Many of us recall with fondness one of America's great comedy teams known as Laurel and Hardy.

Stan Laurel was the straight man to the antics of the more jocular Oliver Hardy. Together they made more than 60 films, including an Oscar winner called “Music Box.”

Although Ollie died officially on Aug. 7, 1957, recent court decisions have given property insurers reason to believe that OLLE is alive and well.

OLLE stands for Occurrence Limit of Liability Endorsement. It is a form many more sophisticated insurers have included as part of their coverage to limit the extent of their exposure to loss.

The Occurrence Limit of Liability provides, in relevant part: “In the event of loss hereunder, liability of the Company…. shall be limited to the least of the following:

A. The actual adjusted amount of the loss, less applicable deductible(s).

B. 100 percent of the individually stated value for each scheduled item of property insured, as shown on the latest Statement of Values on file with the Company, less applicable deductible(s).

C. The Limit of Liability or the Amount of Insurance shown on the face of this policy or endorsed onto this policy.

Once the insured files a Statement of Values, a policy containing an Occurrence Limit of Liability Endorsement, or a similar provision, will be considered to be a scheduled policy of insurance rather than a blanket policy.

A blanket policy covers different types of property at one or more locations and does not specify the valuation of the items of property under the blanket but rather allocates an overall limit to the policy upon which premiums are based. (See Monumental Paving & Excavating Inc. vs. Pennsylvania Mfg. Ass'n Ins. Co., 4th Cir. 1999).

Under the OLLE, the insurer's liability will be limited to the value of each item of property listed in the schedule rather than the aggregate amount of the insurance coverage.

The effectiveness of this endorsement was demonstrated in Knowlton Specialty Papers Inc. vs. Royal Surplus Lines Insurance Company (N.D.N.Y., 2003).

On June 12, 2002, an explosion occurred at a manufacturing facility owned by Knowlton located in Watertown, N.Y. The explosion destroyed the insured's paper machine and the portion of the building where the machine was located.

At the time of loss, property coverage was extended to Knowlton by Royal under the terms of a renewal binder. The binder provided that the aggregate amount of coverage afforded by Royal was $31.38 million.

The binder contained the words “actual loss sustained” in connection with valuation of a loss under the business interruption and extra expense coverage. Knowlton argued this combination entitled it to recover the full amount of its business income loss which Knowlton contended was in excess of $9 million.

The binder also indicated, however, that Royal's coverage was subject to an OLLE.

Knowlton's prior policy was also subject to an OLLE. In connection with that policy, Knowlton had submitted a Statement of Values signed by its president on May 29, 2001.

Since Knowlton had not yet filed a Statement of Values in connection with the renewal coverage, the May 29, 2001 statement was the latest statement on file with Royal. That statement placed a value on business interruption of $3 million.

After paying $3 million for Knowlton's business interruption/extra expense loss, Royal declined any further payment under that aspect of the coverage claiming it had exhausted its limit of liability. Knowlton sued in New York State Court. Royal removed the lawsuit to Federal Court and the parties cross-moved for summary judgment.

United States District Judge Thomas McAvoy awarded summary judgment to Royal and dismissed the complaint. Citing a 1999 Louisiana appellate court ruling in Fair Grounds Corp. vs. Travelers Indem. Co. of Illinois, the District Court determined that a policy containing an OLLE is a scheduled policy.

Under the terms of that endorsement, the court was compelled to look at the latest statement filed with Royal. Under that statement, Knowlton's business interruption recovery was limited to $3,000,000. In doing so, the District Court rejected Knowlton's contention that the word “property” in the OLLE did not include business income.

Knowlton appealed. The plaintiffs' lawyer heading up the appeal argued in the Second Circuit that the court's 2003 decision in World Trade Center Properties, L.L.C. et al vs. Hartford Fire Ins. Co., et al., somehow mandated a reversal of the District Court's dismissal of the complaint because the Knowlton loss occurred while the renewal binder was in effect, and before the policy was issued.

The Second Circuit in a Summary Order that prevents citation of the decision as precedent held that its decision in World Trade Center Properties recognized that a binder, which by its nature is a document that temporarily evidences insurance before a policy is issued, is necessarily incomplete. The court stated that all of the terms and conditions of the coverage do not have to be set forth in a binder, but rather can be incorporated by reference.

The Knowlton renewal binder clearly indicated that OLLE was part of the coverage. The court agreed that under an Occurrence Limit of Liability Endorsement, the coverage is scheduled rather than blanket. The Second Circuit affirmed the dismissal of the complaint.

The message to insurers is now loud and clear–use an Occurrence Limit of Liability Endorsement to limit your liability.

Special Reports /

Hey Stan, OLLE Is Alive And Well

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