Chapter 11 Flashcards
1-1 Describe the three basic forms that an excess liability policy may take.
1) A “following form” subject to the same terms as the underlying policy, 2) A self-contained policy subject to its own terms only, 3) A combination of the first two types.
1-2 Explain why a self-contained excess policy might not cover a liability injury claim even though the underlying policy provides coverage.
A self-contained excess policy applies to a loss that exceeds the underlying limits only if the loss is also covered under the terms of the excess policy. For example, an excess policy may not cover injury within the products-completed operations hazard, even though the underlying policy does. In such a case, the excess policy would not pay for products liability claim, even though the claim was covered by the underlying policy and exceeded the each occurrece limit of the underlying policy.
1-3 What are two functions performed by both umbrella liability policies and ordinary excess liability policies?
1) Provide additional limits above the each occurrence limits of the insured’s primary policies, 2) Take the place of the primary insurance when the primary aggregate limits are reduced or exhausted.
1-4 Describe two types of claims in which drop-down coverage would apply.
1) Claims that are not covered by an underlying policy because the underlying policy’s aggregate limits have been depleted, 2) Claims for which the underlying policies do not provide any coverage, regardless of aggregate limits.
1-5 Describe how an umbrella policy typically broadens coverage from that provided by an underlying policy.
By using exclusions in the umbrella policy that have narrower application than the exclusions in the underlying policies. Another possibility is that the umbrella policy contains an exclusion that does not exist in any of the underlying policies and may provide narrower coverage than the underlying policy for the particular exposure.
1-6 Brownwell has a $1M umbrella with a $10k SIR. It also carries a BAP with a $500k limit. What dollar amount will the umbrella insurer be obligated to pay for the following losses? a) An emloyee caused an accident covered by the auto and umbrella. Injured party was awarded $700k, b) An employee committed a personal injury offense which was not covered by a primary policy. They were held liable for $160k in damages, c) An employee caused an accident covered by both policies. The BAP had canceled and $800k was awarded.
a) Brownell’s umbrella will pay $200k. After the BAP pays the $500k limit, the umbrella pays the amount of the claim exceeding the limit. Since the primary policy applies the SIR does not apply. b) The umbrella will pay $150k. The SIR is deducted since the claim was not covered by an underlying policy. c) The umbrella will pay $300k. Because the business auto policy lapsed and would have covered the first $500k, the SIR does not apply. The umbrella applies as if the underlying insurance were maintained.
ERP
An additional period (also called a “tail”) following the expiration of a claims-made policy, during which the expired policy wil cover claims first made for injury or damage that occurred on or after the policy’s retroactive date (if any) and before policy expiration.
Entity coverage
Coverage extension of D&O liability policies for claims made directly against a corporation (the “entity”) for wrongful acts covered by the policy.
Fiduciary liability insurance.
Insurance that covers the fiduciaries of an employee benefit plan against liability claims alleging breach of their fiduciary duties involving discretionary judgment.
2-1 Distinguish malpractice liabiliy from e&o professional liability.
“Malpractice” is the term commonly used to describe liability associated with occupations that involve contact with the human body, ranging from beauticians to physicians. “Errors and omissions” is the term more likely to be used to describe professional liability for occupations such as accounting, insurance, law, and engineering.
2-2 DIstinguish management liability from professional liability
Management liability is less about individuals in occupations rendering or failing to render professional services and more about the wrongful acts of an organization or of individuals in their roles managing the operations of an organization.
2-3 Explain why most insurers do not want to include professional liability coverage as part of the CGL coverage.
Because professional liability requires different underwriting, rating, and claim handling skills, most insurers do not want to provide it as part of CGL coverage.
2-4 Why are claims-made policies used for professional and management liability?
Liability claims sometimes are not settled until long after the policy has expired.
2-5 Describe the professional liability policy provision known as the “hammer clause.”
Typically, professional liability and management liability policies provide that if the insured does not agree to a postponed settlement, the insured must tae over the defense and pay any further defense expenses as well as the amount of any judgment or settlement that exceeds the amount for which the insurer could have settled the claim. This provision is sometimes informally referred to as the “hammer clause” because it usually compels the insure to agree to the settlement proposed by the insurer.
2-6a Discuss coverage A of a D&O policy.
Covers the D&O of the insured corporation for their personal liability as directors and officers that results from a “wrongful act.” Wrongful act is typically defined to include any breach of duty, neglect, error, misstatement, misleading statement, omission, or other act done or wrongfully attempted by the directors and officers.
2-6b Describe coverage B of a D&O policy.
Often referred to as company reimbursement coverage, it covers the sums that the insured corporation is required or permitted by law to pay the directors and officers as indemnification for suits alleging wrongful acts by directors and officers.
2-6c Describe coverage C of a D&O policy.
For entity coverage, this covers claims made directly against a corporation (the entity) for wrongful acts.
2-7 How does ERISA define fiduciary?
Practically anyone whose role in employee benefits involves discretionary control or judgment in the design, administration, funding, or management of a benefit plan.
2-8 Dee, a physician, is insured under a professional liability policy. She misdiagnosed a patient’s heart condition and subsequently prescribed the wrong medicine. In addition, Dee’s nurse wrote out the prescription incorrectly, doubling the dose of the wrong medicine. The patient lost consciousness at home and was taken to the hospital, where she recovered. If the patient asserts a malpractice claim, which wrongful acts are covered?
Both Dee and her nurse’s wrongful acts are likely covered by the professional liability policy. The misdiagnosis by Dee is a wrongful act that arose from improper performance in the practice of her profession as a medical doctor that resulted in injury. Her nurse’s wrongful act is also covered because Dee is legally responsible for her employees’ acts while working under her supervision when rendering professional medical care.
2-9 Bill, a fifty year-old employee of Ace Company, is fired despite a record of outstanding performance reviews. Bill believes he has been discriminated against because of his age and sues the directors of Ace. Describe the type of insurance policy that Ace would need to provide coverage for that type of lawsuit.
Ace would need an employment practices liability insurance policy to provide coverage for Bill’s employment discrimination suit.
SIte-specific environmental impairment liability (EIL) policy
An insurance policy that covers third-part claims arising from either sudden or gradual releases of pollutants from specified locations.
Underground storage tank (UST) compliance policy
A policy that provides proof of financial responsibility under governmental regulations that apply to the owners and operators of underground storage tanks containing fuels and other hazardous materials.
Remediation stop-loss policy (cost cap policy)
An insurance policy purchased to insure remediation costs that exceed the projected or anticipated costs of performing an environmental cleanup of a specific location that is being sold.
Contractor’s pollution liability policy (CPL)
An insurance policy that covers pollution-related loss exposures of a contractor.
3-1 Describe what the insuring agreement in a typical site-specific environmental impairment liability (EIL) policy obligates the insurer to pay on behalf of the insured.
The insuring agreement in a typical site-specific EIL policy obligates the insurer to pay on behalf of the insured a loss, in excess of any deductible, for bodily injury, property damage, cleanup costs, and defense expenses.
3-2 What two requirements can substantially restrict coverage under a site-specific EIL policy for claims alleging “cancer phobia” or similar fears of future disease or injury?
The first two requirements that can substantially restrict coverage under a site-specific EIL policy for claims alleging fears of future disease or injry is that, for environmental coverage to apply, the bi or pd must result from pollutants emanating from an insured site. The second requirement is that physical injury or actual exposure to pollutants is required in some of the policy forms to trigger coverage for bi claims.
