What Does a Hammer Clause in a DO Policy Protect Against?

DO Policy

Directors and Officers liability insurance programs protect managers from lawsuits that arise due to actions and decisions that fall within their jobs’ regular scope. A hammer clause in a D&O policy¬†helps protect the professional reputation of a business.

What Is D&O Insurance?

This policy type covers the directors and officers of a company against potential lawsuits. It enables managers to carry out their job obligations without the fear of financial loss due to legal claims. These policies help cover the resulting defense and settlement costs.

What Does a D&O Policy Cover?

This insurance reduces the risks associated with claims against executives within your organization. It helps negotiate settlements and cover defense expenses. This coverage saves both time and money and enables your company’s decision-making members to conduct business as they deem appropriate. It also protects the personal assets of directors if legal issues arise.

What Protection Does a Hammer Clause Provide?

A hammer clause in a D&O policy caps the insurance company’s liability if the insured rejects a settlement during a claim. Defendants in claims involving D&O insurance typically do not admit guilt, yet the compensation often consists of an allocation based on an admission. A settlement rejection triggers the hammer clause, limiting the liability for the settlement and defense of claims amounts.

With this clause, the insurer has the power to force a settlement, making it an executive protection plan your business may want to consider.