Most doctors are aware of what is meant by a “consent to settle” policy. With such language, the carrier will not settle a claim without your explicit written consent.
Once you provide such consent, the carrier will make a decision. Settle for an amount it can live with. Or defend the case.
If you provide consent for the carrier to settle, and the carrier decides to roll the dice, it rolls the dice with its own money.
For example, assume you have a $1M policy and you provide consent for the carrier to pay up to policy limits. The carrier decides to defend. You lose in court. The jury returns a verdict for $5M. Are you on the hook for the extra $4M?
Probably not, assuming the case could have been settled for policy limits. All the carrier had to do was say yes.
Consent to settle is also useful if a claim is frivolous. You’d prefer a solid defense in such cases. Broadly, if a carrier makes a payment on your behalf, whether for $1 or $1M, it’s reportable to the National Practitioner Data Bank. So, if a case IS defendable, you’d typically want the case to be defended.
Which brings us to what is known as a hammer clause.
What if the plaintiff has put an offer on the table that seems reasonable. You have a $1M policy. The plaintiff has offered to settle the case for $100k. You live in a judicial latrine, where there are whopping jury verdicts day in and day out. Some of the facts support your care. Others are iffy. If you have a consent to settle policy, the carrier must get your authorization to settle. The carrier probably even wants you to settle, because if you go to trial, you may lose, and it may be on the hook for the full $1M (policy limits).
Can the carrier twist your arm?
Yes. With a hammer clause.
The COMPANY shall not settle any CLAIM without the written consent of the INSURED against whom the CLAIM has been made. If the INSURED refuses to consent to any whole or partial SETTLEMENT of a CLAIM recommended by the COMPANY within the applicable Limits of Liability, the COMPANY’S obligation to make any further payments for amounts in connection with the CLAIM incurred after the recommended SETTLEMENT was proposed shall not exceed the amount for which the CLAIM could have been settled by the COMPANY had the INSURED consented to the SETTLEMENT. The INSURED is not entitled to, and the COMPANY will not be obligated to pay, any DAMAGES or CLAIMS EXPENSE beyond that amount. To the extent the COMPANY pays any DAMAGES or CLAIMS EXPENSE beyond that amount, you agree that, after the CLAIM ends, such amounts shall be repaid to us by the INSUREDS, each according to his or her respective interest.
The language above is representative language of “the hammer.”
Let’s go back to our prior example. You have a $1M policy. The carrier has recommended you settle for $100k, the offer that was presented by the plaintiff. You, of course, need to consent to such settlement. If you don’t, then you are rolling the dice with your own money. If you go to court, and the jury returns a verdict of $5M, the carrier is only liable for the $100k (the deal it told you to take). The hammer would limit the carrier’s liability. You’ll have to dig deep for the other $4.9M.
So, “consent to settle” can protect your interests. The hammer clause balances that language in favor of the carrier’s interests (to prevent you from always saying “No.”)
Do all policies with consent to settle language have a hammer clause? Actually, no. That’s why it is imperative for you to review your policy with a knowledgeable person. You don’t want to wait until you are sued to learn for the first time what you actually purchased.
What do you think?
