This second and concluding part of the discussion on self-insured retentions first itemizes the points that should be considered when either drafting or accepting SIRs. The discussion then addresses some additional problem areas not only with self-insured retentions having to do with primary liability policies, but also with the SIR feature of umbrella policies. It is not unusual, furthermore, for litigants, among others, to confuse deductibles with self-insured retentions, and there are differences, as one case discussed points out. In light of the fact that self-insured retentions also are growing, it also is important that parties to a contract are informed of their existence. To not do so, could end up with the accusation of failure to procure the proper insurance and, of course, such a breach is not covered by liability policies. It is for this reason that perhaps insurance certificates should be amended to insert room to notify (and warn) certificate holders of an SIR existence.
e Insurance Coverage Law Information Center The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center. SELF-INSURED RETENTIONS, PART TWO This article presents an examination of the use and problems with SIRs. May 6, 2013 SELF-INSURED RETENTIONS, PART TWO AN EXAMINATION OF THE USE AND PROBLEMS Summary: This second and concluding part of the discussion on self-insured retentions first itemizes the points that should be considered when either drafting or accepting SIRs. The discussion then addresses some additional problem areas not only with self-insured retentions having to do with primary liability policies, but also with the SIR feature of umbrella policies. It is not unusual, furthermore, for litigants, among others, to confuse deductibles with self-insured retentions, and there are differences, as one case discussed points out. In light of the fact that self-insured retentions also are growing, it also is important that parties to a contract are informed of their existence. To not do so, could end up with the accusation of failure to procure the proper insurance and, of course, such a breach is not covered by liability policies. It is for this reason that perhaps insurance certificates should be amended to insert room to notify (and warn) certificate holders of an SIR existence. Topics covered: • Points to consider • A catch-22 situation • Comparing deductibles with self-insured retentions • Insuring a self-insured retention • Insurer’s right to settle • Self-insured’s right to settle • Is the SIR limited to occurrences or also offenses? • Umbrella policy attachment point • Excess over what? • The issue with insurance certificates • Drafting pitfalls Points to Consider Before drafting the wording of an SIR endorsement or approving its use, various issues must be addressed and the intent behind the endorsement should be incorporated into, or reflected by, the wording used. Among the many important points to consider are the following: • Who has the right or obligation to designate the claims servicing organization? • Is the entity using the SIR endorsement (to be referred to as the self-insured) entitled to select legal counsel to protect its interests? • Is the self-insured or the insurer responsible for providing defense of suits within the SIR? Call 1-800-543-0874 | Email [email protected]| www.fcandslegal.com
Transcript
The Insurance Coverage Law Information Center
The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center.
SELF-INSURED RETENTIONS, PART TWOThis article presents an examination of the use and problems with SIRs.
May 6, 2013
SELF-INSURED RETENTIONS, PART TWO
AN EXAMINATION OF THE USE AND PROBLEMS
Summary:
This second and concluding part of the discussion on self-insured retentions first itemizes the points that should be considered when either drafting or accepting SIRs. The discussion then addresses some additional problem areas not only with self-insured retentions having to do with primary liability policies, but also with the SIR feature of umbrella policies. It is not unusual, furthermore, for litigants, among others, to confuse deductibles with self-insured retentions, and there are differences, as one case discussed points out. In light of the fact that self-insured retentions also are growing, it also is important that parties to a contract are informed of their existence. To not do so, could end up with the accusation of failure to procure the proper insurance and, of course, such a breach is not covered by liability policies. It is for this reason that perhaps insurance certificates should be amended to insert room to notify (and warn) certificate holders of an SIR existence.
Topics covered:
•Pointstoconsider
•Acatch-22situation
•Comparingdeductibleswithself-insuredretentions
•Insuringaself-insuredretention
•Insurer’srighttosettle
•Self-insured’srighttosettle
•IstheSIRlimitedtooccurrencesoralsooffenses?
•Umbrellapolicyattachmentpoint
•Excessoverwhat?
•Theissuewithinsurancecertificates
•Draftingpitfalls
Points to Consider
Before drafting the wording of an SIR endorsement or approving its use, various issues must be addressed and the intent behindtheendorsementshouldbeincorporatedinto,orreflectedby,thewordingused.Amongthemanyimportantpoints to consider are the following:
•IftheSIRendorsementdescribesthescopeofdefensecoveragetobeprovidedwithintheSIR,isthedefense provision of the policy to which the SIR endorsement is attached automatically deleted, or is it modified to reflect thescopeofdefensecoverageprovidedbytheendorsement?
Anyonewithaninterestinself-insuredretention(SIR)issuesmayfinditamusingtonotetheargumentsoverwhohastheobligationtoassumeanSIRwhenboththecontractandtheinsurancepolicyaresilentonthatpoint.Admittedly,itcan be a costly proposition for the insured to have to assume the SIR before the insurer has an obligation to defend or pay damages.WhentheobligationtoassumetheSIRissilent,typicallyitistheinsuredswhowanttoavoiditsapplication,however possible. In insurance custom and practice, however, unless the obligation to assume an SIR is explicit, it falls upon the named insured or, in other words, the one who purchases the policy that includes the SIR.
It may not always be the case, but it could be advantageous when an additional insured also has the obligation to assumetheSIR.Forexample,ifmultipleinsuredsarerequiredtoassumetheSIR,itmaytakelongertoexhaustpolicy limitswhichwouldbenefitthenamedinsured,andpossiblytheinsurer.(This,ofcourse,hingesonwhatisatstakein terms of defense costs and damages.) The issue can be especially frustrating to an additional insured under certain circumstances.Anexampleiswhenaninsureracknowledgesadditionalinsuredstatusandcoverage,andtheadditionalinsured incurred defense costs sufficient to satisfy the SIR, but the coverage can only be triggered after the assumption of the SIR solely by the named insured, who is not a named defendant.
AcaseonpointisForecast Homes, Inc. v. Steadfast Insurance Company,105Cal.Rptr.3d200(2010)whichinvolved anappealbythedeveloperfromajudgmentinfavoroftheinsurer.Thedevelopercontractuallyrequiredallofits subcontractorstodefendandholditharmlessagainstanyliabilityarisingoutofthesubcontractors’work.The subcontractorsalsowererequiredtoaddthedevelopertotheirliabilitypoliciesasanadditionalinsured.Severalof the subcontractors obtained their policies from Steadfast (hereinafter, the insurer) which refused to indemnify the developer when a lawsuit was filed by several homeowners against the developer for construction defects.
The insurer maintained that only the named insured (subcontractors) and not the developer could satisfy the SIR and trigger coverage, and because the lawsuits did not name the subcontractors, they did not have to assume the SIR, which was a precondition for coverage. The trial court agreed with the insurer, holding that the liability policies were unambiguous, not against public policy, and not illusory.
Itwasnotedinthiscasethatthedeveloper’scontractwitheachsubcontractorspecifiedingreatdetailtherequired insurancepolicylanguageandcoveragespecifications.Itscontract,however,didnotrequireanyspecificlanguage regarding the policies’ SIR provisions. The sole issue on appeal was over who was permitted to activate coverage by assuming the specified SIR per occurrence amount.
Two versions of SIR endorsements with varying amounts were involved in this case. The one chosen by the court to discusswasfor$2,500peroccurrencewithnoaggregate,meaningthatforpurposesofthisSIR,therewasnostoploss,eachoccurrencerequiredanassumptionof$2,500.
The self-insured retention amounts stated in the Schedule of this endorsement apply as follows: 1. If the [p]er [o]ccurrence self-insured retention amount is shown in the Schedule of this endorsement, it is a condition precedent to our liability thatyoumakeactualpaymentofalldamagesanddefensecostsforeachoccurrenceoroffense,untilyouhavepaid self-insuredretentionamountsanddefensecostsequaltothe[p]er[o]ccurrenceamountshownintheSchedule,subjecttotheprovisionsof...,ifapplicable.Paymentsbyothersincludingbutnotlimitedtoadditionalinsuredsorinsurers,do not serve to satisfy the self-insured retention. Satisfaction of the self-insured retention as a condition precedent to our liabilityappliesregardlessofinsolvencyorbankruptcybyyou.The[p]er[o]ccurrenceamountisthemostyouwillpayforself-insured retention amounts and defense costs arising out of any one occurrence or offense, regardless of the number ofpersonsororganizationsmakingclaimsorbringingsuitsbecauseoftheoccurrenceortheoffense.
Both SIR endorsements permitted damages and defense costs to be used separately or in tandem to satisfy the per occurrenceamountshownintheSchedule.TheexamplegivenwasthatiftheSIRwere$2,500,thepaymentofany combinationofdamagesordefensecoststhataddedupto$2,500wouldhavetriggeredtheinsurer’sdutytodefend both the named insured, subcontractor, and the developer, additional insured. The problem was that the only named defendant was the developer and with the SIR to be assumed solely by the named insured, subcontractor, the policy could not be triggered.
AlthoughtheSIRendorsementsappearedtobeclearwithreferencesto“you”and“your”(meaningthenamedinsured)alongwiththespecificstatementinoneoftheSIRendorsementsthat“[p]aymentsbyothers,includingbutnotlimitedtoadditionalinsuredsorinsurers,donotservetosatisfytheself-insuredretention”,thedeveloperpersistedwithitsarguments. Its arguments involved the usual ones, such as the introduction of other court decisions. The developer also contended that the SIR endorsements were ambiguous and that the insurer’s position violated public policy and rendered coverageillusorybyprecludingtheadditionalinsuredfromhavingachancetoinvoketheinsurancecoverageitexpected.
In affirming the trial court’s decision for the insurer, the appeals court held that the court cases relied on by the developer did not support its arguments, and that the SIR endorsements were not ambiguous. It also held that the policy’s coverage was not illusory. In so holding, the court also stated that the developer was still protected by its hold harmless agreements withitssubcontractors,whichrequiredthesubcontractorstoprovideadefenseandpaydamages,regardlessofinsurancecoverage.
Itisworthnotingthatcasesliketheoneabovecouldresultinonepartytothecontractbeingforcedtoassumethe liability of other parties from whom coverage cannot be obtained. In the Forecast Homes case, for example, the subcontractors were not named in the suit, meaning that it was the developer who had to assume the subcontractors’ liability.
Comparing Deductibles With Self-Insured Retentions
It is getting so that as litigation continues with respect to deductibles and self-insured retentions, both are referred to as though they are one in the same; but, when it comes to their mechanics, the realization sometimes appears to be thatthereisadifferencebetweenthem.Alotisgoingtodowiththefactpattern,includinghowthedeductibleor self-insuredretentionappliesalongwiththeotherpolicyprovisions.AcaseonthissubjectisSouthern Healthcare
Services, Inc. v. Lloyd’s of London, A/K/A Underwriters at Lloyd’s of London and Certain Underwriters at Lloyd’s, London, 2013WL628661.ThepartiesconsistedofDalesonEnterprises,LLC(Daleson),whichoperatedJonesCountyRestHome;MedforceManagement,LLC(Medforce),whichoperatedWillowCreekRetirementCenter;andSouthernHealthcare Services,Inc.(SouthernHealthcare)managedbothDalesonandMedforce(referredtocollectivelyasthenamedinsureds).
In2001,apreviousoperatorofJonesCountyRestHomehadpurchasedanpolicyfromLloyd’switha$25,000 deductible.Whenthecurrentnewowners(namedinsureds)assumedoperationin2002,theyaskedtheirinsurance agent to obtain a policy similar to the one it had obtained from the prior owner. The agent obtained such a policy from Lloyd’sthatthenamedinsuredthoughtwasnearlyidenticaltothepolicyissuedtothepreviousowner,exceptforthelowerlimitandhigherpremium.Whathadalsochanged,butwentunnoticedandpurportedlynotmentionedbytheagent,wasthe$250,000perclaimdeductible.
The problem began when five lawsuits were filed against the named insureds. It was with the issuance of the reservation of rights letters that the named insureds learned about the deductible and its application. This is where the reservation ofrightsletterinformedthenamedinsuredsthatthe$250,000deductibleappliedforeachandeveryclaimconsistingofindemnityand/orclaimexpenses.Thenamedinsuredsclaimedtheywere“thunderstruck”regardingthedeductible’s application.
LaterthenamedinsuredsfiledsuitagainstLloyd’s,itsthirdpartyadministratorandinsuranceagentforfailuretoprovidecoverage and pay defense costs based on various allegations. The complaint of the named insureds against their insuranceagentwasfailuretoinformthemofthe$250,000deductible.Thetrialcourt,however,ruledinfavorofLloyd’s.ThisrulingrequiredthenamedinsuredstoreimburseLloyd’sintheamountof$701,153.54forthecostsofdefenseandsettlement.
A.TheFirstNamedInsuredshallberesponsibleforthedeductibleamountshownintheDeclarations,WHICH DEDUCTIBLEAMOUNTSHALLBEINADDITIONTOANDSHALLNOTERODETHEAPPLICABLELIMITSOF INSURANCESHOWNINTHEDECLARATIONS.Expensesweincurininvestigatinganddefendingclaimsand suits are included in the deductible. The deductible applies to each medical incident.
B. The deductible aggregate is the total amount of damages arising out of the deductibles for all occurrences during the policy period.
C.Wemaypayallorpartofthedeductibletosettleaclaimorsuit.ThefirstNamedInsuredagreestorepayuspromptly after we notify the First Named Insured of the Settlement.
TheDeductibleLiabilityInsuranceEndorsementincludedascheduleoftheapplicabledeductibles,showinga$250,000per-claim deductible for medical incidents. It included the following provision:
FromthestateSupremeCourt’sperspectiveofthepreceding,itfoundthatthenamedinsuredsweresubjecttothe deductibleandLloyd’sdutytoprovidecoverageonlyappliedafterthedeductiblewasmet.Accordingtothe Declarations,saidthecourt,thedeductibleincludeddefensecosts,withLloyd’sobligationtoprovidedefensenot triggered until the deductible had been met.
The named insureds claimed that when they obtained the first policy, their agent failed to tell them about the deductible. They also claimed they did not receive a copy of the policy until eleven months after purchasing it. They did,however,receivethatcopybeforerenewingitand,therefore,hadtheopportunitytoreadit.Accordingthecourt,there were numerous references to the deductible in the policy with several pages referencing the deductible signed by the named insureds. The insureds may have signed the policy and endorsements without reading them, the court explained,butfailuretoreadthepolicyisnotavalidreasonfornotknowingthecontents.
Wherethiscasewassomewhatmisleadingiswhenthecourtstartedexplaininghowthedeductibleapplied.Forexample,thecourtstated:Aswithanydeductible,theinsuredisrequiredtoexpendtheamountofthedeductiblebeforecoveragebecomes available. In actuality, a deductible usually is applied against the amount otherwise payable. The fact that the deductible, in this case, included defense costs may have led the court to say this was the usual application. In actuality it is not. In fact, the court referred to the case of Hocker v. New Hampshire Insurance Company,922F.2d1476(10thCir.1991),asauthorityforthestatementthat“aretainedlimitis,ineffect,adeductible”.
Addingtothemixwasthecourt’scitingofBoston Gas Company v. Century Indemnity Company,910N.E.2d290(Mass.2009),whichstatedthat“[A]lthoughdeductiblesandself-insuredretentions(SIR)generallyservethesamepurpose—toshiftaportionoftheriskfromtheinsurertotheinsured—theyaredifferentcreatures.AnSIRisjustwhatitsnameimplies,aformofself-insurance.WithanSIR,theinsuredisusuallyresponsibleforitsowndefenseuntiltheSIRisexhausted”.Thecourtalsostated:“WhereapolicyissubjecttoanSIR,theinsurerismorelikeanexcessinsurer,andtheinsurer’sdutytodefendandindemnifyisnottriggereduntiltheSIRisexhausted.Withadeductible,ontheotherhand,theinsurerusuallyhasadutytodefenduponreceiptofnoticeoftheclaim”.
In this case, however, the policy stated that the defense costs were included within the deductible, said the court. This iswhy,thecourtadded,thedeductiblehereoperatedmorelikeanSIR.
1. all expenses incurred by us, all costs taxed against you in any suit defended by us . . .;
D.reasonableexpensesincurredbyyouatourrequestinassistingusintheinvestigationordefenseofanyclaimorsuit, including actual loss of earnings;
E.alldefensecosts,whichshallmeanallcostsofinvestigation,adjustmentanddefenseofclaims,includingcourtcosts,interestonjudgments,premiumsonbondsandlegalfeesarisingdirectlyfromclaimscoveredbythis policy . . . provided such claims expenses are incurred by or with our prior written permission.
ItwasstatedthatperhapsthedissentingjudgesandnamedinsuredsmayhavemisunderstoodthereservationofrightslettersandthoughtLloyd’srequiredprepaymentoftheentiredeductibleamountbeforeLloyd’swoulddoanythingregardingtheclaims.Ifsuchwerethecase,itwassaid,thedissentwouldhavebeenright.However,thenamedinsuredswerenotrequiredtopaytheentiredeductibleamountupfront.Thatwasnotrequiredunderthepolicy,thecourt explained,andwasnotrequiredbyLloyd’s.However,thecourtwentontoexplain,thenamedinsuredswererequiredtopay costs and expenses on an ongoing basis, up to the point the deductible was exhausted. The policy clearly says, the courtadded,thatthesupplementarypaymentslistedabove,includingdefensecostsare“[s]ubjecttotheDeductible LiabilityInsuranceEndorsement”whichprovideda$250,000per-claimdeductible.Thecourtalsostatedthatfull paymentofthedeductiblewasnotaconditiontoLloyd’sprovidingadefense,becauseLloyd’swasinvolvedinthe defense and it had the right to pay defense costs and settle the claim, even if the deductible was not paid. It was clear fromthetermsabove,thecourtadded,thatLloyd’sintendedtoparticipateinthedefense,subjecttotheattorneys’feesbeing the named insureds’ obligations up to the deductible amount.
RegardingtheDeductibleLiabilityInsuranceEndorsement,thecourtstatedthatthedissentimpliedthatdefensecostswere not included in the deductible because the endorsement did not define defense expenses as damages. The policy, however, was said to have repeatedly stated that defense costs were included within the deductible and that the amount Lloyd’swouldpayfordefensecostswassubjecttothedeductible.Lloyd’sthereforewassaidbythecourttohaveadutytobeinvolvedinthedefenseuponnoticeoftheclaim,butitwasnotrequiredtopaydefensecostsuntilthedeductiblehad been exhausted.
Inconclusion,thecourtstatedthatLloyd’sdidnotbreachanycontractualorfiduciarydutiestothenamedinsureds.Lloyd’sdidnotdenycoverage,asthenamedinsuredshadalleged.Instead,Lloyd’sexerciseditsrighttoprovidea defense,whilereservingitsrighttodenycoverageforclaimsthatmightnothavebeencoveredbythepolicy.Lloyd’s also exercised its right under the policy to advance part of the deductible amount to settle the claims.
Insuring A Self-Insured Retention
Someinsurersseektopreventaninsuredfrombuyinginsurance,orhavinginsuranceasanadditionalinsured,fortheamountoftheSIR,inordertomotivatetheinsuredtoimplementlosscontrolmeasures(sincewithoutsomekindof conscious effort on behalf of the insured to prevent or reduce loss, the insurer’s policy limits are potentially more at peril).
So,cananinsured’sSIRobligationbesatisfiedbybeingnamedasanadditionalinsuredonthepolicyofanother?Inotherwords, can sums paid on behalf of the additional insured be applied toward satisfying the additional insured’s SIR under itsownpolicy,shouldtheclaimimpactthatinsured’sowninsuranceportfolio?Thatisaquestionthatmaybeansweredintheaffirmative,unlessinsurerstakespecificstepstopreventaninsuredfromdoingso.
AcaseonpointisThe Vons Company, Inc. v. United States Fire Insurance Company,78Cal.App.4th52(2000).ThiscaseinvolvedbodilyinjuriessustainedbyanindividualwhowasstruckbyapalletjackbeingoperatedbyanemployeeoftheVonsCompany.TheaccidentoccurredinthecommonareaofashoppingmallownedbyLongsDrugStores.Aspartoftheleaseagreement,LongshadagreedtoindemnifyVonsforinjuriessustainedinthecommonarea.VonswasalsonamedasanadditionalinsuredtotheLongs’ComprehensiveGeneralLiabilitypolicy.Inaddition,VonsmaintaineditsownCGLpolicyissuedbyUnitedStatesFireInsuranceCompany.TheVons’policyprovidedlimitsof$1millionbutincludedaself-insured retention (SIR) endorsement, limiting the insurer’s obligation to sums in excess of a $1 million SIR.
Followingtheincident,theinjuredpartysuedVons,who,inturn,cross-complainedagainstLongsbasedontheindemnityagreement,allegingthatLongswaspartlyatfault.Followingasettlement,theinsurerofLongspaid$1millionand Vons paid an additional five hundred and forty thousand dollars. The settlement agreement made no allocation of the settlementfunds,nordiditaddressVons’cross-complaintagainstLongs.Beforethesettlementwasreached,adisputearose between Vons and its insurer as to whether the $1 million SIR could be satisfied by sums paid on behalf of Vons as an additional insured under another policy.
Vons’insurertookthepositionthattheSIRendorsementattachedtoVons’policyrequiredVonstopay$1millionofitsown money. The SIR endorsement stated that the insurer’s duties were limited to payment of that portion of the ultimate net loss resulting from any one occurrence or offense which is in excess of the self-insured retention of $1 million. This endorsementalsoprovidedthatitwas“subjecttothelimitsofliability,exclusions,conditionsandothertermsofthepolicytowhichthisagreementisattached...andthatallothertermsandconditionsofthispolicyremainunchanged”.Itwasthewording“subjectto”thattheappellatecourtinthiscasefoundmostrelevantinitsresolutionofthecoveragedispute in favor of Vons.
TheinsurerofVonsfiledadeclaratoryreliefaction,followingwhichatrialcourtfoundthattheinsurerwasrequiredtoreimburse Vons for $559,905 that it had paid. In doing so, the trial court found, among other things that: (1) the policy ofVonsprovidedprimarycoverageandwasnotintendedtobeexcessoverotherinsurance;(2)thepolicyofVonsdidnotlimitthesourceofthe$1millionSIRinanywayorrequireVonstopayitfromitsownpocket;and(3)hadthepartiesintended that the SIR could be satisfied only when Vons, and not some other source paid the SIR, the policy would have said so.
TheinsurerofVonsobjectedtothisdecisiononanumberofgroundsandanappealfollowed.Inaddressingtheissuesinvolved,theappellatecourtlookedtothecaseofGen Star National Insurance Corporation v. World Oil Company,973F.Supp.943(1997).Inthatcase,GenStarhadissuedapolicytoWorldOilthatincludedaperaccidentdeductibleof$100,000withayearlyaggregatedeductibleof$150,000foracombinedamountof$250,000.WorldOilpurchasedapolicyfromHartfordInsuranceCompanyprovidingcoverageforthe$250,000deductiblecalledforintheGenStarpolicy.FollowinganincidentobligatingWorldOiltopaydamages,GenStarpaid$525,000andHartfordpaid$250,000.GenStarthensuedWorldOiltorecover$133,688,thedifferencebetweenwhatithadactuallypaidandwhatitwouldhavepaidifWorldOilhadpaidthedeductible.
GenStarallegedthat:(1)permittinganinsuredtobuycoverageforitsdeductibleviolatedGenStar’srisksharing philosophywhichmotivatedinsuredstoactmoresafely;(2)thepolicystatedthatWorldOilwasobligatedtoassume andpaya$100,000deductibleandtoreimburseGenStarforanypartofthedeductiblethatGenStarpaid;(3)ithad requiredWorldOiltopostabondtocoveranyunpaiddeductibles;and(4)aclauseprovidingthatGenStarneedonlyshare proportionately in covering claims covered by other primary policies also precluded the use of other coverage to pay the deductible.
IngrantingsummaryjudgmentforWorldOil,thecourtnotedthat:therewasnoevidencethatGenStarevershareditsrisk-sharingphilosophywithWorldOil;GenStardidnottellWorldOilitcouldnotinsurethedeductible;WorldOilactedas though it believed it could insure the deductible; and the letter of credit referenced by Gen Star was purchased before WorldOilobtainedtheHartfordpolicy.
ThecourtinthiscasethenheldthateventhoughtheGenStarpolicywasdenominatedasprimarycoveragesubjecttoadeductible,itwasinfacttransmutedintoexcesscoveragesubjecttoanSIR.Thiswasso,thecourtheld,becauseGenStar’sdutiestodefendandindemnifydidnotcomeintoplayunlessanduntilWorldOil’sultimatenetlosspaymentonaclaim exceeded the deductible. The court also held that because the policy did not expressly prevent the insured from insuring the deductible, the policy was ambiguous on that point and had to be resolved against the insurer.
The court in the Vons case noted that the World Oil court had reached two important conclusions for purposes of deciding the Vons case. First, that the labels used to define policy terms are not controlling; what the insurer had dubbed to be a deductible was found to be an SIR. Second, if policy terms permitted the use of insurance to cover a deductible, or were ambiguous on that point, the insured could exhaust the SIR in that manner. The court specifically noted the wordingoftheLongspolicywhichexpresslyaddressedtheissue,stating:“Intheeventthereisanyotherinsurance,whetherornotcollectible,applicabletoanoccurrence,claimorsuitwithintheRetentionAmount,youwillcontinueto beresponsibleforthefullretentionamountbeforetheLimitsofInsuranceunderthispolicyapply”.
The SIR endorsement in the Vons policy, on the other hand, did not preclude Vons from insuring the deductible and expresslystateditwas“subjectto”allofthepolicy’stermsandconditions,whichremainunchanged.
AmongtheconditionsoftheVons’policywasonelabeled“OtherInsurance”.Itstated,inrelevantpart:“Ifothervalidandcollectibleinsuranceisavailabletotheinsuredforalosswecover...ourobligationsarelimitedasfollows:(b)ExcessInsurance – This insurance is excess over any valid and collectible other insurance, whether primary, excess, contingent or onanyotherbasis:(1)ThatisFire,ExtendedCoverage,Buildersrisk,Installationriskorsimilarcoverageforyourwork.”.
ThecourtnotedthattheneteffectofanSIRistomakethepolicyexcesstoanyprimarycoverage,withtheexcess insurer’s obligations triggered only if and when the primary coverage is exhausted. U.S. Fire, however, contended that Vons’ obligation to pay the SIR was, in fact, primary coverage. The problem the court had was in interpreting the combinedwordingofthepolicyandtheSIRendorsement,particularlyinlightofthepositiontakenbyU.S.Fire.The courtstatedthatitwasbeingrequiredtodeterminewhytheSIR—whichstandingalonewouldordinarilymaketheVons’policyexcess—wasmadesubjecttopolicyprovisionsthatalsostatedthattheinsurancewasexcessintheeventthatotherinsurance was available.
Thecourtfoundthatthepolicywordingwasambiguous.Indoingso,itheldthatif,asU.S.FireIns.Companyhad contended, the SIR provided excess coverage which precluded payment of the SIR by other insurance, U.S. Fire must explainwhythoseprovisionswereexpresslymade“subjectto”policytermswhichalsoprovidedthatthisinsurer’s coverage was excess if any other valid insurance was available for the same occurrence. Because U.S. Fire did not offer any explanation and the wording was thus unclear, the court held that the insurer had waived the issue of insuring the SIR. Asreferencedearlier,thecourtplacedgreatemphasisonthefactthattheSIRendorsementofU.S.Firewasmade “subjectto”otherpolicyterms.
Insurersseekingtoavoidthetypeofconclusionsintheabovecasesshouldbecarefultoensurethattheirpolicyisclearonthispoint.SIRendorsementsshouldclearlystatetheirintenttorequirethattheinsuredpaytheSIRfromitsownpocket.Manypoliciesstatesospecifically,utilizingwordinglikethatfoundinthepolicyofLongsDrugs,mentionedinreference to the Vons case.
Someinsurerstakeadifferentapproach,statingthattheinsuredisfreetoinsuretheSIRifitsochooses.Whatisclear,basedoncustomandpracticeinvolvingtheexpectationofinsuredsandcaseslikethosediscussed,isthatafailureto address the issue is tantamount to an authorization to satisfy the SIR, with or without insurance, as the insured sees fit.
Insurer’s Right to Settle
Whethertheinsurerhasadutytoconsidertheinterestsofitsinsuredwhensettlingaclaimfallingwithinaself-insuredretention will depend on a variety of factors, including policy and endorsement wording, applicable case law, facts, and other circumstances. The foregoing issues should be addressed when the SIR endorsement is being drafted or considered for use. But all too often they are ignored until it is too late, as evidenced in the case of The Austin Company & Cigar Supply Company v. Royal Insurance Company,842S.W.2d608(1992).
Theentityinthiscasemaintainedaself-insuredretentionof$250,000,whichwasadministeredbytheinsurerthat provided$1millionofliabilityinsuranceexcessoftheSIR.Attachedtothepolicywasanendorsementtitled“SpecialClaimsInstructions”.ThisendorsementstatedineffectthatthelocalclaimsofficeoftheinsurerwouldconsultwiththeriskmanagerattheAustinCompanypriortoanysettlementinexcessof$5,000.Iftheriskmanagerstronglydisagreedwiththe settlement, the insurer was to contact its home office immediately.
The insured refused to reimburse the insurer, insisting that the endorsement previously noted, dealing with special claims instructions,precludedsettlementbytheinsureriftheinsuredobjected.Theinsurer,ontheotherhand,maintainedthattheendorsementrequiredonlythattheinsurerkeepitsinsuredadvisedontheprogressofanysettlementnegotiationsand that, in the event of any disagreement, the insurer, not the insured, had the final decision regarding settlement. The policyprovisionreliedonbytheinsurerstated,inpart:“[Royalhas]therightanddutytodefendanysuitaskingforthesedamages.However,[Royalhas]nodutytodefendsuitsforbodilyinjuryorpropertydamagenotcoveredbythispolicy.[Royal]mayinvestigateandsettleanyclaimorsuitas[Royal]consider[s]appropriate.[Royal’s]paymentoftheLIABILITYINSURANCElimitends[Royal’s]dutytodefendorsettle”.
Thecourtultimatelyheldinfavoroftheinsurer.Indoingso,itstatedthatthepolicyprovisionquotedabove unambiguouslygavetheinsurertherighttotakewhateveractionitdeemednecessarywithregardtoanyclaimmadeagainsttheinsured,this,notwithstandingthatupto$250,000ofanysettlementinvolvedtheinsured’sfunds.Thecourtalso stated that there was no wording in the special claim instructions endorsement to support the insured’s contention that it has veto power over any settlement. The court went on to state that there was no issue raised as to whether the insureradequatelyrepresentedtheinsuredduringthetrial.Itwasnotuntilsettlementwasreached,thecourtstated,thatthe insured challenged the insurer’s authority to settle claims. More importantly, the court added, the insurer consulted extensivelywiththeinsuredbeforemakingthefinaldecisionand,indeed,soughttheinsured’sblessing.
Whilethepolicyprovisionswereheldbythisparticularcourttobeunambiguous,itisworthwhiletoconsiderrevising the wording of an SIR endorsement to clarify the intent related to the insurer’s duty to settle. The wording of an SIR endorsement,forexample,mightincludethefollowing:TheCompanymaypayanypartoralloftheself-insuredretention
It also may be preferable to clarify here, as well as in other areas, whether the SIR includes defense costs, or whether defense costs are paid in addition to the limits and, thus, outside the scope of the provision.
Self-Insured’s Right To Settle
If the self-insured must perform some functions normally handled by the primary insurer, such as the investigation, defense and settlement of claims or suits, an issue arises as to whether the duties owed by the self-insured are similar to thoseowedbytheprimaryinsurer.ThiswastheprecisequestioninInternational Insurance Company v. Dresser Industries, Inc.,841S.W.2d437(1992),wheretheself-insured,inafrontingarrangement,agreedtotakeontheadditionalroleofprimaryinsurer.Thiscasearosewhentheexcessliabilityinsurerobjectedtothemannerinwhichtheself-insuredhandledand defended an underlying lawsuit, allowing the settlement to penetrate the excess insurer’s layers of coverage. The insurer relied on a special claims handling agreement and a document incorporated into that agreement, referred to as the“GuidingPrinciplesforPrimaryandExcessInsurers”.(Theseguidingprincipleswerepromulgatedandrecommendedforusein1974bytheClaimExecutiveCounciloftheAmericanInsuranceAssociation,theAmericanMutualInsurance Alliance,andsomeinsurancecompanies.Thenineguidingprinciples[recommendations]aredesignedtoaddress problems normally associated with liability actions and the interaction between primary and excess insurers.)
Based on these documents, the excess insurer claimed that a self-insured entity that controls the investigation, defense and settlement of claims and suits owes a duty to the excess insurer in connection with its claim handling activities. Eventhoughtheself-insuredentitystipulatedthatitwouldbeboundbytheguidingprinciples,thecourtruledthattheself-insured did not have a duty to settle the underlying case within the primary limits of the fronting policy. The court stated that in reviewing these principles, it must be remembered that, while the self-insured entity agreed to operate under the guiding principles, it did not abandon its status as an insured. The self-insured, instead, remained at all time the mutual insured of both the fronting insurer and the excess liability insurers. The self-insured entity, therefore, had sole authority to settle the lawsuit against it.
The argument that a self-insured owes an excess insurer a duty to settle within primary or self-insured limits also was rejectedinCommercial Union Assurance Companies v. Safeway Stores, Inc.,164Cal.Rptr.709(1980)(acasecitedand relied on in the previously mentioned Dressers Industries case). The court in the Safeway case stated that when deciding on whether to defend a suit, an insured need not subordinate its own financial interest to that of the excess insurer, adding:“Theprotectionofthe[excess]insurer’specuniaryinterestsissimplynottheobjectofthatbargain”.
Inmanyjurisdictions,theinsureroftheumbrellaorexcesslayerofcoverageabovetheSIRcannotforcetheself-insuredto settle a claim within the SIR limits. The self-insured can gamble by not settling even if the end result is a verdict that piercestheexcesslayer.Injurisdictionsfollowingthislogic,itisheldthattheexcessinsurerhasnolegitimateexpectationthat the self-insured will give as much consideration to the financial well-being of the excess insurer as it does to its own interests.
Generallyspeaking,absentsomespecificcontractualobligationtodoso,theself-insuredmayhavenodefense obligation in relation to the next layer of coverage. See, for example, Cooper Laboratories v. International Surplus Lines Insurance Company,802F.2d667(1986).Butthereisgenerallyanobligationonthepartoftheself-insuredtopaythatportion of defense held to be within the SIR where such an obligation is already set forth.
AbsentclearwordingintheSIRendorsement,determinationofspecificdefenseobligationsundertheSIRshouldbeinfavor of the self-insured entity. It is therefore important for underwriters, and others involved in placing coverage above an SIR to review the pertinent wording. This is not to say that the self-insured can act in total disregard of the interests ofsuccessivelayersofcoverage.Theself-insured,subjecttospecificcontractwording,cannotactinawaytoinjurethelegitimate expectations of excess layer insurers or deprive them of rights expressly granted.
The terms and conditions of excess layers of coverage are expressly agreed to by the insured. So the insured (also the self-insured) must at all times remain in compliance with these contractual obligations. This is often an issue in actions whereequitablesubrogation(alsocalledlegalsubrogationbecauseitisaffectedbylawanddoesnotdependonanycontractual relationship between the parties) is sought by an excess insurer against a primary insurer.
Is the SIR Limited To Occurrences Or Also Offenses?
AsmentionedwithreferencetotheVons Company case, the SIR applied both to occurrences and offenses. This, however, is not always the reality of the situation. In many cases, the SIR provision appears to be limited to occurrences.
In fact, one case on point is New York Marine & General Insurance Company v. Specialty Restaurants Corporation, No. 8:11-CV-77-T-17TGW(U.S.Dist.Ct.MiddleDist.FL2012).NewYorkMarine(insurer)broughtsuitagainstSpecialty Restaurants(namedinsured)seekingadeclaratoryjudgmentthatithasnodutytodefendorindemnifyitsnamedinsuredin a lawsuit. The named insured filed a counterclaim, alleging that the insurer was obligated to reimburse the named insured for claims paid by it to third parties. The named insured appealed the district court’s grant of partial summary judgmentfortheinsureronthegroundsthatthenamedinsured’sSelf-InsuredRetentionPolicy(SIR)appliedtoalltypes of coverages, and the court’s ruling that the insurer had no duty to reimburse its named insured for funds paid by the named insured to third parties.
The named insured asserted that the SIR provision of its policy applied only to occurrences, and not to offenses. In contrast, the insurer maintained that the SIR was applicable to the entire policy, including offenses. The court stated that in relying on the principles of contract interpretation and the facts of the present case, the SIR in the named insured’s policy applied only to occurrences. The SIR, in fact, was said to have specifically referred to occurrences in a number of different places in the policy, but made no mention of offenses anywhere.
The court went on to say that if the insurer had intended the SIR to apply to both occurrences and offenses, it had a duty to state this in a conspicuous, plain, and clear manner in the policy. In conclusion, the named insured was held entitled to full reimbursement for the underlying lawsuit, because it involved an offense to which the SIR did not apply. The U.S court ofappealsalsostatedthatthedistrictcourtwasincorrectingrantingtheinsurersummaryjudgmentonthegroundsthatthe SIR applied to the entire insurance policy.
(Note that this case is an unpublished opinion.)
Umbrella Policy Attachment Point
AnotherfertileproblemareainvolvingtheSIRendorsementisitsinteractionwiththeumbrellaorexcessliabilitypolicy.Sometimestheissueisoverthepointatwhichtheexcesspolicyistoattach.Apartfromtheself-insuredretainedlimitofumbrella policies, some umbrella and excess liability policies state they are not activated until the underlying limit has been exhausted solely by the payment of damages. The self-insured entity, however, may assert that a combination of damages and allocated claims expenses are counted toward exhausting underlying SIR limits, triggering the excess policy.OnesuchcaseinvolvingumbrellacoverageisRepublic Insurance Company v. Harnischfeger Corporation, 445N.W.2d58(1989).
In this case, a self-insured entity in the manufacturing business decided to structure a self-insurance program for its products liability exposures. Its program, at the time of this litigation, consisted of an SIR for limits of $1 million per occurrenceand$2millionaggregate,includingattorneys’feesandothercosts.TheumbrellapolicyabovetheSIR providedlimitsof$10millionandidentifiedtheSIRlimitsinthescheduleofunderlyinglimits.Aproductsliabilityactionwasfiledagainsttheself-insuredmanufacturerdemanding$5,370,000indamages.Thecasewaseventuallysettledfor$1.5 million. Both the umbrella insurer and the self-insured entity agreed that the umbrella insurer would pay $500,000 of the$1.5millionsettlement,plus$300,000inattorneys’fees.Theumbrellainsurer,however,reservedtherighttocontestthe amount paid for attorneys’ fees. The umbrella insurer filed a declaratory action resulting in a ruling that only the payment of damages exhausted the SIR and not a combination of damages and legal costs.
The issue on appeal, therefore, was the point at which the umbrella policy was to attach. The insurer maintained that its policy did not contemplate exhaustion of underlying SIR occurrence or aggregate limits by defense costs. The insurer’s rationalewasbasedinpartonumbrellapolicydefinitionsofpersonalinjury,propertydamage,andoccurrence,whichdidnot include defense costs. Because of this, the umbrella insurer argued that its policy was unaffected by the defense costs incurredwithintheSIR.Thecourtrejectedtheumbrellainsurer’sarguments.Indoingso,thecourtconcludedthattheunambiguous terms of the umbrella policy’s declarations page and limits of liability provisions, which incorporated the SIR by reference, incorporated the self-insured wording that legal fees and defense costs were included in the SIR, thereby triggering umbrella coverage when a combination of defense and indemnity exhausted the SIR.
AnothertroublesomecaseinvolvingtheattachmentpointofanumbrellaliabilitypolicyisPlaytex FP, Inc. v. Columbia Casualty Company,609A.2d1087(1991).Thiscomplexcasealsoinvolvedafrontingarrangement.Briefly,thefactsinthiscaseinvolvedaprimarypolicyissuedbyNorthwesternNationalCasualtyInsuranceCompanywithlimitsof$1millionper
occurrenceanda$7millionannualaggregatelimit(usingaso-called“deductibleequalslimits”policyunderwhichtheriskoflossfellentirelyupontheself-insuredentity);aleadumbrellapolicyissuedbytheMissionInsuranceCompanyforlimitsof$5millionoccurrenceandannualaggregate;afirstlayerexcesspolicyissuedbyColumbiaCasualtyCompanyforlimitsof$10millionperoccurrenceandannualaggregate;andseveraladditionallayersamountingtoatotalof$200 million of coverage.
The basis of this litigation was over the attachment point of the lead umbrella and excess layers. Because the endorsementwordingcalledforadeductionfromtheloss,asopposedtothelimitsofliability,Columbiacontended that the self-insured entity had a $1 million per occurrence self-insured retention in addition to the $1 million per occurrence,$7millionaggregatelimitsoftheNorthwesternfrontingpolicy.Underthistheory,theself-insuredentitywouldhavebeenrequiredtopay$2millionforanysingleoccurrencebeforetheleadumbrellapolicywouldhavebeentriggered.
WhatpromptedColumbia’sargumentwasanendorsementattachedtothefrontingpolicythatreadinpart:Inconsider-ationofthepremiumchargedandtheissuanceofpolicynumber...issuedbyNorthwesternNationalInsuranceCompany,it is agreed that $1,000,000 shall be deducted from the amount of any loss, including defense coverage, as a result of each occurrence reported under this policy.
The court ruled against the insurer, because the deductible endorsement was considered not to be a part of the North-western fronting policy. In retrospect, it is difficult to understand the rationale for attaching this particular deductible endorsementtothefrontingpolicy,consideringthiskindofanarrangement.Whatwasespeciallytroublesomewasthereferenceinthisdeductibleendorsementtotheundefinedterm“loss”.Finally,anSIRendorsementmightbelabeledassuch, but in actuality, could operate as a deductible, to the detriment of the insured.
Excess Over What?
Sometimes an SIR endorsement is considered unnecessary, particularly in those cases where the program is structured in such a way that once the SIR is exhausted, umbrella or excess liability insurance is activated. The problem with this approach is that there should be an understanding between the self-insured entity and the excess insurer on the exact conditionsunderwhichtheSIRcanbeexhausted.Otherwise,theself-insuredentitymaybefreetoexhaustitsSIRbythepaymentofanycombinationofdamagesandlegalcostsforanykindofclaimorsuit,whetherornotitisakindcoveredbytheumbrella/excessliabilitypolicy.Whenthishappens,argumentscanarise.
AcaseonpointisFord Motor Company v. Northbrook Insurance Company,838F.2d829(1988).Fordwasself-insuredforthefirst$2millionperclaim.AnumbrellaliabilitypolicyissuedbyNorthbrookprovidedthefirstlayerofinsurance.The umbrella policy’s schedule of underlying insurance included Ford’s scheduled self-insurance as one of the underlying insurances.Thesecondexcesswassharedbyseveralinsurersonaso-called“followform”basis.Theissueinthiscasewasovertheapplicationofexclusion(p)oftheumbrellapolicy,whichsaid:Exceptinsofarascoverageisavailabletotheinsured under the underlying insurances, set out in the attached schedule, this policy shall not apply . . . (p) To punitive or exemplary damages awarded against any insured.
The parties stipulated that the umbrella policy covered punitive damages, unless coverage was excluded by the above provision.However,theinsurersmaintainedthattheaboveexclusioncouldonlymeanthatpunitivedamageswould be covered by the umbrella policy if such damages were covered by underlying insurance. But since Ford’s primary protection was provided by self-insurance rather than by an insurance policy, the exclusion was argued to be enforceable to deny protection. The court disagreed with the insurers. In doing so, it explained that the language of the umbrella policydidnot,onitsface,requiretheexistenceofunderlyinginsurancetocoverpunitivedamages.
Thecourtalsosaidthatexclusion(p)couldreasonablybereadtomeanthatFord’s$2millionperclaimself-insurance was underlying insurance set out in the attached schedule, for the following three reasons: (1) Self-insurance could reasonablybeunderstoodtoencompassunderlyinginsurances;(2)Ford’sself-insurancewassetoutintheattachedscheduleofunderlyinginsurances;and(3)Itmakesnodifference,inlightoftheaboveexclusion’smanifestpurposeofprotectingNorthbrookagainstdroppingdownintothepositionofaprimaryinsurer,whethertheinitialexposurewas covered by self-insurance or a conventional policy of insurance, so long as that exposure was covered.
It was perhaps fortunate for the self-insured entity in the above Ford case that the court ruled for coverage in part based onitsopinionthatself-insuranceisotherinsurance.However,thefactthattheSIRwasspecificallyscheduledonthe umbrellaliabilitypolicymighthaveinfluencedthecourt’sdecision.Thepointisthatnothingcanbetakenforgrantedwhen arranging insurance and when a self-insured retention is involved.
The caveat here about proper arrangement of protection applies to both the self-insured entity and the excess insurer. Furthermore, neither custom and practice in the insurance industry generally, nor the consensus of the courts thus far, viewsaself-insuredretentiontobeotherinsurance.Onewaytoaddressthisissueandtoperhapsreduce,ifnoteliminate,problems is to modify the other insurance condition and limits of liability section of the insurance policy to clearly state that self-insurance is considered to be other insurance. This also should be clarified in the SIR endorsement and any contract that may call for insurance to be provided. See, for example, Nabisco,, Inc. v. Transport Indemnity Company,143Cal.App.3d831(1983),whereapolicy’sclausedeemeditscoverageexcessiftherewasotherinsuranceorself-insurance.
Anotherissueofconcernprimarilytoumbrella/excessliabilitypoliciesishowtorestricttheexhaustionoftheSIRto damages and legal costs that are covered by the excess insurance when there is no primary insurance between the SIR and the excess liability policy. If an SIR applies immediately beneath an umbrella or excess policy, it would behoove the umbrella or excess liability underwriter to clarify how an SIR can be exhausted before the umbrella policy becomes payable.Theumbrellapolicymayrequireanendorsementtoclarifythatintent.Theendorsement,forexample,mightstate that the self-insured retention endorsement can be exhausted for purposes of triggering umbrella or excess coverage only by claims or suits that would be covered by the terms and conditions of the umbrella or excess policy.
The Issue With Insurance Certificates
Itwouldappearthattheuseofself-insuredretentionswithcommercialliabilitypoliciescontinuestobegrowing.Withthatinmind,insuredsotherthanthenamedinsured(i.e.,thosewhorequireproofofinsurance),shouldbeapprisedoftheSIRprovisions.TheproblemisthatthereisnowaytodetermineifanSIRprovisionexistsunlessaspecificquestionisposedbecausecertificatesdonotaskwhethertheyapply,exceptwithreferencetoumbrellapolicies.Giventheimportanceofan SIR, it needs the same attention as that given to additional insured status, and could eliminate some problems.
OneoftheseproblemscanbeexplainedbydiscussingthecaseofSpector v. Cushman & Wakefield, Inc.,955N.Y.S.2d 302(2012).UnderaCitibank—OneSourceAgreement,OneSourcewasrequiredtopurchaseaninsurancepolicywithalimitof$1millionperoccurrence.OneSource,however,wassaidtohaveobtainedapolicywithalimitof$1.5millionperoccurrence,anaggregateof$1.5million,anda$500,000self-insuredretention.AlthoughOneSourcewassaidtohavecorrectlymaintainedthatitsagreementdidnotprohibitself-insuredretentions,itdidrequireOneSourcetoprovidea certificateofinsurancenotifyingCitibankofsuchaprovisionandnosuchnoticewasgiven.Thus,theinsurance procurementprovisionwasbreached,accordingtothecourt,becauseCitibankreasonablyexpectedthatOneSourcewould either provide effective coverage or notice of the self-insured retention amount.
It has been said that the first step in interpreting a policy, endorsement, or coverage provision is to determine if it is ambiguous (it produces more than one reasonable interpretation that is not strained.) If the document is ambiguous, the next step is to determine what rule will be applied to resolve such ambiguity. In this regard, the courts generally follow oneofthreemethods:(1)thedoctrineofreasonableexpectations;(2)theruleofcontraproferentem(i.e.,theambiguityisresolvedagainsttheonewhoselectedthepolicylanguage);or(3)theconsiderationofextrinsicevidencetodeterminethe intent of the parties.
If the insurer drafts the SIR endorsement that is deemed to be ambiguous, the document may be considered a contract ofadhesion(acontractdraftedbyonepartythatmustbeadheredtobytheotherpartyona“take-it-or-leave-it”basis),andundertheruleofcontraproferentem,willbeconsideredagainstthepartywhoselectedthelanguage.However,someendorsementsaredraftedbythecombinedeffortsoftheinsurer,thebroker,andtheentity’sriskmanagement department.Inthatevent,thecourtsmightlooktomethods(1)or(3).WhenthemeaningofanSIRendorsement(orany insurance policy, endorsement, or coverage provision, for that matter) is unclear, extrinsic evidence of the parties’ intent maybelookedattoresolvetheambiguity.Iftheparties’intentcannotbeclearlydetermined,courtsmaylooktothe parties’ reasonable expectations.
Courtsattimesmaybereluctanttoimposetheruleofcontraproferentembecauseofthesophisticationofthe partiesinvolved,orwherethebargainingpowerofthepartieswasequal.Stillothercourtsrejectthepositionthat sophistication,equalbargainingpower,ormeresizeofaninsurancebrokerageorinsurance/riskmanagement department should change the way an insurance policy, endorsement, or coverage provision should be interpreted. This isparticularlytrue,giventhevaryingdegreeofsophisticationandknowledgepossessedbyindividualriskmanagersandbrokersoflarge,reputablefirms.Itistoosubjectiveofanissuetobeansweredwithoutdevotingconsiderabletimeandexpense to it.
Suffice it to say, that when the SIR endorsement is drafted or negotiated by, for example, the combined efforts of the insurer,brokerand/orriskmanager,andthereisaquestionofintentoranambiguity,itmaytakeconsiderabletimeto resolvethissubjectiveissue.Itthereforebehooveseveryoneinvolvedtobeextremelycarefulwhendraftingthese endorsements.
NOTE: The content posted to this account from FC&S Legal: The Insurance Coverage Law Information Center is current to the date of its initial publication. There may have been further developments of the issues discussed since the original publication.
Thispublicationisdesignedtoprovideaccurateandauthoritativeinformationinregardtothesubjectmattercovered.Itissoldwiththeunderstandingthatthepublisherisnotengagedinrenderinglegal,accountingorotherprofessionalservice.Iflegaladviceisrequired,theservicesofacompetentprofessional person should be sought.
