I have recently seen contractor pollution policies and contractor professional liability policies that contain the dreaded “hammer clause,” which compels an insured to comply with an insurer’s decision to settle a case rather than fight it out in court. Some insurance carriers also call this the “cooperation clause,” as it forces insureds to settle a claim they normally would choose to fight.
Most policies give the insured the right to withhold consent to a proposed insurance settlement. However, the insurer may wish to be more competitive on its pricing to increase its sales and limit its liability on large liability losses. In this case, the insurer may wish to insert a hammer clause into its policy forms.