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Coinsurance Hammer Clause

Coinsurance Hammer Clause

Definition

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.

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