While policyholders and sometimes brokers overlook excess insurance policies because they simply follow form to the primary underlying policy, there are a number of things that policyholders need to be aware of both when they are placing insurance and when they are submitting claims. First and foremost is the trigger language or the exhaustion language in their excess policies. This is crucial because this language is what triggers insurance under the excess policies. This is an issue that has probably gotten more and more attention in recent years because of more and more litigation over this issue. An excess policy’s exhaustion language specifies how it can be triggered. For an excess policy to be triggered the underlying limits have to be exhausted.
But how can they be exhausted? They either can be exhausted by payments by the underlying insurer, by the insured, or even a third party. The best type of exhaustion language is the language that allows for exhaustion by any of those three categories the underlying insurer, the insured, or a third party. When placing their insurance policyholders have to ensure that their excess policies have that broad overarching exhaustion language. Otherwise, when it comes time to submit and even settle a claim it could be in a position where they do not have adequate access to their excess insurance.
Second, and as a general matter, policyholders want to make sure that their excess insurer matches up as squarely as possible with their primary insurance. That is, you want to avoid situations where excess insurance does not provide coverage as broadly as your primary insurance. Another example of making sure that your excess and primary coverage is harmonious is in the policy’s ADR provisions. We’ve seen a number of insurers come to us with what I would call Swiss cheese ADR provisions. Maybe the primary policy allows you to bring a lawsuit against your insurer when they deny a claim if there is a disagreement over whether a claim is covered. But your excess policies mandate alternative dispute resolution process, whether that being mediation, arbitration, or both. You’re in a position then where theoretically you could litigate against your primary insurer, but then you would have to go through an ADR process with your excess insurers. We’ve seen programs where, when I say Swiss cheese, some of the excess policies have ADR provisions and some don’t, which makes things even more difficult procedurally.
By Miles Karson
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