Consent to Settle

Consent to settle is a policy condition that spells out who controls the decision to settle a claim, the insurer or the insured. In many D&O and E&O policies, the insurer must obtain your consent before agreeing to a settlement, which lets you block a resolution that could damage your reputation or imply fault. Other policies give the insurer more settlement authority and instead use a hammer clause to discourage you from unreasonably refusing a settlement it recommends. Always confirm which approach your policy takes, because it determines how much control you keep over a dispute.

The two provisions are two sides of the same question about settlement control. A consent-to-settle clause gives you the right to approve or reject a proposed settlement, while a hammer clause defines what happens if you reject one the insurer recommends. Under a full hammer clause, the insurer's payout is capped at the amount it could have settled for, leaving you responsible for the extra defense costs and any larger judgment. A soft hammer clause splits that excess, with the insurer often covering a common range such as 70 to 80 percent, so you share the downside of refusing rather than bearing all of it.

For an early-stage company, a claim against directors and officers can raise questions during fundraising, hiring, or an acquisition, and a settlement made without your input can look like an admission of wrongdoing. A consent right lets you weigh those reputational and business stakes rather than leaving the call entirely to the carrier. At the same time, a linked hammer clause means you cannot refuse every settlement for free, so it pays to review this language with your broker before you bind coverage and again when a claim arises.