Individuals secure insurance policies in the hopes that when the time comes, the provider will be issued the funds needed to rebuild or pay for claims of damages against the individual. However, insurance providers underwrite policies to take care of both the insuring company and the insured. Unfortunately, the benefit of the insurer sometimes outweighs the needs of the insured. This is commonly seen with the inclusion of the hammer clause in a policy.

Understanding the Blackmail Clause

Because of the way the hammer clause is enacted, it is also referred to as the blackmail clause. This is a settlement cap provision or a consent to settlement provision that the insurer includes in the policy. It carries the power to force the insured to settle, by putting a cap on the amount of indemnification that the insurer is willing to give. The insurer gets to decide what the settlement is worth and place the cap accordingly. The way the clause is written, the insured must either accept the settlement cap or be personally responsible for the defense costs of the claim.

Who the Clause Benefits

The purpose of insurance is to indemnify policyholders from the risks that are included in the policy. For this reason, the hammer clause is most beneficial to the insurance company. Always be aware of the fine print and how it can impact your claims and payouts.