(216) 609-3940
SandRun Risk
  • Home
  • What We Do
    • Risk Management
    • Insurance Claims
    • Insurance Archaeology
  • Blog
  • About
    • Team
    • Our Company
    • Articles
  • Contact

Policyholders:  Manage the Losses Within Your Self-Insured Retentions

3/12/2016

0 Comments

 
Picture

Many policyholders choose to self-insure at the primary level for some types of insurance coverage (general liability, employment practices, etc.), and purchase umbrella and excess policies that sit above a self-insured retention.  ​

A self-insured retention (“SIR”) is the amount of the loss a policyholder must pay before the umbrella policy would be required to respond.  See Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 176 N.J. 25, 36 n.4 (2003) (“Excess insurance is secondary coverage that ordinarily attaches only after a predetermined amount of primary insurance or self-insured retention has been exhausted”).   Many policies may include an endorsement which provides that there is an aggregate limit in the SIR.  For example, the endorsement may read:
 
The total limit of liability of the Company as stated in the policy declarations shall apply excess of the Self-                       Insured Retention as stated in the endorsement and the Named Insured agrees to assume all costs within                       the Self-Insured Retention:
  • Self-Insured Retention - $1,000,000 per occurrence
  • Aggregate Limit Retention - $3,000,000
 
Using this endorsement as an example, assuming that defense costs can be used to erode the SIR, to reach the umbrella policy that sits above the SIR, the policyholder must have a claim with one occurrence where the defense and/or indemnity costs associated with that occurrence are in excess of $1,000,000, or have many occurrences which has resulted in the payment of covered claims which total $3,000,000, thus exhausting the SIR.   If defense costs don’t erode the SIR, in order to reach the umbrella policy that sits above the SIR, the policyholder must have a claim with an occurrence where the indemnity for that occurrence exceeds $1,000,000, or have many occurrences which has already resulted in indemnity payments for covered claims totaling $3,000,000, thus exhausting the SIR.
 
If there is an aggregate limit in the SIR, it is important for policyholders to carefully manage the covered claims within the SIR.  Managing the covered claims includes inputting information into a database with information related to each claim, tracking defense costs paid, tracking indemnity amounts paid, and providing updates to the umbrella and excess carriers on the status of the claims and exhaustion of the aggregate limit in the SIR.  If a policyholder does not manage the claims within the SIR, it risks making payments exceeding the aggregate limit in the SIR, and thus overpaying for claims that should have been paid by the umbrella carrier.  Similarly, if the policyholder does not manage the claims within the SIR, it risks being unable to prove exhaustion of the SIR to the umbrella and excess carriers. 
 
Policyholders who choose to self-insure do so in order to manage liability and reduce paying insurance premiums.  See CSX Trans. Inc. v. Continental Ins. Co., 343 Md. 216, 244 (1996) (where the court explained the reasons companies have self-insured retentions).  The savings on reduced premiums are for naught if there is an aggregate limit in the SIR, and mismanagement of the claims results in either overpayments or the inability to prove exhaustion of the aggregate.  Those problems can be avoided if the policyholder manages the losses within the self-insured retention and keeps the lines of communication open with its umbrella and excess carriers. 
 
Policyholders with aggregate limits in their SIRs should have their claims files audited to determine the status of the SIR exhaustion, as well as whether information necessary to prove exhaustion of the SIR is being properly maintained.  Failure to do so may result in lost coverage opportunities.
0 Comments



Leave a Reply.

    Authors

    Lori Siwik and Mark Siwik are the founders of SandRun Risk.  They apply the principles of vertical leadership and lean six sigma to the discipline of risk management.  From time to time they share their blog with guest authors who write about important risk management principles.

    Categories

    All
    Insurance Claims
    Mergers And Acquisitions
    Risk Management

    Archives

    May 2022
    December 2021
    September 2021
    August 2021
    July 2021
    June 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    June 2017
    May 2017
    March 2017
    December 2016
    November 2016
    October 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    June 2015
    May 2015
    April 2015
    March 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    May 2014
    April 2014
    March 2014

    Categories

    All
    Insurance Claims
    Mergers And Acquisitions
    Risk Management

    RSS Feed

What We Do.

Risk Management
Insurance Claims
Insurance Archaeology

Blog.

About.

Team
Our Company
Articles

Contact.

Legal.

Privacy
Terms of Use
 
Copyright ©2014 | 4199 Kinross Lakes Parkway, Ste. 275 Richfield, Ohio 44286 | 216-609-3940 | info@sandrunrisk.com