As incredible as it may sound, hammer insurance, is actually a means adopted by the insurer to blackmail the insured into settling claims. The name itself is an allegory, a metaphor used to describe the effectiveness of the insurance policy. Symbolically as a hammer forces a nail to penetrate wood, wall etc., this insurance is used by the insurer.
Need for hammer insurance
While at a glance this insurance appears to be a risky proposition for the insured. But a closer look at the reasons behind the adoption of this insurance justifies its existence and continued use. The fundamental requirement for the purchase of any insurance policy is to safeguard one-self against potential claims raised by third parties suffering damage to property or self. It is the job of the insurer and not the insured to pay off these third-party claims after checking on the validity of the claims. Thus, insurance companies tend to indemnify their insurers from specific risks as mentioned in the policy purchased. But there might be instances where the insurance company and its insurer might have a difference of opinion regarding the:
- Nature of the claim
- The settlement amount and
- The need for making the claims in the first place.
This can lead to a discord between the insurer and the insured since the philosophies and ideologies followed and applicable in this aspect are different for both. Thus, the insurer will only want to limit the expenses incurred by way of claim adjuster fees, legal fees and the actual settled amount. These have a tendency to grow if the claim process gets stretched.
On the other hand, the insured simply wants the settlement amount to be kept as a minimum. If the third or injured party is not conducive to the settlement amount, the insured also has no interest in going to the courts with it or sustaining a legal case. In this instance, the insurer settles the claim with the third party but the insured refuses to acknowledge the same.
This is where a hammer insurance policy actually proves to be quite successful. Incorporation of this clause into the main insurance purchased protects the insurance company from losing out money by way of claims and receiving nothing in return.
Insurance policies requiring the hammer clause
Almost all types of insurance policies can be appended with a Hammer Insurance San Bernardino clause. But it is more commonly found in those insurance schemes wherein there is always a risk of a third party raising a claim like:
- Public liability policy
- Property insurance policy
- Motor vehicle insurance policy
- General liability insurance policy
- Professional liability policy
- Salon insurance policy etc.
It would not be wrong to say that its inclusion into insurance policy clauses only helps to strengthen the policy. It also ensures that both the insured party and the concerned insurance companies are not taken advantage of.
Decoding hammer insurance policy
The goal of this clause is to protect the financial liabilities of both the insured and the insurer. There are 2 elements which are generally associated with hammer clause and aid in the protection of both. They are:
- Firstly, this clause makes it mandatory for the Insurer to get the approval of the Insured before they even think of settling a claim.
- If the insured refuses to consent then the Hammer clause serves to limit the Insurer’s financial liability towards the amount approved for settlement by a plaintiff.
Taking the first element into consideration it can be seen that this insurance policy ensures that both the insurer and the insured know about the amount of settlement that a plaintiff has claimed. This in turn, empowers them to take a call if the said claim is legitimate.
The second element attains great responsibility as it limits the insurance companies paying capacity for settlements which the insured feel inappropriate. Thus, it also protects insurance companies from acquiring bad debts thereby making them financially strong.
In simple words an insurer obtaining Hammer Insurance in Moreno Valley can legally refuse to pay for any additional money that might be required for the settlement of the claim. Even defense costs need not be paid with immediate effect from the date the consent has been withheld.
Advantage of the Hammer Clause
The biggest advantage of this insurance is the placement of an indemnification cap limit. This limit entails that all costs incurred by the insurer during the process of settlement including the defense fees etc., need to be necessarily within it. This makes for a faster claim settlement process since if the insured wants to go legal for a prolonged period of time in order to delay the settlement process, he has to do it on his money. This capping also makes out of court settlements seem more practical and hence the popular choice thereby making for an easier and effective claim settlement process. The Hammer Insurance is indeed an asset to all insurance policies it is appended to.