RMI 300 FInal + CH. 11

Excess Liability Policy

A policy that covers liability claims in excess of the limits of an underlying policy or a stated retention amount.

Umbrella Liability Policy

A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention Broader Coverage

• Provides excess coverage over several primary policies, such as CGL, auto liability, and employers’ liability

Umbrella Policy Functions

1. Provides additional limits above the each occurrence limits of the insured’s primary policies

2. Takes the place of the primary insurance when primary aggregate limits are reduced or exhausted

3. May cover some claims that are not covered by the insured’s primary policies

Types of Excess Liability Forms

• A “following form” subject to the same terms as the underlying policy

• A self-contained policy subject to its own terms only

• A combination of the first two types

Following Form Excess Policy

Covers a liability loss that exceeds the underlying limits only if the loss is covered by the underlying insurance

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

• Ex: No products-completed operations

Combination of Following Form and Self-Contained

An excess policy may combine both of these approaches by incorporating the provisions of the underlying policy and then modifying those provisions with additional conditions or exclusions in the excess policy

Drop-Down Coverage Purpose (UL)

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

Drop-Down Coverage (UL) Function

1. The umbrella policy will “drop down” to defend the insured and/or pay damages (subject to the umbrella policy’s limits) as if the umbrella policy were primary insurance. Obligation to defend and pay ceases when its limits are exhausted

2. If the umbrella policy does not contain the same territorial restriction on product suits, it will drop down and handle the claim as though it were the primary policy

Self-Insured Retention (SIR)

An amount that is deducted from claims that are payable under an umbrella liability policy and that are not covered at all by any primary policy

similar to deductible

Required Underlying Coverages for Umbrella

Each insurer writing umbrella liability policies has its own requirements for the types and amounts of underlying insurance that the insured must have.

The umbrella limits apply in full in excess of each of the underlying coverages; each occrurence + Umbrella Limits

Aggregate Limits in Umbrella

• Almost all umbrella policies contain aggregate limits that operate like those in the primary insurance.

• In some cases, the aggregate limit applies to all claims under the umbrella

• In other cases, the aggregate limit applies only to coverages that are subject to an aggregate in the underlying policies Total Balance = Balance UL aggregate + balance of Umbrella aggregate

Umbrella Insuring Agreement

Insurer promises to pay the amount in excess of the underlying limit that the insured becomes legally obligated to pay as damages for bodily injury, property damage, personal injury, or advertising injury arising out of an occurrence to which the policy applies, subject to the umbrella policy’s limit

Umbrella Insuring Agreement A

Is an excess coverage applying over the underlying policies

Umbrella Insuring Agreement B

Applies to occurrences for which coverage is available under the umbrella but not in the underlying policies

Exclusions in Umbrella

• When an umbrella policy provides broadened coverage, it is typically achieved 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 insurance for the particular exposure.

Umbrella Conditions

• Maintenance of underlying insurance

• Coverage territory (Worldwide)

Professional Liability Insurance

Insurance that covers persons engaged in various occupations against liability resulting from their rendering or failing to render professional services

• Additional occupations range from analytical chemists to veterinarians

• Also known as malpractice or errors and omissions (E&O) liability

Malpractice

Commonly used to describe liability associated with occupations that involve contact with the human body, ranging from beauticians to physicians

Errors and Omissions

More likely to be used to describe professional liability for occupations such as accounting, insurance, law, and engineering

Management Liability Insurance

Insurance that covers organizations and in some cases their directors, officers, and other employees against liability claims for damages resulting from various wrongful acts that are not covered under other commercial liability policies; common examples are directors and officers liability insurance, employment practices liability insurance, employee benefits liability insurance, and fiduciary liability insurance

• More about the wrongful acts of an organization or of individuals in their roles managing the operations of an organization.

PL vs. CGL

• Because professional liability requires different underwriting, rating, and claim handling skills, most insurers do not want to provide it as part of CGL coverage

• Snsurers routinely attach a professional liability exclusion that eliminates coverage for bodily injury, property damage, or personal and advertising injury resulting from the rendering or failure to render any professional services listed in the endorsement

PL & ML Vs. CGL

• Claims-made trigger

• Consent to settle

• Duty to defend and selection of defense counsel

• Deductibles

Claims-Made Trigger

Professional and management liability claims are sometimes not settled until long after the policy has expired

• With a claims-made policy, the policy in effect when the claim is first made against the insured is the policy that covers the claim

• A liability policy with an occurrence trigger can cover a claim that is made many years after the policy has expired, as long as the injury occurred during the policy period

Retroactive Date

The date on or after which the injury, damage, or other insured event must occur in order to be covered in a claims-made liability policy

Extended reporting period (ERP)

An additional period (also called a “tail”) following the expiration of a claims-made policy, during which the expired policy will cover claims first made for injury or damage that occurred on or after the policy’s retroactive date (if any) and before policy expiration

Typically 30-60 days or 1-3 years

Consent to Settle

• The CGL policy provides that the insurer may, at its discretion, settle any claim or suit. Rare involvement from insured

• Professional or business reputations may be at stake in claims under professional liability and management liability policies, the insured frequently is given the right to participate in the decision to settle a claim in such policies

  • The policy may provide that the insurer cannot settle a claim without the insured’s consent

  • If the insured does not consent to settlement, the insurer, at its expense, must then (unless the policy provides otherwise) continue to defend the insured and pay any judgment that the court awards

Hammer Clause

Professional liability and management liability policies provide that if the insured does not agree to a proposed settlement, the insured must take 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

Compels the insured to agree to the settlement proposed by the insurer

Duty to Defend and Selection of Defense Counsel

Some professional liability policies provide defense cost reimbursement coverage requiring that the insurer reimburse the insured for defense expenses covered by the policy

• The insured usually has the right to select counsel, sometimes subject to the insurer’s approval

• Cost of defense under professional liability and management liability policies is often paid within (not in addition to) the limit of insurance

Deductibles

• Professional liability and management liability policies are usually subject to a deductible.

• Most insurers have mandatory minimum deductibles for their various classes of professional liability and management liability policies

PL Exclusions

• Contractual liability

• Punitive damages

• Insured’s dishonest, criminal, or malicious acts.

  Professional liability policies for some occupations contain specialized exclusions

Physicians Professional Liability Policies

Arises from improper performance in the practice of the profession that results in injury. Can also be held liable for administrative errors or omissions connected with their medical practice

Insuring Agreement: Covers damages for injury resulting from the rendering of or failing to render professional services by the insured or by anyone else for whose acts the insured is legally responsible (such as a nurse working under the insured’s supervision). The insuring agreement also covers liability arising out of the insured’s service on a formal accreditation board.

”Injury” is broad and covers personal damages

Insurance Agents and Brokers E&O Liability Policies

Examples of the errors or omissions:

• Failure to properly advise a customer regarding his or her insurance needs

• Failure to obtain insurance for a customer in a timely manner after agreeing to do so

• Failure to renew a policy at expiration without giving prior notice to the customer

• Failure to properly advise the customer regarding appropriate limits

Insuring Agreement: Pay on behalf of the Insured damages that the Insured becomes legally obligated to pay because of claims made against the Insured for wrongful acts arising out of the performance of professional services for others

Main Types of ML Policies

• Directors and Officers Liability

• Employment practices liability

• Fiduciary liability

Directors and Officers Liability Policies

Corporations usually agree to indemnify their directors and officers for the costs resulting from suits against them

Directors and Officers (D&O) Liability Insurance

Insurance that covers a corporation’s directors and officers against liability for their wrongful acts covered by the policy and also covers the sums that the insured corporation is required or permitted by law to pay to the directors and officers as indemnification

Entity Coverage (Coverage C)

Coverage extension of D&O liability policies for claims made directly against a corporation (the “entity”) for wrongful acts covered by the policy

D&O Insuring Agreements

Agreement A: Covers the directors and officers of the insured corporation for their personal liability as directors or officers that results from a “wrongful act.

Agreement B: Covers the sums that the insured corporation is required or permitted by law to pay to the directors and officers as indemnification for suits alleging wrongful acts by directors or officers

Employment Practices Liability (EPL) Insurance

Insurance that covers an organization, its directors and officers, and its employees against claims alleging damages because of wrongful employment practices such as sexual harassment, wrongful termination, and unlawful discrimination

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

Employee Benefits Liability Insurance

Insurance that covers an employer against liability claims alleging improper advice or other errors or omissions committed while administering the employer’s employee benefit plans

Why Environmental Insurance?

• An organization may be able to obtain coverage for environmental exposures through endorsements to its existing property and liability policies.

• When the coverage provided by these endorsements is inadequate, it may need to purchase separate environmental insurance policies

Environmental Insurance Policies

• Are not standardized, and competing policy forms commonly have significant coverage differences.

• Different policy forms can be substantially modified by endorsement or combined to provide packages of different types of environmental insurance that share a common policy limit

Claims-Made

Types of Environmental Insurance Policies

• Site-specific environmental impairment liability

• Underground storage tank compliance

• Remediation stop-loss

• Contractors pollution liability

• Environmental professional errors and omissions (E&O) liability

Site-Specific Environmental Impairment Liability Policies

An insurance policy that covers third-party claims arising from either sudden or gradual releases of pollutants from specified locations

• Commonly sold to factories, waste disposal sites, golf courses, farms, municipalities, warehouses, and oil refineries

• Enhancements allow policyholders to purchase protection against the costs of on-site cleanup, claims arising from releases from third-party disposal sites, and claims arising from preexisting pollution at insured sites

Site-Specific Environmental Impairment Liability Policies Insuring Agreement

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. The loss must result from pollution conditions that exist beyond the boundaries of the site(s) listed in the policy declarations.

• BI or PD = must result from pollutants emanating from an insured site AND physical injury or actual exposure to pollutants is required in some of the policy forms to trigger coverage for bodily injury claim

“Cleanup Costs”

Most of the definitions include, as a minimum, expenses the insured incurs in the removal or remediation of soil, surface water, groundwater, or other contamination in response to a covered pollution liability loss

“Pollution Conditions”

Follows the definition of pollutants in ISO pollution exclusions found in general liability, auto liability, and other liability insurance policies

Site-Specific EIL Limits

Site-specific EIL policies are typically subject to a per-loss limit of liability, which is the most that the insurer will pay for bodily injury, property damage, cleanup costs, and defense expenses resulting from each release of pollutants

Defense costs within limits

Underground Storage Tank (UST) Compliance Policy

An insurance policy that provides proof of financial responsibility under governmental regulations that apply to the owners and operators of underground storage tanks containing fuels or other hazardous materials Required 1-2M limit

• Separate defense limit

• 60-day notice of non-renewal

• Automatic extended reporting period

Remediation Stop-Loss Policies (Cost Cap)

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

Remediation Stop-Loss Policies (Cost Cap) Insuring Agreement

Typically agree to pay, on behalf of the named insured, the expenses (in excess of the deductible) that the insured incurs in completing an approved remedial action work plan at a specified location

• Few exclusions

• Written as manuscript forms = no standard terms and conditions

Claim in Stop-Loss Policy

Defined as “written notice to the insured that the remediation costs incurred at the project have exceeded the costs contained within the scope of work

Contractors Pollution Liability Policies

An insurance policy that covers the pollution-related loss exposures of a contractor

• Designed to cover a contractor’s operations and activities at project sites and to cover the contractor’s completed operations and contractual liability exposures

• CPL policy will cover completed operations, damage to the insured site, and the cost of remediating the job site for a loss created by the contractor’s operations

CPL Exclusions

• Asbestos abatement operations

• Radioactive matter

• Claims arising out of the insured’s products

• Damage to sites owned by or leased to the insured

• Professional liability

Environmental Professional E&O Liability Policies

Contain insuring agreements that resemble the coverage grants of traditional engineers’ professional liability policies, and do not contain pollution exclusions

• A wide range of professional environmental services vendors who face potential liability from professional errors, acts, or omissions purchase these policies, including environmental engineers, testing labs, tank testers, and environmental consultants

• Claims Made

• Retro Date

• Substantial Deductible

Aircraft insurance

Insurance that covers liability due to the insured’s ownership, maintenance, or use of aircraft; physical damage to aircraft owned or used by the insured; and other aircraft loss exposures

• No standard policy

• Most written in London market

• Divided into liability and physical damage

Pilots for Aircraft Insurance

They must hold both the appropriate license and current medical certification from the Federal Aviation Administration (FAA) and are often required to have at least a specified number of hours of experience as the pilot-in-command of the type of aircraft insured

Aircraft Liability Coverage

Protects the insured against third-party claims for bodily injury and property damage resulting from the ownership, maintenance, or use of insured aircraft

• A combined single limit applies to all third-party claims, except in cases in which insurers impose a sublimit on claims by passengers No Aggregate

Aircraft Liability Exclusions

• Intentional injury, except to prevent interference with safe operations.

• Liability assumed under contract.*

• Bodily injury to an employee of the insured.

• Obligations under workers compensation or similar laws.

• Claims caused by war, strikes, riots, labor disturbances, terrorism, sabotage, hijacking, or unlawful seizures.

• Damage to property owned, leased, occupied, controlled, or under the care of the insured. However, some policies provide basic limits of coverage for passengers’ baggage or for damage to hangars leased by the insured.

• Claims by one employee against another, referred to as the fellow-employee exclusion. (Depends)

Aircraft Provisions

• Can cover newly acquired aircraft

• Temporary substitute aircraft

• Other aircraft not owned, leased, or regularly used by the insured.

Aircraft Hull Coverages

1. all risks—ground and flight” (Broader)

2. “all risks—not in motion.” (Not moving under its own power)

Other Aircraft Coverages

• Aircraft medical payments coverage (regadless of fault)

• Passenger voluntary settlement coverage

• Nonowned aircraft liability coverage

Passenger Voluntary Settlement Coverage / Admitted Liability Coverage

The coverage provides scheduled benefits if a passenger suffers death, dismemberment, or loss of sight

For benefits to become payable, both of these actions must be taken:

• The insured must ask the insurer to pay.

• The claimant must release the insured from liability for all bodily injury caused by the accident.

Cyber Risk

High-tech risk posed to organizations that conduct their operations electronically and/or digitally

• Insurers typically offer policies containing first-party-only coverage (property and theft), third-party-only coverage (liability), or both in a combination policy format

• Names of insuring agreements can vary from insurer to insurer

First party not as common

Cyber Extortion

Provides coverage for expenses related to computer network kidnap and/or ransom events

Cyber Crime

Covers theft of money and securities and, depending on the insurer’s form, intangible property

Intangible property

Property that has no physical form

Notification or Remediation

Provides coverage for expenses related to crisis management during and after a cyber risk loss (typically related to a security breach).

• Coverage can include crisis management-related expenses such as costs to notify customers of a security breach and costs to develop and execute a public relations campaign to manage any negative publicity surrounding the breach and to maintain the insured’s reputation

Business Interruption

Provides coverage for loss of business income, loss of contingent business income, and payment of extra expenses incurred as a consequence of a business interruption or suspension of the insured’s computer system (or dependent system) due to cyber risk loss

Denial-of-Service Attack

An attempt to overwhelm a computer system or network with excessive communications in order to deny users access

Network Security Liability

Provides coverage for liability arising from security breaches to an insured’s computer network

Malware

Malicious software, such as a virus, that is transmitted from one computer to another to exploit system vulnerabilities in the targeted computer

Electronic Media Liability

Provides coverage for liability arising from the insured’s electronic content

• Depending on the insuring agreement, the coverage can include e-mail communications; Web site content; and message board or discussion forum content that results in actual or alleged acts of defamation, disparagement, libel, slander, or false advertising

Technology Errors and Omissions Liability

Provides coverage for liability arising from any negligent act, error, or omission relating to an insured’s products or services provided to others

Intellectual Property Liability

provides an insured with coverage for any copyright, trade secrets, trademark, or patent infringement claims arising out of the use of the insured’s protected ideas or works (or infringing on the protected ideas or works of another)

Infringement

The unauthorized use of an individual’s intellectual property

Terrorism Coverage

Must include coverage against “certified acts of terrorism” as defined in TRIA, unless the insured declines the coverage

Foreign Operations Coverages

• Foreign property and business income insurance

• Foreign liability insurance

• Foreign supplemental and excess auto insurance

• Foreign voluntary workers compensation and employers liability insurance

• Foreign crime, including kidnap and ransom insurance

• Political risk insurance to provide protection against seizure of assets, currency inconvertibility, and interference with contractual performance

Disclosure Endorsements

Policyholders can decline certified acts of terrorism coverage, in which case other options may be offered by endorsement at the insurer’s discretion

• Additionally, insurers must list (in an endorsement or in the policy declarations) the coverages to which that premium applies

• Federal share of the compensation for certified act of terrorism under the program (85%)

• This disclosure must explain that if the program cap is exceeded, the amount of coverage for certified losses may be reduced at the discretion of the Secretary of the Treasury ($100B)

Cap Endorsements

Exclude coverage for certified acts of terrorism when the insured has declined the insurer’s offer of TRIA coverage

• Some states require that any policy insuring property loss caused by fire provide coverage that is at least equal to the coverage provided under a Standard Fire Policy (SFP)

NBCR Exclusion Endorsements

Excluding losses caused directly or indirectly by NBCR acts. These endorsements may be offered, at the insurer's option, only when the insured initially rejects certified acts of terrorism coverage (nuclear, biological, chemical, or radiological materials)

Limitations Endorsements

If a policyholder initially declines certified acts of terrorism coverage, the insurer may offer more limited terrorism coverage amounts in return for a reduced premium

Aggregate Limit Endorsements

Limit the insurer's exposure and provide limited liability coverage for certified acts for a reduced premium.

• he insurer may offer the aggregate limit endorsements only when the insured initially rejects certified acts of terrorism coverage

Punitive Damages Exclusion Endorsements

Insurers providing liability coverage for certified acts of terrorism may wish to exclude payment for terrorism-related punitive damages that result from civil actions

Other Acts Exclusion Endorsements

Allow insurers to exclude noncertified acts of terrorism occurring outside the United States (including its territories and possessions and Puerto Rico).

• These endorsements are available only for use with commercial liability coverages, because those coverages insure some exposures outside the jurisdictional boundaries of TRIA

Auto Coverage Endorsements

The basic purpose of these endorsements is to either cover or exclude acts of terrorism with respect to auto liability exposures, regardless of whether coverage for terrorism is provided or excluded for exposures other than auto

Workers Compensation Endorsements

An insured loss means any loss resulting from an act of terrorism, including an act of war, for purposes of workers compensation

Principal

The party to a surety bond whose obligation or performance the surety guarantees

Obligee

The party to a surety bond that receives the surety’s guarantee that the principal will fulfill an obligation or perform as promised

Suretyship

he obligation of one entity to answer for the debt, default, or miscarriage of performance of duties by another entity

Types of Surety Bonds

• Contract bonds

• License and permit bonds

• Public official bonds

• Court bonds

• Miscellaneous bonds

Contract Bond

A surety bond guaranteeing the fulfillment of obligations under construction contracts or other types of contracts

• Are frequently required by law; therefore, obligees are often government entities.

• However, private entities can also be obligees in such contracts

Contract Bonds Purposes

• The surety’s willingness to furnish the bond is evidence that, in the surety’s judgment, the principal is qualified to fulfill the terms of the contract

• The surety guarantees that, even if the principal defaults, the obligations of the contract will be performed, or the surety will indemnify the obligee

Types of Contract Bonds

• Bid Bond

• Performance Bond

• Payment Bond

• Maintenance Bond

Surety

The party (usually an insurer) to a surety bond that guarantees to the obligee that the principal will fulfill an obligation or perform as required by the underlying contract, permit, or law

Bid bond

A contract bond guaranteeing that a contractor bidding on a construction or supply contract will enter into the contract and will provide a performance bond if the bid is accepted

Performance Bond

A contract bond guaranteeing that a contractor’s work will be completed according to plans and specifications

Payment Bond

A contract bond guaranteeing that the project will be free of liens

Maintenance Bond

A contract bond guaranteeing that the work will be free from defects in materials and workmanship for a specified period after the project is completed