to understand prior to purchasing coverage. This is because the language within the clause details the extent to which an insured is responsible for claims payment, and how the claims will be paid. It can provide the insured with superior coverage or coverage left with unexpected holes in it. Let us look at the following Consent to Settle Clauses from two actual policies:
Consent to Settle – Example 1
The COMPANY shall not settle any CLAIM without the written consent of the INSURED against whom the CLAIM has been made. If the INSURED refuses to consent to any whole or partial SETTLEMENT of a CLAIM recommended by the COMPANY within the applicable Limits of Liability, the COMPANY’S obligation to make any further payments for amounts in connection with the CLAIM incurred after the recommended SETTLEMENT was proposed shall not exceed the amount for which the CLAIM could have been settled by the COMPANY had the INSURED consented to the SETTLEMENT. The INSURED is not entitled to, and the COMPANY will not be obligated to pay, any DAMAGES or CLAIMS EXPENSE beyond that amount. To the extent the COMPANY pays any DAMAGES or CLAIMS EXPENSE beyond that amount, you agree that, after the CLAIM ends, such amounts shall be repaid to us by the INSUREDS , each according to his or her respective interest.
Does this first example scare you? Well, we hope it does. This clause means that that if you do not agree to the proposed settlement, you may be left hanging with a large out-of-pocket bill, including final damages beyond the original settlement amount and defense expense costs, including expensive attorney fees.
Consent to Settle – The Hammer Clause
This first example contains what is commonly called the Hammer Clause, which is defined as: *A provision (also known as the “hammer clause” and “blackmail settlement clause”) found in professional liability insurance policies that requires an insurer to seek an insured’s approval prior to settling a claim for a specific amount. However, if the insured does not approve the recommended figure, the consent to settlement clause states that the insurer will not be liable for any additional monies required to settle the claim or for the defense costs that accrue from the point after the insurer makes the settlement recommendation.
Okay, let us look at – Example 2:
Consent to Settle Example 2
We will obtain written consent from you before we settle a claim against you arising from a medical incident. You agree to waive such right to consent under the following circumstances:
- The settlement amount is within any deductible amount applicable to the claim
- You are deceased or adjudicated incompetent
- Judgment is entered
- Your license to practice medicine is suspended or revoked
- The claim was reported under an Extended Reporting Period Endorsement to this policy
- You, after reasonable efforts by us, cannot be located
Aside from the understandable exceptions, this clause provides full consent, meaning should you decide not to settle, the carrier would keep defending on your behalf at no additional cost to you. The only caveat is if the final judgment goes beyond your purchased policy limits.
Making the Decision That’s Right For You
Understanding the Consent to Settle clause will help you in deciding which coverage is right for you. Should you choose coverage with full consent, such as the second example, you will be able to enjoy peace of mind in knowing that your carrier is really fighting for you. If you have any questions regarding your policy, we would be pleased to provide a no cost / no obligation consultation.
What are the concerns you have about your coverage? We welcome your comments below. If you find this post helpful, we simply ask that you share it.
*Reference provided by: International Risk Management Institute
The content is for informational purposes only. All matters must be analyzed on a case by case basis.