Buyout Settlement Clause
Published: November 12, 2026 · Last reviewed: November 12, 2026 · Est. reading time 5 minutes
What this button does
Get the right coverage answer the first time you search. Add Total CSR as a preferred source, and our expert-written coverage resources will show up higher in your search results.
In plain language: A buyout settlement clause lets a media company say no to a settlement its insurer wants to accept. The insurer then hands the company the agreed amount and steps away, and the company handles the case alone.
Technical definition: A buyout settlement clause is a provision in media liability policies. When the insured refuses a settlement the insurer and claimant agreed on, the insurer tenders that amount to the insured and exits the claim. The insured then controls the case and bears any later defense costs or settlement above that figure.
Buyout Settlement Clause at a Glance
| Attribute | Detail |
|---|---|
| Category | Settlement provision in liability insurance contracts |
| Lines of business | Media liability |
| Industries most affected | Publishers, broadcasters, advertisers, digital media firms |
| Who bears the risk | The insured, for costs above the tendered amount |
| Common solution | Written review of the settlement amount before refusing |
| Also interacts with | Hammer clause, duty to defend, policy limit |
Key Takeaways
- The clause lets a media liability insurer pay an agreed settlement to a policyholder who refuses it and then leave the claim.
- Media clients often refuse settlements to protect a story, so agencies need to explain what refusing costs them.
- Many insureds assume the insurer keeps defending afterward, but the insured pays every later legal cost.
- Agents should record the tendered amount, the refusal, and the client's decision in the claim file.
What Is a Buyout Settlement Clause in Insurance?
A buyout settlement clause settles a dispute between an insurance company and its insured over whether to end a claim. IRMI describes it as a provision found in media liability policies, a specialty corner of the insurance industry. By contrast, the ISO commercial general liability form CG 00 01 lets the insurer settle any claim or suit at its discretion, with no comparable option for the insured. Publishers often resist a lawsuit settlement because paying can look like an admission that a story was false.
The clause protects the insurer from funding a fight it did not choose. For example, a magazine refuses a $150,000 settlement, and the insurer pays that amount. If the case resolves for $90,000, the magazine may keep the $60,000 difference, less its legal costs. A $300,000 court settlement instead leaves the magazine paying the gap plus its legal fees.
How Does a Buyout Settlement Clause Work?
- Settlement negotiations. The insurer and claimant agree on an expected settlement amount during civil litigation.
- Refusal. The insured party declines to consent to that settlement offer.
- The tender. Under the insurance contract, the insurer tenders the agreed amount to the insured as a buyout payment and ends its role.
- Insured control. From then on, the insured handles defending claims, pays for the defense, and carries the risk of a larger settlement or judgment.
Claim Examples Involving a Buyout Settlement Clause
Newspaper refuses to settle a defamation suit.
A local newspaper faced a defamation suit over an investigative story. The insurer and claimant agreed on $200,000, but the publisher stood by its reporting and refused. The insurer paid the newspaper $200,000 and exited. A jury later found for the paper, and after $120,000 in legal expenses, the newspaper kept the remaining settlement proceeds.
Podcast network loses after refusing.
A podcast network refused a $75,000 claim settlement over a guest's remarks about a restaurant owner. The insurer paid the network that amount and exited. A $250,000 verdict followed, so the network paid the excess plus its own legal costs.
Buyout Settlement Clause vs. Hammer Clause: What Is the Difference?
A buyout provision and a hammer clause both apply when an insured refuses a settlement the insurer recommends. The buyout process ends the insurer's involvement with one payment, while a hammer clause keeps coverage in place but limits or shares costs above the rejected amount. The table compares both provisions.
| Comparison area | Buyout Settlement Clause | Hammer Clause |
|---|---|---|
| Primary use case | Media liability policies | Professional and management liability policies |
| Coverage/concept type | Insurer pays out and exits | Consent to settle with a cap on later costs |
| Typical exclusions | All costs after the payout | Costs above the rejected amount, or a share of them |
| Who is most affected by errors? | Media insureds | Professionals and their firms |
| Common mistakes | Expecting a continued defense | Treating any refusal as cost-free |
What Are the Most Common Mistakes With a Buyout Settlement Clause?
- Assuming the defense continues. Business owners and other insured persons who refuse may expect the insurer to keep paying lawyers, then face the settlement timeline and future liabilities alone.
- Confusing it with a hammer clause. Describing the clause as a shared-cost arrangement misstates the client's exposure and creates E&O risk.
- Missing it at placement. Agents who never point out the clause in the insurance policy leave clients unprepared when third-party claimants offer to settle.
- Poor file notes. No record of the client's refusal weakens the agency if the client later disputes the advice.
Sources and References
- IRMI. Buyout settlement clause.
- Insurance Services Office (ISO), hosted by the Independent Insurance Agents & Brokers of America. CG 00 01 07 98 Coverage Form.