Consent to Settle Clause
The consent to settle clause requires the insurer to obtain the insured's approval before concluding a settlement, rather than settling claims against the insured unilaterally.
- Clause type
- Condition
- Origin/Market
- International programme
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
In professional indemnity, D&O and other reputation-sensitive lines, a settlement has direct consequences for the insured’s reputation and professional standing — unlike in ordinary casualty liability cover, where the insurer generally has sole discretion to settle. The consent to settle clause reflects this by giving the insured a say: the insurer may not settle a claim against the insured without the insured’s approval.
Effect and limits
In practice the consent right is almost always coupled with a hammer clause: if the insured withholds consent to a settlement the insurer regards as reasonable, the insurer’s liability is capped at the proposed amount plus costs incurred up to that point. Taken alone, the consent to settle clause formally gives the insured control over the settlement decision, but without an accompanying “soft” cost-sharing mechanism it effectively shifts the economic risk of a refusal onto the insured.
Negotiation and practice
When negotiating the wording, it should be checked whether the consent right is qualified as “shall not be unreasonably withheld”, which leaves the insured more room than an absolute consent requirement. Equally important is the accompanying design of the hammer clause, since its cost consequences ultimately determine how valuable the consent right is in practice.