Definition of the Hammer Clauses
A hammer provision in an insurance contract allows the insurer to force the insured to settle a claim. Hammer clauses are sometimes called blackmail clauses, settlement ceiling provisions, or agreements to settlement provisions. This clause allows the insurer to push the insured to settle, like hammering a nail.
How Hammer Clause Works
Hammer clauses let insurers impose settlements. It limits its indemnity. The insurer may set this cap at the settlement’s value. If the insured refuses to settle, it may pay its defense.
An insurer can utilize a hammer clause to force an insured to settle a dispute in court.
Hammer clauses are sometimes called blackmail clauses, settlement ceiling provisions, or agreements to settlement provisions.
Hammer clauses have a particular language.
Insurance firms protect policyholders from policy-outlined hazards. In the event of a claim, the insurance assists in resolving the loss. The insurance company and insured party may disagree on the settlement value.
The insurer attempts to minimize settlement expenses, such as legal and claims adjuster fees, which can increase significantly with prolonged claims processes.
A hammer provision lets an insurer force a manufacturer to settle a lawsuit.
However, the insured party wants to reduce the amount it owes in a settlement, and since it does not pay legal expenses, it has less motivation to settle if the party is unhappy.
An Example of the Hammer Clause
Under a hammer clause, we have the right and responsibility to fight any claim for damages, regardless of whether the charges are false or fraudulent. We will examine any appropriate allegation. We won’t settle any claim if you don’t give us your written authorization, and we will consult with each other to address any settlement disagreements.
Example of Hammer Clause
An injured customer may sue a manufacturer. The insurer must defend the manufacturer in court under its liability insurance.
The insurer may realize that defending the insured will take time and that settling the consumer case will speed things up. The manufacturer rejects the settlement because it will cost it money. A hammer clause lets the insurance force the manufacturer to settle.
