Insurance Curator Boards and senior executives in the United States must understand how consent to settle clauses operate within Directors & Officers (D&O) liability policies. These clauses determine whether an insurer can settle a claim against insured directors or officers without the insureds’ permission — and they can materially affect exposure, governance decisions, and the company’s insurance cost. This article explains the clause types, practical board-level implications, market practices (including pricing examples), and negotiation strategies tailored to U.S. jurisdictions such as New York, California (San Francisco), and Texas (Houston).
What is a Consent to Settle Clause?
A consent to settle clause is a policy provision that gives the insurer the right (or obligation) to settle a claim — often with the insured’s consent required — and specifies consequences if settlement occurs without consent.
Common formulations include:
- Consent Required: The insurer may not settle a claim without the insured’s written consent.
- No Consent Required (Hammer / Presumptive Settlement): Insurer can settle; if insured refuses, insurer may reduce coverage for amounts above the settlement ("hammer" or "consent-to-settle/hard" clause).
- Best Interests / Good Faith Standard: The insurer can settle without consent if such settlement is in the “best interests” of the insureds as a whole.
Why boards care:
- Preserves directors’ ability to avoid an admission of wrongdoing.
- Protects indemnity rights and personal assets, especially for Side A exposures.
- Affects litigation strategy and settlement leverage.
Types of Consent Clauses — Practical Comparison
| Clause Type | What it Allows | Board Risk / Benefit | Typical Impact on Premium |
|---|---|---|---|
| Consent Required | Insurer must obtain insured’s consent to settle | Highest control for board; preserves reputational and indemnity interests | Often higher premium or restricted insurer appetite |
| No Consent Required (Hammer) | Insurer may settle; insured refusing may lose coverage above settlement | Board could be forced into settlement outcomes or lose coverage for continued defense | Typically lower premium, but significant risk to insureds |
| Best Interests/Good Faith | Insurer can settle if determined to be in insureds’ best interest | Middle ground; dispute can arise over what constitutes “best interests” | Middle-ground pricing; disputes may lead to litigation over clause interpretation |
How Consent Clauses Interact with Side A, B & C Coverage
Consent issues most often arise in Side A claims (individual director/officer personal liability) because indemnification by the company may be unavailable (bankruptcy, corporate insolvency, or corporate refusal). When the insurer can settle without consent, an individual director risks a settlement that impairs personal defenses or admissions that compromise reputation or future insurability.
For a deeper legal structure review, read: Side A, B & C Explained: The Three Pillars of a Directors and Officers (D&O) Liability Insurance Policy.
Litigation Climate Matters: Why State Location Changes How You Negotiate
Litigation climates and state law in New York, California, and Texas materially affect how consent clauses play out:
- New York: Courts often favor broad policy enforcement; settlements in securities litigation frequently occur here for NY-listed companies.
- California (San Francisco tech companies): Litigation often centers on employment and fiduciary duty; reputational harm is a major board concern.
- Texas (Houston energy companies): Regulatory and environmental exposures may drive settlements; indemnity and bankruptcy scenarios common in energy sector restructurings.
Boards should assess the company’s operating footprint and most likely forum before accepting broad insurer settlement rights.
Market Practices and Real-World Pricing Examples (U.S.)
D&O pricing varies widely by industry, company size, revenue, public vs. private status, and policy terms (including consent clauses). Sample market data and vendor pricing examples for U.S. buyers:
-
Hiscox — small business D&O: Hiscox advertises D&O products for small firms with annual premiums from roughly $300–$1,200 for low-risk small-business profiles (limits and terms vary). Source: Hiscox D&O product pages.
(https://www.hiscox.com/small-business-insurance/directors-officers-liability-insurance) -
Chubb — commercial D&O: Chubb notes tailored D&O programs for middle-market and large companies; while Chubb does not publish blanket pricing, their underwriting is sensitive to consent-to-settle wording, often leading to higher rates for strict insured-consent guarantees. Source: Chubb D&O overview.
(https://www.chubb.com/us-en/business-insurance/directors-and-officers-insurance.html) -
Market updates — brokers such as Marsh and Aon report that recent market cycles (2020–2024) have increased rates and tightened wordings, with insurers more frequently requiring stronger settlement controls or offering Side A-only products to address consent concerns. See general market commentary from major brokers.
(https://www.marsh.com) | (https://www.aon.com)
Illustrative premium guidance (U.S., approximate ranges):
- Small private company (Revenue < $10M): $1,000 – $15,000/year depending on limits and industry.
- Mid-size private (Revenue $10M–$100M): $15,000 – $150,000/year.
- Public companies (varies by revenue and risk): $100,000 to several millions annually.
Always obtain broker quotes; actual pricing will shift with market cycles and clause negotiability.
Negotiation Points Boards Should Insist On
When negotiating consent clauses, boards should consider the following:
- Side A Carve-Out or Side A Non-Rescindable Wording: Ensure individual coverage cannot be rescinded or compromised by corporate actions.
- No Hammer / No Deductible Shifts for Refusal: Avoid clauses that permit insurers to reduce coverage if the insured rejects settlement.
- Consent Language Precision: Require written consent exceptions limited to material breaches (avoid broad “best interests” standards).
- Advancement and Cooperation Alignment: Make sure advancement obligations are not undermined by consent provisions. See: Understanding Severability, Advancement and Cooperation Provisions in Directors and Officers (D&O) Liability Insurance.
- Side A-Only Options: If the insurer insists on settlement control, negotiate a Side A-only policy for personal exposures — often more expensive but preserves personal decision-making.
- Endorsements to Preserve Consent: Use a targeted endorsement that states the insurer will not settle a claim alleging wrongful acts by an individual insured without that insured’s written consent, except in specified limited scenarios. See: Endorsement Mechanics: How Amendments Alter the Core Directors and Officers (D&O) Liability Insurance Document.
Practical Checklist for Boards (U.S. Focus — NY/CA/TX)
- Review the consent to settle clause in every D&O renewal or new placement.
- Ask: “Can the insurer settle a claim against an individual director without that director’s consent?”
- If yes, request a written carve-out for Side A claims or a Side A-only policy quote.
- Evaluate premium delta for stricter consent language — balance cost vs. existential risk to directors.
- Document board discussion and risk acceptance if agreeing to insurer settlement rights.
For additional policy-structure guidance, review: Breaking Down a Directors and Officers (D&O) Liability Insurance Policy: Insuring Agreements Explained.
Final Takeaways
- Consent to settle clauses materially affect director exposure, especially when corporate indemnity is unavailable.
- Boards in New York, California, and Texas should prioritize clause precision and consider Side A protection where necessary.
- Market options range from strict consent requirements (often costlier) to insurer-friendly hammer clauses (lower cost but higher board risk). Obtain multiple broker quotes and compare the premium delta — small additional premiums can often buy critical personal protection.
- Work with counsel and an experienced broker to draft endorsements that preserve directors’ control over settlements involving personal liability.
External resources and market references:
- Hiscox — Directors & Officers Insurance (U.S.): https://www.hiscox.com/small-business-insurance/directors-officers-liability-insurance
- Chubb — Directors and Officers Insurance: https://www.chubb.com/us-en/business-insurance/directors-and-officers-insurance.html
- Marsh (market commentary and D&O insurance practice): https://www.marsh.com
Related guidance:
- Side A, B & C Explained: The Three Pillars of a Directors and Officers (D&O) Liability Insurance Policy
- Understanding Severability, Advancement and Cooperation Provisions in Directors and Officers (D&O) Liability Insurance
- Endorsement Mechanics: How Amendments Alter the Core Directors and Officers (D&O) Liability Insurance Document