Like the hammer clause above, the 50/50 indicates that the insured and the insurer share the costs at 50% according to the first billing offer. Although less widespread than the 80/20 provision, the 50/50 hammer clause is a standard distribution. 80/20 refers to the percentage distribution of risk between the insurer and the insured after the first billing offer. 80% of the costs are borne by the insurer and 20% by the insured. This hammer clause split is the most common version of the clause we see. And according to John Boykin, president and CEO of B+H Insurance (IBB) in Newark, Delaware, all of this has made the underwriting process much stricter for professional liability policyholders. But if they`re dealing with professionals, “their reputation is everything,” Boykin says. “If you have a hammer clause in the policy and you`re sued, you`ll often choose to insure yourself, give up your reputation, or fight for your reputation, but pay hundreds of thousands of dollars out of pocket.” Now is not the time to determine your settlement rights if you are named as a defendant in a professional liability action. This is when you work with your insurance broker to get coverage before or during the pre-expiration insurance period. A consent clause is defined (or omitted) in the insurance policy, so let your broker apply for a model policy and pass it together. “It brings a bit of skin into the insured`s game, but paying 50% is much better than paying 100%,” says Boykin, who recently debauched a new client from another broker by offering a modified hammer clause.
“It was a law firm of 35 people – these guys are pit bull lawyers, and they would want to fight tooth and nail any claim. But they didn`t even realize they had a hammer clause in their policy. Every insurance policy might have a hammer clause, but we usually see it in professional/error and omission policies. Since these policies often protect the insured from claims of misconduct or failure of a professional obligation, the hammer clause is a way for the insured to protect their reputation by requiring consent to the payment of a fee. . . .