Glossary

Hammer clause

A policy provision that caps the insurer's payments if you refuse a settlement it recommends, leaving you to bear the extra cost of going on.

Also called: consent-to-settle clause, hammer provision, soft hammer, blackmail clause

A hammer clause appears in many professional liability, D&O and employment practices policies. These policies usually require the insured's consent before the insurer settles. The hammer is the price of withholding it: if the insurer recommends a settlement the claimant will accept and you refuse, the insurer's liability for the claim is limited to the amount of that proposed settlement plus the defense costs already incurred.

A hard hammer shifts every added dollar to you. A soft or modified hammer shares the extra cost, for example with the insurer paying 80% of the excess and the insured 20%. Say an insurer recommends a $300,000 settlement and you decline. The case later ends with a $450,000 judgment and $100,000 of further defense costs (a hypothetical). Beyond the $300,000, the excess is $250,000. Under a hard hammer you pay all of it; under an 80/20 soft hammer you pay $50,000.

Weigh the clause when you buy: ask for a soft hammer or a negotiated percentage, and see whether the policy lets you consent on a reasonable basis only. During a claim, treat a settlement recommendation as a financial decision and take advice before refusing. The guide on the hammer clause: what happens if you refuse a settlement covers variations, and defense costs covers who pays the legal bills.

Last reviewed October 10, 2026

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Related terms

Professional liability Coverage for claims that a professional's advice, design or service was negligent, incomplete or not delivered as promised and cost a client money. Errors and omissions (E&O) Insurance for claims that a professional or service business's mistakes, missed work or bad advice caused a client a financial loss. Directors and officers (D&O) insurance Liability insurance protecting a company's directors and officers, and often the company itself, against claims alleging wrongful acts in managing the business. Employment practices liability (EPLI) Claims-made coverage for employee lawsuits alleging discrimination, harassment, wrongful termination, retaliation and similar wrongful employment acts. Defense costs The attorney fees, expert fees and other expenses of fighting a claim, which some policies pay on top of the limit and others deduct from it.

Related guides

Directors and officers (D&O) insurance explained D&O insurance protects directors, officers and the company from claims over management decisions. What it covers, what it excludes, and how the policy is built. D&O Sides A, B and C explained Side A covers directors personally, Side B reimburses the company for indemnifying them, Side C covers the entity. How each part pays, with a worked example. Employment practices liability insurance (EPLI): what it covers EPLI pays defense costs and covered settlements for discrimination, harassment, retaliation and wrongful termination claims. How it works and what it excludes. First-party vs third-party cyber coverage How the two halves of a cyber policy differ: what each pays, when each is triggered, and why one breach can bring bills now and liability claims years later. The hammer clause: what happens if you refuse a settlement A hammer clause caps what your insurer pays if you reject a settlement it recommends. How full and soft hammers work, with an example and two court decisions. Insurer bad faith: what it is and the remedies When claim handling crosses from a coverage dispute into bad faith, how first-party and third-party claims differ, and the remedies states allow.

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MagMutual Atlanta-based physician-owned mutual that insures doctors, medical groups and hospitals for malpractice; online quoting for physicians, rated A (Excellent).

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