What the Form Is
The PR 24 00, titled "Consent to Settle," is an endorsement to professional liability insurance policies, particularly those for medical professionals. Its primary function is to modify the standard policy terms by requiring the insurance company to obtain the named insured's written consent before settling a claim made against them. Without this endorsement, insurers typically reserve the right to settle claims at their discretion to minimize potential losses.
Classes of Business It Applies To
This endorsement is predominantly used in conjunction with professional liability (malpractice) insurance for a variety of healthcare providers and facilities. This includes, but is not limited to:
- Physicians
- Surgeons
- Dentists
- Hospitals
- Blood banks
- Diagnostic testing laboratories
Real-world example: A renowned surgeon is sued for malpractice. Even if the insurer believes a quick settlement is financially prudent, the surgeon might feel the claim is baseless and that settling would damage their professional reputation. With the PR 24 00 endorsement, the surgeon has the right to refuse the settlement.
Special Considerations
A critical aspect of the "Consent to Settle" endorsement is the inclusion of what is commonly known as a "hammer clause" or "settlement cap provision." This provision typically states:
- If the insurer recommends a settlement to the insured, and the insured refuses to consent.
- And the claim subsequently proceeds to litigation, resulting in a judgment or a later settlement that is higher than the originally recommended amount.
- Then, the insurer's liability for that claim will be limited to the amount for which the claim could have been settled initially (plus defense costs up to the point of refusal, though this can vary). The insured would then be personally responsible for the excess amount of the judgment or settlement and potentially subsequent defense costs.
Real-world example: An insurer advises a dentist to settle a claim for $50,000. The dentist, having the PR 24 00 endorsement, refuses. The case goes to trial, and the court awards the claimant $120,000. Due to the hammer clause, the insurer might only pay $50,000 (plus defense costs up to the refusal), leaving the dentist to cover the remaining $70,000 and subsequent legal fees.
It's crucial for insureds to understand this potential financial exposure when deciding to refuse a settlement offer.
Key Information for Agents and Underwriters
- Pricing/Premium Impact: The inclusion of this endorsement can potentially increase the risk for the insurer if it leads to prolonged litigation or prevents cost-effective early settlements. This may be reflected in the premium.
- Risk Assessment: Underwriters should assess the insured's understanding of the hammer clause and their potential approach to claims. Professionals with a strong desire to protect their reputation, sometimes irrespective of the pure financial merits of a settlement, often request this endorsement.
- Explaining the "Hammer Clause": Agents must clearly explain the implications of the hammer clause to the insured. Misunderstanding this provision can lead to significant unexpected out-of-pocket expenses for the insured.
- Underwriting Guidelines: Insurers may have specific underwriting guidelines for offering this endorsement, potentially considering the insured's specialty, claims history, and the litigation environment in their practice area. Some insurers might be more restrictive in offering it to certain classes of professionals or in certain jurisdictions.
- Alternative Dispute Resolution: While this endorsement gives the insured veto power over settlements, it doesn't preclude the use of arbitration or mediation to resolve disputes, which might be addressed by other endorsements (e.g., PR 24 01 Non-Binding Arbitration, PR 24 02 Binding Arbitration).