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1.The Impact of the Hammer Clause on Settlements[Original Blog]
The Hammer Clause is a provision found in many insurance policies that can have a significant impact on the settlement of claims. Essentially, this clause allows an insurance company to limit its liability for a claim if the insured refuses to accept a settlement offer that the insurer deems to be reasonable. This can result in the insured being responsible for paying any excess damages that result from the refusal to settle.
1. Understanding the Hammer Clause:
The Hammer Clause can be a complex provision to understand, and it is important for both insurers and insureds to be aware of its implications. Essentially, the clause requires that if an insurer makes a settlement offer that is deemed to be reasonable, and the insured refuses to accept it, then the insurer's liability for any damages that result from the claim will be limited to the amount of the settlement offer. This means that if the insured proceeds with litigation and obtains a judgment for damages that exceeds the settlement offer, then the insured will be responsible for paying the excess damages.
2. Impact on Settlement Negotiations:
The Hammer Clause can have a significant impact on settlement negotiations, as it creates a strong incentive for the insured to accept any reasonable settlement offer that is made by the insurer. This can result in the insured being more willing to accept a lower settlement offer than they might otherwise be willing to accept if they knew that they would not be responsible for any excess damages. On the other hand, the clause can also give insurers more leverage in negotiations, as they know that the insured is under pressure to accept any reasonable offer.
3. Options for Insureds:
If an insured is faced with a Hammer Clause, they have several options. They can choose to accept the settlement offer, which may be their best option if the offer is reasonable and they are unlikely to obtain a better result through litigation. Alternatively, they can choose to reject the offer and proceed with litigation, knowing that they will be responsible for any excess damages if they are unsuccessful. Finally, they can try to negotiate with the insurer to remove or modify the Hammer Clause, although this may be difficult to accomplish.
The best option for an insured facing a Hammer Clause will depend on the specific circumstances of their case. If the settlement offer is reasonable and they are unlikely to obtain a better result through litigation, then accepting the offer may be the best option. However, if they believe that they have a strong case and are likely to obtain a better result through litigation, then rejecting the offer and proceeding with litigation may be the best option. Ultimately, it is important for insureds to carefully consider all of their options and seek advice from a qualified attorney before making a decision.
The Impact of the Hammer Clause on Settlements - Claims Settlement Strategies: Navigating the Hammer Clause Terrain