coinsurance hammer clause
An alternative to the standard hammer clause found within professional, directors
and officers (D&O), and errors and omissions (E&O) policy forms. Such a provision provides
for a sharing of defense and indemnity costs (between the insured and the insurer)
incurred after the insured refuses to consent to a settlement proposed by an
insurer. The most common sharing percentage is 50/50 but can sometimes go higher
(e.g., 70 insurer/30 insured). The effect of such clauses is to reduce the amount
of indemnity and defense costs that an insured could potentially incur if it
refuses to consent to a settlement amount recommended by an insurer. See also
Consent to settlement clause.
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EPLiC Fall 2001