1. Forms
2. EP
3. EP-01-33

What the form is

The EP 01 33 - Amendment of Consent to Settle is an endorsement to an Employment-Related Practices Liability (ERPL) insurance policy. Its primary purpose is to alter the standard 'consent to settle' or 'hammer clause' provision. Typically, if an insurer recommends settling a claim and the insured refuses, the insured may become liable for any judgment or settlement amount that exceeds the insurer's recommended settlement. This endorsement modifies that consequence by allowing the insured and insurer to agree on a specific percentage of the settlement or judgment that the insured will bear if they refuse consent to a settlement proposed by the insurer.

Classes of business it applies to

This endorsement is relevant for any organization that carries Employment-Related Practices Liability insurance and desires more control over the decision to settle claims, or has a strong stance against settling certain types of employment claims. Examples include:

• Companies in industries where they face frequent or potentially high-profile employment disputes and are concerned about the precedent set by settling.
• Organizations with a strong internal legal department or philosophy that prioritizes defending claims vigorously, even if settling might be more economical in the short term.
• Businesses concerned about reputational harm that might arise from settling a claim they believe is without merit.

Special considerations

The standard 'consent to settle' clause (often called a 'hammer clause') can put significant pressure on an insured to accept a settlement offer. This endorsement provides an alternative that can be negotiated.

• Negotiated Percentage: The key feature is the ability to pre-determine the insured's participation in the excess amount if they refuse to settle. This percentage is specified in the endorsement.
• Impact on Defense: While it gives the insured more say, refusing a settlement can lead to prolonged litigation and potentially higher overall costs.
• Insurer Agreement: The availability and terms of this endorsement (including the percentage) are subject to underwriter approval.

For example, if an insurer recommends settling an EPL claim for $100,000, but the insured refuses, and the case later results in a $200,000 judgment. Without this endorsement (or with a strict hammer clause), the insured might be responsible for the $100,000 difference. With EP 01 33, if a 50% co-participation was agreed, the insured would be responsible for 50% of the amount over the declined settlement, or a similar pre-agreed formula, subject to the specific wording of the endorsement.

Key information for agents and underwriters

• Client Profile: Agents should identify clients who have expressed a strong desire to fight EPL claims or have a history of disagreeing with settlement recommendations. This endorsement could be a selling point for such clients.
• Risk Assessment: Underwriters need to carefully assess insureds requesting this endorsement. It may indicate a higher likelihood of litigation and potentially increased defense costs. The insured's rationale for wanting this modification should be understood.
• Pricing: The premium for ERPL coverage might be adjusted to reflect the altered risk profile associated with this endorsement. A higher propensity to litigate could lead to higher defense expenses for the insurer, even if the insured shares in adverse judgments.
• Clarity of Terms: It's crucial that both the insured and the insurer clearly understand the agreed-upon percentage and how it applies in various settlement refusal scenarios.
• Coverage Gaps: Ensure the client understands that this endorsement doesn't eliminate their potential out-of-pocket costs if they refuse a settlement; it just modifies how those costs are calculated.