The Hammer Clause: Think Your Carrier
Won't Use It? Think Again

FEBRUARY 26, 2025

In the world of insurance, one clause that often gets overlooked but can have significant consequences for policyholders is the "hammer clause." In an insurance policy this is a policy provision known as the consent to settle provision. Many believe their carrier will never invoke it, but as recent events have shown, this assumption can be dangerously naive.

A Cautionary Tale: The Wayne Hills High School Case

Let's take a closer look at a real-life example that underscores the importance of understanding the hammer clause. In January 2025, news broke of a $400,000 settlement between the Wayne Board of Education in Passaic County and former high school baseball coach Scott Illiano. The crux of the issue? The insurer’s use of the hammer clause.

Illiano, who had been at odds with the team's booster club, alleged in his lawsuit that the school board allowed the club to undermine his authority, ultimately leading to his wrongful termination. The board's decision to settle the case was heavily influenced by their insurance company's hammer clause.

As the board's president, Don Pavlak, pointed out, the insurance company essentially forced their hand, stating that either they settle at the specified amount or be responsible for all legal fees and judgments beyond that amount. This is a prime example of how the hammer clause can put policyholders in a tight spot, leaving them with little choice but to settle. Read the full article here.

Why Your Carrier Might Use the Hammer Clause

Insurance companies are in the business of managing risk. The hammer clause provides them with a powerful tool to mitigate their exposure. When faced with a claim, carriers may prefer a quick settlement to avoid prolonged litigation and uncertain outcomes. With the cost of claims continuing to trend northward and the fear of high jury verdicts, carriers could use this policy provision to mitigate their exposure and keep claim costs down. This approach might not align with your best interests, especially if you believe you have a strong defense.

The Financial and Reputational Risks

If you decide to contest a claim despite the insurer's recommendation to settle, the hammer clause can leave you financially vulnerable. By capping their liability, the insurance company effectively transfers the risk of any additional legal fees and judgments to you. This can result in significant out-of-pocket expenses.

Moreover, settling a claim can sometimes be seen as an admission of wrongdoing, even if you believe you are not at fault. The hammer clause can force you into a settlement that damages your integrity and professional standing. With the legal profession being such a reputationally driven profession, this could tarnish your reputation and impact your ability to attract future clients.

Take Control: Opt for Policies Without the Hammer Clause

To protect your interests, it is advisable to seek insurance policies that do not include a hammer clause. These policies provide greater flexibility and control, allowing you to work with your insurer to develop a defense strategy that aligns with your goals. Without the hammer clause, your insurer is more likely to support your decision to contest a claim if you believe it is justified.

Conclusion

The hammer clause may seem like a minor detail, but its implications can be far-reaching. By opting for policies without this provision, you can safeguard your financial stability, maintain your reputation, and retain control over your defense strategy. At USI Affinity, we understand the importance of comprehensive coverage that aligns with your needs. Contact us today to learn more about our insurance solutions and how we can help you protect what matters most.

Remember, your insurance policy should provide peace of mind, not additional stress. Choose wisely and ensure that you are fully protected. Get connected with a specialist here.