Does your E&O Insurance penalize you if you don’t consent to settle?

Does your E&O Insurance penalize you if you don’t consent to settle?

Some Agents may be surprised to learn that their E&O policy has a “hard hammer” consent to settle clause, which may require the Agent to comply with the insurance carrier’s desire to settle a claim. How does a hard hammer clause affect you should an E&O claim arise?

Let’s say you feel that a settlement is not warranted and you would like the right to refuse the settlement recommendation. By doing so, you may be subject to pay out of pocket some or all of the litigation expenses. In other words, if you refuse a settlement recommendation because you feel it’s unfair, you could end up paying a hefty price in settlement costs and attorney fees.

So how can you reduce out of pocket expenses and still retain your right to refuse a settlement recommendation? Make sure you purchase an E&O policy with a Consent to Settle option, also known as a “soft hammer” clause. A soft hammer clause will ensure that the carrier, not the insured, is responsible for some or most of the litigation costs, even after the insured refuses a settlement recommendation. For instance, CITA’s Insurance Agents E&O policy offers multiple Consent to Settle Options, including: 50/50, 70/30 and 80/20. Take a look at the claim example below to find out how selecting an 80/20 Consent to Settle option minimized P&C Agent Sally’s claim costs:

Sally Jones, a P&C Agent, decides not to give consent to settle to a $10,000 compromised settlement despite the carrier and defense counsel recommending the acceptance of the same. Sally maintains she did nothing wrong and the Plaintiff is lying about the transaction at issue. The case proceeds to trial and the Plaintiff ultimately receives a $20,000 reward. Without the 80/20 Consent to Settle Option in her E&O policy, Sally would have been responsible for 100% of the difference between the settlement option and judgment, plus attorney fees from the date the settlement option was rejected. Since approximately $5,000 in attorney and defense costs were incurred by Sally, the net effect of having had an 80/20 Consent to Settle clause in her policy would have been savings of approximately $12,000.

Like many Agents, Sally did not want to feel pressured into accepting a settlement recommendation she felt was not in her best interest. The next time you purchase or renew E&O coverage, you may want to consider a policy that offers a soft hammer clause.

This general product description is informational only and is not an offer or a quotation of coverage.   Please refer to the policy for all terms, conditions and exclusions.  All submissions are subject to underwriting.  Coverage may not be available in all jurisdictions.