Section 5: Excess / Umbrella Coverages Flashcards
3 Purposes of Umbrella / Excess Coverage
- Additional Limits
- Responds when underlying aggregate exhausted
- Umbrella can sometimes offer broader coverage than the underlying and provide coverage with a self-insured retention
3 Types of Excess Liability Policies
Follow form excess liability policies
- Mirror the terms and conditions of the underlying coverage form or forms.
Stand alone excess liability Policies
- contain their own insuring agreement and can provide broader / narrower / combination of both coverages
Commercial Umbrella Policy
- Has its own insuring agreement
- Different than stand alone in that it will provide coverage on a primary basis for any claims that are only covered under the umbrellas terms
5 Areas where umbrella is Sometimes Broader
ABCDE (aircraft, boat, coverage territory, definition of BI, Expected or Intended Injury)
Non-Owned Watercraft
Coverage Territory
Expected or inteded injury exclusion
Definition of bodily injury to include mental aguish or mental injury
Non-Owned Aircraft
Self Insured Retention (One type of loss it applies to, inside or outside the limit?)
Only applies to losses where umbrella acts as primary insurance due to it having broader coverage
Usually inside the limit of insurance
Concurrency (What it means and why important)
Means when the excess insurance doesn’t have the same effective dates as the underlying insurance.
Issue because if there were claims on the underlying policy before the umbrella was effective, the umbrella is still going to respond as if the policy has full limits. Insured has to pay the difference.
2 Ways to make policies concurrent
- Cancel and rewrite the policy so that the policies synchronize
- Write a short term policy and remove the nonconcurrency language
Maintenance of / Changes to Underlying Insurance (Narrowing and Broadening of coverage)
When coverage is narrowed or limits reduced, umbrella still responds like they haven’t been reduced. Insured has to pay the gap
If coverage broadened, umbrella still responds like they didn’t broaden it. Issue for someone changing an auto symbol from 7 to 1. HNO claim and the umbrella doesn’t respond after they exhaust their primary limits.
Bankruptcy or Insolvency
If insured goes bankrupt, insurer still responsible to pay any claims
If underlying carrier goes bankrupt, then the insurer still responds as if they haven’t.
Sublimits in Underlying Policies
Usually not intended to give excess coverage over sublimits but can specify them in endorsements
Consistency in Language
Umbrella and excess should have the same wording or wording that is broader always
Dual vs Singular Insuring Agreements
Dual Insuring Agreements sometimes used to provide different coverage to the different underlying policies. Have their own conditions and exclusions
Singular insuring agreements have one insuring agreement that applies to all the underlying coverages.
Pay on Behalf vs. Indemnify (strict vs indemnity based)
Pay on Behalf
- Insurer investigates the claim and provides defense for the insured if needed. Negotiate settlements and pays claimants and judgements directly
Indemnify
- Insured investigates and handles their own defense. Once claim finalized then the insurer reimburses the insured
- Strict indemnity, the insurer reimburses once the claim is paid (insurer pays after judgement)
- Indemnity based on legal obligation to pay, insurer pays claim once the insured’s legal obligation to pay has been established (insured pays everything up until the judgement)
Vertical vs Horizontal Exhaustion of Limits
Vertical: subcontractor has to go through their primary and excess limits before the additional insureds insurance’s primary GL coverage kicks in.
Horizontal: After the subcontractor’s primary limits are exhausted, the additional insureds primary limits kick in. Then the subs excess insurance kicks in before the AI’s
Exclusions (10)
WE CLAP DUPE
Watercraft
Employment-Related Practices
Contractual Liability
Liquor Liability
Aircraft
Professional liability
Damage to your work
Uninsured / Underinsured Motorists
Pollution
Electronic Data Liability
