Summary: The American Association of Insurance Services (AAIS) offers a commercial umbrella policy, UM 0200, that applies to both excess liability and umbrella liability. This article presents the form's insuring agreements, exclusions, conditions, and definitions. An analysis of these features follows the presentation.
Some parts of UM 0200 are similar to the Insurance Services Office (ISO) umbrella policy and these similarities will be noted but not reproduced in this article. Also, UM 0200 itself has parts that are repeated and these will be noted but not reproduced.
Topics covered:
What must be done in case of loss
Coverage E—Excess Liability
1. ”We” pay, up to “our” limit, all sums in excess of “underlying insurance” for which an “insured” becomes legally obligated to pay as “damages” to which this insurance applies. This insurance applies only to:
a. ”bodily injury” or “property damage”:
(1) that is caused by an “occurrence” which takes place in the “coverage territory”;
(2) that occurs during the policy period of this policy; and
(3) that is covered by “underlying insurance”;
b. ”personal injury” arising out of an offense committed in the course of “your” business, excluding advertising, publishing, broadcasting, or telecasting done by “you” or on “your” behalf. The offense must be:
(1) committed within the “coverage territory”;
(2) committed during the policy period of this policy; and
(3) covered by “underlying insurance”;
c. ”advertising injury” arising out of an offense committed in the course of advertising “your” goods, products, or services; and
d. any other negligent act, error, omission, injury, event, incident, or offense that is covered by “underlying insurance” on a “claims-made” basis. The negligent act, error, omission, injury, event, incident, or offense must take place:
(1) within the “coverage territory”; and
(2) on or after the Retroactive Date shown on the “declarations” of this policy and prior to the end of the policy period of this policy.
This applies only if a “claim” is first made against an “insured” within this policy period or an Extended Reporting Period provided by this policy.
A “claim” will be deemed to have been made when notice of such “claim” is received in writing by the “insured” or by “us” whichever is received first.
Analysis
This is the first insuring agreement on UM 0200. It provides coverage for damages due to bodily injury, property damage, personal injury and advertising injury; the coverage is on an excess basis. The insured is expected to have underlying, or primary, insurance for these same exposures, and if the limits of the underlying insurance policy are breached, only then will UM 0200 come into play.
Coverage E applies to occurrences and offenses that happen during the policy period. The coverage trigger is on a claims-made basis which means that a claim against the insured must be made during the policy period (or an extended reporting period) in order for UM 0200 to respond.
Note that the coverage for personal injury does not apply if the business of the named insured is advertising, publishing, broadcasting, or telecasting. For coverage to apply, the offense must be committed within the coverage territory, committed during the policy period, and covered by underlying insurance. The advertising injury coverage must arise out of an offense that is committed in the course of advertising the named insured's goods, products, or services. Of course, whether the insured is actually in the course of advertising at the time the offense is committed can be grounds for debate between the insured and the insurer.
2. If “underlying insurance” provides an extended reporting period, then Coverage E—Excess Liability will also provide an Extended Reporting Period that is subject to the same terms of the extended reporting period that is provided by “underlying insurance”.
The following conditions apply to the Extended Reporting Period provided by this policy:
a. The coverage provided by the Extended Reporting Period of Coverage E—Excess Liability will be excess over the extended reporting period of the “underlying insurance”.
b. The Extended Reporting Period applies to claims for injury that take place on or after the Retroactive Date shown on the “declarations” of this policy and before the end of this policy period.
c. The Extended Reporting Period of this policy will not reinstate or increase the “limits” of this coverage or lengthen the term of this policy.
d. If “underlying insurance” requires a written request from “you” for an extended reporting period to apply to a “claim”, then for an Extended Reporting Period to apply under this policy:
(1) ”we” must also receive a written request within sixty days of the end of the policy period; and
(2) ”you” must pay an additional premium to “us” when due.
Analysis
If the underlying insurance provides an extended reporting period for the claims-made coverage, then UM 0200 will do the same; the terms of the extended reporting period are the same for UM 0200 as for the underlying insurance. And, if the underlying insurance requires a written request for an extended reporting period, UM 0200 also requires one, with any additional premium paid to the insurer when it is due.
However, UM 0200 also adds some points to clarify the fact that it is offering excess coverage. For example, the coverage provided by the extended reporting period of UM 0200 is clearly stated to be excess and applicable only for claims that take place between the retroactive date and the expiration date of UM 0200.
1. The terms, definitions, conditions, and exclusions of the policies of “underlying insurance” govern the coverage provided under Coverage E of this Commercial Umbrella/Excess Liability Coverage, except for provisions pertaining to premium, right of recovery, cancellation, insurance under more than one policy, defense, “limits”, any agreement to renew, and the “terms” of this coverage.
Analysis
This clause attempts to make UM 0200 a follow-form type of excess policy in which the underlying insurance policy governs what is or is not covered and what the words and conditions of the insurance policy mean for the insured and his coverage questions. However, the exception in this third clause could result in much confusion for the insured.
That exception says that the terms of the UM 0200 coverage are not subject to the governance of the underlying insurance. “Terms” is a defined word on UM 0200 and it means all provisions, limitations, exclusions, conditions, and definitions that apply to the coverage form. In other words, the provisions, limitations, exclusions, conditions, and definitions on UM 0200 are not subject to and do not follow the underlying insurance policy provisions.
The bottom line is that the insured should know that UM 0200 will follow form unless the provisions of the underlying insurance conflict with those of UM 0200, and then the excess policy is meant to prevail.
Coverage E Exclusions
1. ”We” do not pay for injury or damage that is not covered by “underlying insurance” for any reason other than exhaustion of its “limit”.
2. ”We” do not pay for a “claim” based on violation of the responsibilities, obligations, or duties imposed on fiduciaries by the Employee Retirement Income Security Act of 1974 as amended and any regulations pertaining thereto.
3. ”We” do not pay for “bodily injury” if benefits are provided or are required to be provided by the “insured” under a workers compensation, disability benefits, occupational disease, unemployment compensation, or similar law.
4. ”We” do not pay for liability for “bodily injury” sustained by an “employee” of the “insured” arising out of and in the course of employment as a master or member of the crew of any vessel.
5. Regardless of the terms of the “underlying insurance”, Coverage E—Excess Liability does not provide:
a. benefits specified by automobile no-fault laws or any similar laws; or
b. liability imposed by uninsured motorists, underinsured motorists, or first party “bodily injury” or “property damage” laws.
Analysis
The first exclusion simply reinforces the point that coverage E is excess coverage that sits above the coverage provided by the underlying, or primary, insurance. And, if that primary insurance does not cover an injury or damage, UM 0200 will follow form and also not provide coverage. The exception to this exclusion is if the underlying insurance has exhausted its limit of liability and so, does not have any money to pay for the injury or damage; then, UM 0200 will provide coverage as if the underlying insurance still had the limits available to pay for the covered injury or damage.
The second exclusion notes that coverage E is not meant to apply to fiduciary claims based on a violation of ERISA. The coverage under UM 0200 is for bodily injury, property damage, personal injury, and advertising injury.
The third and fourth exclusions are like the workers comp and employers liability exclusions on a CGL form; UM 0200 is a liability policy and not a workers comp form. However, it is interesting to note that the employers liability exclusion on UM 0200 is limited to employment as a master or member of the crew of any vessel; the employers liability exclusion on the CGL form is not so limited.
The fifth exclusion deals with insurance coverage under state no-fault laws and uninsured motorists laws. Even if the underlying insurance provides such coverage, UM 0200 will not provide excess insurance for the exposures.
This article does not show exclusions six through ten because they deal with pollution exposures. The exclusions are similar to the standard pollution exclusion found on the CGL form.
However, one of these exclusions is worth a comment. Exclusion nine applies to bodily injury, property damage, personal injury, or advertising injury arising out of lead in any form. The pollution exclusion on the CGL form does not mention lead and this has led to disputes over whether lead is a pollutant, subject to the exclusion. UM 0200 tries to clarify this issue and specifically notes that the policy does not apply to lead claims in any form.
11. ”We” do not pay for “bodily injury” or “property damage” which results from the use of “autos”, “mobile equipment”, watercraft, or “recreational vehicles” in or in the practice for or the preparation for racing, speed, pulling or pushing, demolition, or stunt activities or contests.
12. ”We” do not pay for medical payments or medical expenses for “bodily injury” covered by “underlying insurance”.
Analysis
The racing exclusion is standard. Such activities are out of the ordinary exposures and need specialty type insurance policies. Exclusion twelve applies to med pay. UM 0200 is a liability policy and med pay is not part of that mix.
Coverage U—Umbrella Liability
1. ”We” pay, up to “our” “limit”, all sums in excess of either the Retained Limit shown on the “declarations” or the amount payable under “other insurance”, whichever is greater, for which an “insured” becomes legally obligated to pay as “damages” because of “bodily injury”, “property damage”, “personal injury”, or “advertising injury” to which this insurance applies.
a. This insurance applies to “bodily injury” or “property damage”:
(1) caused by an “occurrence” which takes place in the “coverage territory”; and
(2) that occurs during the policy period of this policy.
This insurance does not apply to “bodily injury” or “property damage” which is a continuation of, resumption of, or change in “bodily injury” or “property damage” that was known by a “designated insured” prior to the inception date of this policy period.
If a “designated insured” knew, as stated under the Knowledge of Bodily Injury or Property Damage condition, prior to the inception date of this policy period, that “bodily injury” or “property damage” had occurred, any continuation of, resumption of, or change in such “bodily injury” or “property damage” will be deemed to have been known by the “designated insured” prior to the inception date of this policy period.
”Bodily injury” or “property damage” that occurs during this policy period and which is not a continuation of, resumption of, or change in “bodily injury” or “property damage” which was known by a “designated insured”, as stated under the Knowledge of Bodily Injury or Property Damage condition to have occurred prior to the inception date of this policy period, will include any continuation of, resumption of, or change in such “bodily injury” or “property damage” after the end of this policy period.
Analysis
Coverage U is not meant to be a follow form type of coverage as is coverage E. Whereas coverage E of this policy refers to underlying insurance, coverage U refers to sums over and above either the retained limit shown on the declarations or the amount payable under other insurance (whichever amount is greater). Other insurance is a defined term that specifically does not include underlying insurance. So, the umbrella coverage applies to losses that are either above the retained limit shown on the declarations (a self-insured retention, or SIR), or above the amounts payable under insurance that is not scheduled as underlying insurance on the dec page of UM 0200. For example, if the insured has a certain operations or premises liability exposure that is not covered by the scheduled primary general liability policy, coverage U will drop down and cover that operation or premises exposure in case of a claim.
Coverage U is subject to the SIR that the insured may have or subject to the amount of insurance that the insured may have under a specialty type policy. Of course, the coverage is also dependent on there being no applicable exclusions.
Coverage U insurance applies to bodily injury or property damage caused by an occurrence that takes place in the defined coverage territory and that occurs during the policy period. And, coverage U also brings with it the Montrose warnings in that there is no coverage for bodily injury or property damage that was known by a designated insured (a defined term) to have occurred prior to the policy period.
b. This insurance also applies to:
(1) ”personal injury” arising out of an offense committed in the course of “your” business, excluding advertising, publishing, broadcasting, or telecasting done by “you” or on “your” behalf. The offense must be committed:
(a) within the “coverage territory”; and
(b) during the policy period of this policy; and
(2) ”advertising injury” arising out of an offense committed in the course of advertising “your” goods, products, or services. The offense must be committed:
(a) within the “coverage territory”; and
(b) during the policy period.
Analysis
This part of the coverage U insuring agreement deals with the personal injury and advertising injury coverages—both defined terms. The coverages are based on offenses (as opposed to occurrences) that are committed within the coverage territory and during the policy period.
2. Coverage U does not apply to “claims” which are covered under Coverage E or would have been covered except for exhaustion of the “limit” of an “underlying insurance” policy.
3. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Defense Coverage.
Analysis
Coverage U does not apply to any claims that are handled by coverage E. The two insuring agreements may be on the same coverage form but the intention is to treat them as separate agreements, with their own separate scope of coverage.
A discussion of defense coverage can be found later in this article.
Coverage U Exclusions
1. ”We” do not pay for “bodily injury” or “property damage”:
a. which is expected by, directed by, or intended by the “insured”; or
b. that is the result of intentional and malicious acts of the “insured”.
This exclusion does not apply to “bodily injury” that arises out of the use of reasonable force to protect people or property.
Analysis
This is the expected or intended exclusion that is so familiar to general liability policies. This exclusion does add a phrase pertaining to intentional and malicious acts in an attempt to address the concerns of some who make a distinction between an intentional act and an intentional or expected result.
Exclusions two through eight are similar to the ones under coverage E. There is no bodily injury pr property damage coverage for ERISA claims, WC claims, employers liability claims, auto no-fault and UM claims, or pollution claims. Coverage U does expand the auto exclusion from coverage E to also apply to BI, PD, personal injury, or advertising injury arising out of the ownership, use, occupancy, renting, operation, entrusting, loading or unloading of an auto. In other words, coverage E does give some auto coverage, but not so coverage U. And, the pollution exclusion is stricter (no exceptions) under coverage U.
9. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of war. War includes undeclared war, civil war, insurrection, rebellion, revolution, or an act or a condition of war.
10. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of the ownership, maintenance, use, occupancy, renting, operation, loaning, entrusting, supervision, or “loading or unloading” of an aircraft.
11. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of the ownership, maintenance, use, occupancy, renting, operation, loaning, entrusting, supervision, or “loading or unloading” of watercraft, “mobile equipment”, or “recreational vehicles”.
Analysis
Exclusion nine is the standard war exclusion.
Exclusions ten and eleven pertain to aircraft, watercraft, mobile equipment, and recreational vehicles. The exposures from these items are better handled by specialty type policies or primary general liability and vehicle liability policies.
Exclusion twelve is similar to the racing and stunt activities exclusion as noted under coverage E.
13. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” for which any “insured” may be held liable by reason of:
a. causing or contributing to the intoxication of a person;
b. the furnishing of alcoholic beverages to a person under the influence of alcohol or under the legal drinking age; or
c. a law or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.
This exclusion applies if “you” are in the business of manufacturing, distributing, selling, or serving alcoholic beverages.
14. ”We” do not pay for:
a. ”bodily injury” or “personal injury” to an “employee” of the “insured” if it occurs in the course of employment by the “insured”; or
b. consequential injury to a spouse, child, parent, brother, or sister of such injured “employee”.
This exclusion applies where the “insured” is liable either as an employer or in any other capacity; or there is an obligation to fully or partially reimburse a third party for “damages” arising out of paragraph 14.a; or 14.b above.
This exclusion does not apply to liability assumed by the “insured” under a contract.
15. ”We” do not pay for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” that arises out of the rendering or failure to render a professional service.
16. ”We” do not pay for “bodily injury” or “personal injury” that arises out of any:
a. refusal to employ;
b. termination of employment;
c. coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, sexual misconduct, or other employment related practices, policies, acts, or omissions; or
d. consequential “bodily injury” or “personal injury” as a result of a., b., or c. above.
This exclusion applies where the “insured” is liable either as an employer or in any other capacity; or there is an obligation to fully or partially reimburse a third party for “damages” arising out of a., b., c., or d. above.
Analysis
Exclusions thirteen and fourteen are similar to the liquor liability exclusion and employers liability exclusion found on the CGL form. Note that the liquor liability exclusion is applicable only if the named insured is in the business or manufacturing, distributing, selling, or serving alcoholic beverages. So, for example, if the named insured owns a building rented to a liquor retail store, and the liquor store employee sells alcohol to a minor who promptly drives off and crashes into somebody after consuming the alcohol, UM 0200 will respond to a claim made against the named insured based on his or her owning the building that housed the negligent liquor store operation. The employers liability exclusion makes the point that such coverage should be purchased as part of workers compensation coverage.
Exclusion fifteen is on UM 0200 because this is a specialty type coverage. The CGL form would cover professional services liability if exclusions were not placed on the form by insurers. This is done because insurers know such liability is a special case and needs coverage forms that specifically address the particular exposures present in each professional service. So, it follows that an umbrella policy would treat professional services exposures in the same manner.
The employment-related practices exclusion is on UM 0200 because coverage for this type of exposure is better served through a special, particular policy that reflects the individual insurer's assessment of the exposures involved and the insurer's underwriting philosophy. Besides, an employment related liability coverage usually applies to an “injury” –a defined term on such a policy – as opposed to bodily injury, property damage, personal injury, or advertising injury.
17. ”We” do not pay for “property damage” to:
a. real property owned by, occupied by, or rented to “you”; or
b. personal property owned by “you”.
Analysis
Exclusions seventeen through twenty-four deal with property damage to property owned by the insured or in his care, custody, or control, as well as damage to impaired property, products, the named insured's work, and the cost to recall work, products, and impaired property from the market. These exclusions are the damage to property exclusions and exclusions pertaining to the named insured's products and work that are usually found on a general liability policy.
25. ”We” do not pay for “personal injury” or “advertising injury” arising out of willful violation of an ordinance, statute, or regulation by an “insured” or with an “insured's” consent.
Analysis
Exclusions twenty-five through thirty pertain to personal and advertising injuries and are similar to the CGL coverage B exclusions.
31. ”We” do not pay for the tort liability of another which “you” assume under a contract or an agreement to pay “damages” because of “bodily injury”, “property damage”, “personal injury”, or “advertising injury” to a third party or organization.
This exclusion does not apply to:
a. liability that an “insured” would have had in the absence of the contract or agreement; or
b. ”bodily injury” or “property damage” liability assumed under an “insured contract”, provided that the “bodily injury” or “property damage” occurs after the effective date of the contract or agreement.
Analysis
This is the contractual liability exclusion, similar to the one found on the CGL form. The important point here is the definition of an insured contract which will be discussed later.
Defense Coverage
Payments under this coverage are in addition to the “limits” for the Commercial Umbrella/Excess Liability Coverage.
1. Under Coverage E, “we” have the right and duty to defend a “claim” or “suit” seeking “damages” which may be covered under Coverage E—Excess Liability, when the “limits” of “underlying insurance” are exhausted. “We” may make investigations and settle “claims” or “suits” “we” decide are appropriate.
At “our” option, “we” have the right to participate with the “insured” or any “underlying insurer” in the defense, investigation, and settlement of “claims” or “suits” covered under Coverage E, if “we” think the “limits” of “underlying insurance” might become exhausted.
2. Under Coverage U, “we” have the right and duty to defend a “claim” or “suit” seeking “damages” for “bodily injury”, “property damage”, “personal injury”, or “advertising injury” which may be covered. “We” may make investigations and settle “claims” or “suits” “we” decide are appropriate.
3. Under Coverage U, “we” have no duty to defend a “suit” or “claim” seeking “damages” because of “bodily injury” or “property damage” which was known by a “designated insured” as stated under the Knowledge of Bodily Injury or Property Damage condition, prior to the inception date of this policy period.
Analysis
This is the duty to defend section of UM 0200. The insurer notes immediately that the defense payments are in addition to — not included in — the limits of liability for the coverage agreements.
When it comes to the excess liability coverage offered by UM 0200, the insurer states that it has the duty to defend the insured when the limits of the underlying insurance are exhausted in payment of claims, and then reserves for itself the right to settle a claim or lawsuit as it sees fit. And, if the insurer thinks the underlying insurance limits might become exhausted, it claims for itself the right to participate in the defense of the insured. This is a self defense tactic for the excess insurer to protect its financial interest in the claim against the insured, and to perhaps prevent its even becoming involved in any payment.
The duty to defend under the umbrella liability coverage part of the policy is treated a bit differently than under the excess liability coverage. Under the umbrella coverage, the insurer does not wait for the limits of the underlying insurance to become exhausted. It assumes the duty to defend the insured against claims that may be covered and underlying insurance limits are not even mentioned. This is because the umbrella coverage can apply to claims that are not covered by the underlying insurance policy. Also under coverage U, the insurer notes that it has no duty to defend if the designated insured had knowledge of BI or PD prior to the inception date of the policy. This is due to the Montrose decision and its after-effects mentioned previously in this article.
4. ”We” do not have to provide a defense after “we” have paid an amount equal to the “limit” as a result of:
a. a judgment; or
b. a written settlement agreed to by “us”.
5. If “we” are prevented by law or otherwise prevented from carrying out this agreement, “we” will pay the “insured” for any expense incurred with “our” written consent.
6. If “we” defend a “suit”, “we” pay:
a. the costs taxed to an “insured”;
b. e expenses incurred by “us”;
c. actual loss of earnings by an “insured” for time spent away from work at “our” request. “We” pay up to $100 per day;
d. necessary expenses incurred by “you” at “our” request;
e. pre-judgment interest awarded against any “insured” on that part of the judgment “we” pay. If “we” offer to pay the “limit”, “we” will not pay any pre-judgment interest based on that period of time after the offer;
f. the interest which accrues after the entry of a judgment, but ending when “we” tender, deposit in court, or pay up to “our” “limit”;
g. the cost of appeal bonds or bonds for the release of attachments up to “our” “limit”. “We” are not required to apply for or furnish bonds; and
h. the cost, up to $500, for bail bonds required of an “insured” because of an accident or traffic law violation arising out of the use of a vehicle to which this policy applies. “We” are not required to apply for or furnish bonds.
Analysis
Here, the insurer lets the insured know that, after the policy limits — the amount of coverage that applies — have been paid, the duty to defend ends. The limits have to be paid as the result of a judgment or a written settlement agreed to by the insurer; the insurer cannot simply put the policy limits into an escrow account and then wash its hands of the matter. But, after the limits have been paid, defense costs or tasks, if any, are the responsibility of the insured.
And, if by some chance the insurer is not allowed to pay the defense costs on behalf of the insured (perhaps due to a law or regulation), the insurer promises to reimburse the insured for his paying of the costs out of his own pocket.
Finally, this section of UM 0200 lists a set of payments that the insurer promises to pay if it defends a lawsuit. These payments are similar to the supplementary payments on the CGL coverage form, for example, expenses incurred by the insurer, actual loss of earnings by an insured, the cost of appeal bonds, and interest accrued after entry of a judgment.
What Must Be Done in Case of Loss
This section of the policy lists the duties of the insured in case of a loss. They are similar to the duties listed on the CGL form, such as notifying the insurer of a claim or lawsuit as soon as practicable, cooperating with the insurer in the investigation of a claim, and not making any payment or assuming any obligation without the insurer's consent.
How Much We Pay
Coverage E—Excess Liability
1. The Each Occurrence Limit, subject to the General Aggregate Limit and the Products/Completed Work Hazard Aggregate Limit, is the most “we” will pay for the total of:
a. all “damages” arising out of a single “occurrence”; and
b. all “personal injury” or “advertising injury” sustained by one person or organization;
covered by “underlying insurance”.
2. If the “limit” of the “underlying insurance” is exhausted by payment of “claims” or “damages”, this policy will continue to provide coverage as “underlying insurance”.
3. If the “limit” of the “underlying insurance” is reduced by payment of “claims” or “damages”, this policy will apply excess of the reduced “underlying insurance”.
Analysis
This part of UM 0200 starts off with the insurer telling of the most that it will pay regardless of the number of insureds, claims, or coverages. Then the general aggregate limit and the products/completed work hazard aggregate limit are discussed, again with the insurer telling the insured the most that will be paid by the insurer. These clauses are not reproduced here due to the similarity with the limit of insurance section of the CGL form.
Next, UM 0200 deals with coverage E payments, as reproduced above. For this excess liability coverage, UM 0200 declares that the each occurrence limit shown on the declarations page is the most the insurer will pay for the total of all damages (a defined term) arising out of a single occurrence. This each occurrence limit is subject to the general aggregate limit and the products/completed work hazard aggregate limit, and includes in its total all personal injury or advertising injury sustained by one person or organization. Of course, the damages and injury has to be covered by underlying insurance.
If the underlying insurance limits have been exhausted by payment of claims, this excess policy will drop down and continue to provide coverage in place of the exhausted underlying policy.
If the limits of the underlying policy are just reduced, UM 0200 continues to act as excess coverage.
Coverage U—Umbrella Liability
The Each Occurrence Limit, subject to the General Aggregate Limit and the Products/Completed Work Hazard Aggregate Limit, is the most “we” will pay in excess of the Retained Limit shown on the “declarations” or “other insurance”, whichever is greater, for the total of all “damages”:
1. due to “bodily injury” or “property damage” arising out of a single “occurrence”; or
2. due to “personal injury” or “advertising injury” sustained by one person or organization.
Analysis
This coverage U each occurrence discussion is similar to the coverage E discussion previously noted. The difference here is that the coverage U limit is paid in excess of the retained limit (SIR) or the other insurance, whichever is greater. But, the coverage U each occurrence limit is, like the coverage E limit, subject to the general aggregate limit and the products/completed work hazard aggregate limit. And, this each occurrence limit includes the total of all damages due to bodily injury and property damage arising out of a single occurrence or due to personal and advertising injury sustained by one person or organization.
Excess Insurance
The insurance provided by coverage E is excess over “underlying insurance”, whether or not valid and collectible, available to the “insured”, except insurance which is specifically purchased by the “insured” as excess insurance over the insurance provided by this policy.
The insurance provided by coverage U will apply as excess over the Retained Limit shown on the “declarations” or “other insurance”, whichever is greater.
Coverage will not be provided under coverage U when:
a. the “underlying insurer” is bankrupt or insolvent as stated below under item 3., Bankruptcy of Underlying Insurer; or
b. ”you” fail to maintain “underlying insurance” as stated under Condition 11., Maintenance of Underlying Insurance.
1. If “you” fail to maintain “underlying insurance” as required by Condition 11., Maintenance of Underlying Insurance, the insurance provided by this policy (as coverage E) will not replace such “underlying insurance” but will apply as if the “underlying insurance” were valid and collectible.
2. In the event of bankruptcy or insolvency of any “underlying insurer”, the insurance provided by this policy (coverages E and U) will not replace such “underlying insurance”, but will apply as if the “underlying insurance” were valid and collectible.
Analysis
UM 0200 uses this part of the policy to remind the insured that this is an excess insurance policy.
Coverage E insurance is declared to be excess over underlying insurance whether or not such insurance is valid or collectible. This is different from the other insurance clause found on primary liability policies in that those policies talk about “if other valid and collectible insurance is available to the insured”, meaning basically that the insurer is waiving the valid and collectible requirement. In other words, UM 0200 is insisting on its excess status even if the other insurance (the underlying insurance) is not valid or collectible.
Coverage U insurance is said to be excess over the retained limit shown in the declarations or other insurance, whichever is greater. But, just as coverage E is limited in its efficacy by the requirement of underlying insurance, so too is coverage U limited. Coverage U will not be provided when the underlying insurer is bankrupt or insolvent, or if the insured fails to maintain underlying insurance. This latter requirement will be analyzed later in the conditions discussion.
This section of UM 0200 does make mention of the failure to maintain underlying insurance although the clause here does not go into great detail as does condition 11. The paragraph in this part of UM 0200 declares that if the insured does not maintain the underlying insurance, coverage E will not replace that underlying insurance, but will continue to act as excess insurance.
It should be noted that this particular paragraph may cause some confusion when stacked up against the first exclusion that applies to coverage E. That exclusion states that the insurer will not pay for injury or damage that is not covered by underlying insurance for any reason other than exhaustion of its limit. If the insured fails to maintain underlying insurance on, for example, premises liability, any injury or damage arising from the premises liability is not covered by underlying insurance; this means that UM 0200 coverage E is not supposed to respond to the claim. But, this failure to maintain underlying insurance clause says that coverage E will apply as excess coverage in such a situation. This is an area that an insured needs to clarify with the insurer before any claims arise.
The final paragraph in this section of UM 0200—bankruptcy of underlying insurer—applies to coverages E and U. If the underlying insurer becomes bankrupt or insolvent, coverages E and U apply on an excess basis. But, note here too, the same problem as noted in the previous paragraph. The excess insurance section of UM 0200 says that coverage U will not be provided when the underlying insurer is bankrupt or insolvent. And yet, this bankruptcy clause says coverage U will apply on an excess basis. The insured can be forgiven if he reads this policy and remains confused about his coverage.
Conditions
1. If an “underlying insurer” elects not to appeal a judgment in excess of the “limit” of any “underlying insurance”, “we” may elect to make such appeal. If “we” so elect, “we” will be liable, in addition to the applicable “limit”, for all expenses “we” incur that pertain to such appeal.
11. ”You” must maintain the “underlying insurance” in full force and effect during the term of this policy. If any “underlying insurance” is cancelled or not renewed and not replaced or is at any time materially changed in “limits” or coverages, “you” must notify “us” at once. “We” will not be liable under this policy for more than “we” would have been liable if that “underlying insurance” had not been terminated or had been kept at its original “limits” or coverages.
Reduction or exhaustion of any aggregate “limit” in any “underlying insurance” by payments for judgments, settlements, or expenses for “occurrences” or offenses during the policy period of this policy will not be a failure to maintain “underlying insurance” in full force and effect.
No statement contained in this condition limits “our” right to cancel or not renew this policy.
Analysis
The first condition is an attempt by the insurer to protect its financial interest in any claim against the insured. If the insured is successfully sued for an amount in excess of its underlying policy, UM 0200 wants to make sure such a judgment is appealed. This strategy might result in the judgment being reversed or having the amount of the judgment lowered, thereby saving the excess insurer from expending its policy limits. So, if the insured and its underlying insurer won't appeal the judgment, UM 0200 allows the umbrella insurer to do it. As a matter of course then, the insurer agrees to pay for its appeal.
Conditions two through ten are similar to the conditions found on the CGL form and on the common policy conditions form. The topics are assignment, bankruptcy of an insured, cancellation, misrepresentation or fraud, subrogation, premium audits, etc., etc.
The eleventh condition is an important part of the commercial umbrella/excess liability policy. Since the policy is, by its very nature, an excess insurance policy, it requires the insured to maintain underlying insurance to prevent the excess policy from becoming a primary insurance source of recovery. This is a contractual responsibility for the insured and complements the contractual promise of the insurer to pay “all sums in excess of underlying insurance for which an insured becomes legally obligated to pay.”
If the underlying insurance is cancelled or not renewed or even materially changed, the insured has to notify the excess insurer in order to allow the insurer to protect its financial interest.
If the underlying insurance is used to pay a claim against the insured, that reduction (or even exhaustion) of the underlying insurance is not considered by the excess insurer to be a failure to maintain the underlying insurance.
Conditions twelve through fourteen (like two through ten) are similar to the conditions found on the CGL form and the common policy conditions form.
Definitions
The definitions on UM 0200 are similar to the ones found on the CGL form. This article focuses mainly on those definitions pertinent to the excess/umbrella coverage, and those are reproduced here. Some of the standard definitions are also mentioned, but for more information on the standard definitions—such as auto, bodily injury, employee, insured contract, loading or unloading, and mobile equipment.
10. ”Damages” means compensation in the form of money for a person who claims to have suffered an injury.
11. ”Declarations” are all pages labeled Declarations, Supplemental Declarations, or Schedules, which pertain to this policy.
18. ”Limit” means the amount of coverage that applies.
22. ”Other insurance” means insurance other than:
a. ”underlying insurance”; or
b. insurance which is specifically purchased by the “insured” to apply in excess of the insurance afforded by this policy;
which is available to the “insured” and provides coverage with respect to injury or damage to which this policy applies.
28. ”Recreational vehicle” means a golf cart, snowmobile, or any other land motor vehicle designed for off-road recreational use.
31. ”Terms” means all provisions, limitations, exclusions, conditions, and definitions that apply to this Commercial Umbrella/Excess Liability Coverage.
32. ”Underlying insurance” means the liability insurance coverage provided under policies shown in the Schedule of Underlying Insurance on the “declarations” for the “limits” and policy periods indicated. This includes any policies issued to replace those policies during the term of this insurance that provide:
a. at least the same “limits”; and
b. the same hazards insured against, except as modified by general program revisions or as agreed to by “us” in writing.
33. ”Underlying insurer” means any insurer who issues a policy of “underlying insurance”.
Analysis
An auto is a land motor vehicle, a trailer, or a semi-trailer that is designed for use on public roads. This is just about how an auto is defined on the standard CGL form, except that UM 0200 goes on to note that an auto includes attached machinery and equipment, but not mobile equipment.
UM 0200 makes a distinction between basic territory and coverage territory. Basic territory is the United States, its territories and possessions, Canada, and Puerto Rico. Coverage territory is the world, provided that the insured's liability to pay damages has been determined in a lawsuit on the merits in the basic territory.
The word “claims-made” is also defined on UM 0200 and it follows the description of a claims-made policy that can be found in the insuring agreement of such a policy.
The word “damages” is not usually defined on an insurance policy since legal dictionaries handle the job. And, the meaning here is the same as in a legal dictionary and as accepted by courts around the country, namely, monetary compensation for a person who suffers an injury.
Declarations is the dec page, a page that lists the named insured, policy terms, and the limits of insurance—all vital parts of the insurance contract. The declarations of UM 0200 list not only the limits of liability for UM 0200 itself, but also the limits of the underlying insurance coverages since such coverages are a vital ingredient in the utilization of excess insurance.
UM 0200 defines an insured basically as the standard CGL form does, except UM 0200 discusses an insured under coverage E separately from an insured under coverage U.
The definition of limit is self-explanatory.
Other insurance is part of the umbrella liability insuring agreement, coverage U; the amount payable under this other insurance is one factor in deciding when the umbrella liability coverage comes into play. Other insurance specifically is not underlying insurance, but it is insurance that is available to the insured to provide coverage for injury or damage for which the insured is liable.
The meaning of recreational vehicle is used in UM 0200 because such vehicles are the subject of exclusions under both coverages E and U. The racing exclusions apply to recreational vehicles since they can be used in racing or demolition contests or in stunt activities and UM 0200 is not meant to apply to such exposures.
Terms are simply the provisions, words, and phrases that make up UM 0200.
Underlying insurance is the springboard for coverage E excess liability coverage under UM 0200. The excess liability payments are made in excess of the underlying insurance (primary insurance) and such insurance has to be in force for coverage E to apply. It should be noted also that the dec page allows for the scheduling of the limits of insurance of the underlying insurance policies, and that the first exclusion that applies to coverage E refers to the need for underlying insurance.
The underlying insurer is, of course, the insurer who has written the underlying insurance for the insured, the issuer of the primary insurance coverage.
Nuclear Energy Liability Exclusion
This exclusion is an exclusion on UM 0200 that deserves a separate mention. This exclusion is similar to the broad form nuclear energy exclusion (IL 00 21) that modifies several liability coverage forms.
Endorsements
There are numerous endorsements that can be used to modify the coverage provided under UM 0200. The following information is a brief discussion of some of these endorsements.
UM 0100 is an endorsement used by AAIS to specify changes in coverage that apply after the policy has been issued.
UM 0252 is an endorsement that excludes coverage (under coverage E) for injury or damage arising out of the ownership, use, entrusting, or loading or unloading of designated autos.
UM 0253 is an endorsement excluding coverage for nonowned and hired auto liability.
UM 0257 and UM 0258 are exclusions that delete coverage for bodily injury or property damage arising out of the products/completed work hazard under coverages E and U respectively.
UM 026 is an endorsement that is used to limit coverage under coverages E and U to injury and damage arising out of the ownership, maintenance, or use of the premises that is described in the endorsement's schedule. UM 0262 goes farther and excludes coverage at designated premises.
UM 0265 and UM 0266 are endorsements used to change the general aggregate limits under coverage E and U so that the limit applies respectively on a per location and per project basis.
UM 0266 is an exclusion of personal and advertising injury liability under both coverages E and U. All references in UM 0200 to personal injury and advertising injury are deleted.
UM 0270 is an exclusion for property damage to personal property in the care, custody, or control of the insured.
UM 0275 excludes coverage under coverage E for professional liability in the event it is provided by underlying insurance and excess coverage is not desired.
UM 0276 does somewhat the same thing, except in the D&O area. UM 0276 excludes coverage under coverage E for directors and officers liability in the event such coverage is provided by underlying insurance and excess coverage is not desired.
UM 0279 and UM 0280 are exclusion endorsements that pertain respectively to liquor liability and watercraft liability under coverage E.
UM 0283 is used to introduce an additional exclusion under both coverages E and U to exclude payment of punitive, exemplary, or vindictive damages.
UM 0286 is used to amend the definition of insured under coverage U to include the person or organization named in the endorsement's schedule, but only for liability arising out of the specific interest that is described in that schedule.