The Limit of Liability typically includes both legal defence and settlement costs. However, this exclusive feature gives additional limits for defence costs, so the policy limit is still available for settlement costs.
The hammer clause in the policy allows the insurer to propose an amount to settle a claim out of court and avoid court proceedings. The clause stipulates that the insurer can restrict claim payments if the insured does not accept this settlement amount.  When this clause is deleted, the insurer can no longer restrict claim payments.