Part 3 – Maintenance of Underlying Insurance, Duties After Loss, and General Provisions

Topics covered:

Maintenance of underlying insurance

Duties after loss

General provisions

Maintenance of Underlying Insurance

You must maintain the "underlying insurance" at the full limits stated in the Declarations and with no change to more restrictive conditions during the term of this policy. If any "underlying insurance" is canceled or not renewed and not replaced, you must notify us at once.
If you fail to maintain "underlying insurance," we will not be liable under this policy for more than we would have been liable if that "underlying insurance" was in effect.

Analysis

The policy states that the full limits of the underlying insurance outlined in the declarations must be maintained throughout the full term of the policy. The underlying insurance cannot be amended to be more restrictive throughout the term of the policy. For example, the underlying auto policy cannot be amended to exclude a youthful driver.

If the underlying insurance is canceled, nonrenewed, or not replaced, the insured must notify the insurer as soon as possible.

If the insured fails to maintain the required underlying insurance, the umbrella insurer will not be held liable for more than they would have been liable for if the underlying insurance were still in effect. The umbrella policy will not fill in the gap and provide insurance in place of the underlying insurance.

The insured is required to maintain certain limits of liability insurance, as set forth in the insurer's underwriting guidelines. Underlying insurance requirements vary by insurer.

The ISO personal umbrella manual states that an adequate program of underlying insurance must be maintained by the insured and scheduled in the Declarations page. Underlying coverages must include a homeowner's or a personal liability policy, or equivalent, and a personal auto policy, or equivalent. However, DL 98 11 Personal Umbrella Liability Policy Auto Liability Exclusion Endorsement may be used to waive the auto policy eligibility requirement.

Duties After Loss

In case of an "occurrence" or offense likely to involve the insurance under this policy, you or another "insured" will perform the following duties that apply. We have no duty to provide coverage under this policy if your failure to comply with the following duties is prejudicial to us. You will help us by seeing that these duties are performed:

A. Give written notice to us or our agent as soon as is practical. Such notice shall set forth:
1. The identity of the policy and named insured shown in the Declarations;
2. Reasonably available information about the time, place and circumstances of the "occurrence" or offense; and
3. The names and addresses of any claimants and witnesses.

B. If a claim is made or a suit is brought against an "insured", the "insured" must:
1. Notify us immediately in writing;
2. Cooperate with us in the investigation, settlement or defense of any claim or suit;
3. Promptly forward to us every notice, demand, summons or other process relating to the "occurrence" or offense;
4. At our request, help us:
a. To make settlement;
b. To enforce any right of contribution or indemnity against any person or organization who may be liable to an "insured";
c. With the conduct of suits and attend hearings and trials; and
d. To secure and give evidence and obtain the attendance of witnesses.

C. The "insured" will not, except at the "insured's" own cost, voluntarily make payment, assume obligation or incur expense to others.

Analysis

This section lays out the duties to be performed by the insured if there is an occurrence or there is likely to be an occurrence for which the umbrella provides coverage. If the insured does not follow through with their expected duties, then the insurer may deny coverage if the lack of action by the insured is harmful or prejudicial to the insurer.

Following an occurrence, the insured must give written notice to the insurer or an agent of the insurer as soon as practical. The notice must identify the policy and named insured, provide information about the time, place, and circumstances of the occurrence, and the names and addresses of any claimants and witnesses.

Similarly, if a claim or suit is brought against the insured, they must cooperate with the insurer in the investigation, settlement, or defense of the claim or suit. The insurer should be notified of the suit promptly, as well as be sent any notice, demand, summons, or related documentation.

If an insured delays in reporting an occurrence, it could be harmful to the insurer in that evidence may be lost or witnesses may be harder to find, hurting the insurer's investigation. If the delay is prejudicial to the insurer, they may deny coverage.

The insured must help the insurer, at their request, to make a settlement, enforce any right of contribution or indemnity against any person or organization who may be liable to an insured, with the conduct of suits and attend hearings and trials, secure and give evidence, and help obtain the attendance of witnesses.

Finally, the insured cannot voluntarily make payments, assume obligations, or incur expenses to others. If an insured performs any of these actions, it may be construed as an admission of guilt, undermining the insurer's defense.

General Provisions

A. Appeals
If an "insured" or any insurer providing "underlying insurance" elects not to appeal a judgment which exceeds the "retained limit," we may do so at our own expense. We will pay all costs, taxes, expenses and interest related to our appeal. the amounts we pay will be in addition to our limit of liability.

B. Bankruptcy Of An Insured
Bankruptcy or insolvency of an "insured" will neither:
1. Relieve us of our obligations under this policy; nor
2. Operate to cause this policy to become primary in the event the "insured" is unable to satisfy the "retained limit" either because of insufficient "underlying insurance" or insufficient personal assets.

C. Bankruptcy Of An Underlying Insurer
In the event of bankruptcy or insolvency of any "underlying insurer," the insurance afforded   by this policy shall not replace such "underlying insurance," but shall apply as if the "underlying insurance" was valid and collectible.

Analysis

The umbrella insurer has the ability to appeal a judgment that exceeds the retained limit, at its own expense. These payments do not reduce the limit of liability. The umbrella insurer may want to appeal a judgment while the underlying insurer may not.

Say, for example, a judgment of $1 million has been awarded for liability in an auto accident. The primary auto insurer with a retained limit of $300,000 may not think it wise to appeal since its limit would likely be exhausted anyway. The umbrella insurer however, liable for the remaining $700,000, may decide the judgment is worth appealing.

The standard bankruptcy condition is here. Bankruptcy or insolvency of an insured does not relieve the insurer of its obligations under the umbrella.

The policy also makes it clear that if the underlying insurer goes bankrupt or insolvent, the umbrella will not act as the primary insurance and replace that coverage. The umbrella policy will not drop down and provide the coverage that the underlying insurance was meant to cover. The umbrella will respond to losses as if the underlying insurance is still in place and active.

D. Fraud
We do not provide coverage for any "insured" who has made fraudulent statements or engaged in fraudulent conduct in connection with any "occurrence" or offense for which coverage is sought under this policy.

E. Liberalization Clause
If we make a change which broadens coverage under this edition of our policy without additional premium charge, that change will automatically apply to your insurance as of the date we implement the change in your state, provided that this implementation date falls within 60 days prior to or during the policy period stated in the Declarations.
This Liberalization Clause does not apply to changes implemented with a general program revision that includes both broadenings and restrictions in coverage, whether that general program revision is implemented through introduction of:
1. A subsequent edition of this policy; or
2. An amendatory endorsement.

F. Other Insurance
The coverage afforded by this policy is excess over any other insurance available to an            "insured," except insurance written specifically to be excess over this policy.

G. Our Right To Recover Payment
If we make a payment under this Policy and the person to or for whom payment was made has a right to recover damages from another, we shall be subrogated to that right. That person shall do:
1. Whatever is necessary to enable us to exercise our rights; and
2. Nothing after loss to prejudice them.

Analysis

The standard fraud provision is included—there is no coverage if an insured has made fraudulent statements or engaged in fraudulent activities.

The liberalization provision is also familiar. If the insurer makes a change to the policy that broadens coverage without an increase in premium, that change will automatically apply as long as implementation falls 60 days before or during the policy period.

The liberalization clause does not apply when changes have been made that both broaden and restrict coverage, whether that change is implemented by a subsequent edition of the policy or an amendatory endorsement.

The other insurance provision reinforces that the insurance provided by the umbrella policy is excess over any other insurance available to the insured, except that which is written specifically to be excess over the umbrella policy.

Keep in mind that this does not mean the umbrella only provides excess liability coverage. If there is other insurance available for a covered occurrence, that insurance is primary, and the umbrella policy is excess. If no other insurance applies to a covered occurrence, the umbrella drops down and becomes the primary insurance.

If the insurer makes a payment to a party who has the right to recover damages from another party, that right will be transferred to the insurer. An injured party cannot be indemnified by both the insurer and the responsible party. The individual must cooperate with the insurer and do whatever is necessary to help them recover from the responsible party and not engage in actions that prejudice them.

H. Policy Period And Territory
The policy period is stated in the Declarations. This policy applies to an "occurrence" or offense which takes place anywhere in the world.

I. Severability Of Insurance
This insurance applies separately to each "insured." However, this provision will not increase our limit of liability for any one "occurrence" or offense.

J. Suit Against Us
1. No legal action can be brought against us:
a. Unless there has been full compliance with all the terms of this policy; and
b. Until the obligation of the "insured" has been determined by final judgment or agreement signed by us.
2. No person or organization has any right under this policy to join us as a party to any legal action against an "insured."

Analysis

The umbrella provides coverage for an occurrence or offense anywhere in the world during the policy period stated in the declarations. The umbrella's worldwide coverage provides peace of mind to an insured as some underlying insurance may only be available in the USA or North America.

The severability provision is standard—it states that coverage applies separately to each insured, but that does not increase the limit available for an occurrence or offense.

The insured can sue the insurer only after the insured has complied with all the terms of the policy and after the obligation of the insured has been determined by a final judgment and signed by the insurer. The insured must comply with all the terms of the policy, including duties after loss and all the policy provisions.

No other person or organization can join the insurer as a party in any legal action against an insured; the action is only between the insurer and the insured.

K. Termination
1. Cancellation By You
You may cancel this policy by:
a. Returning it to us; or
b. Giving us advance written notice of the date cancellation is to take effect.

2. Cancellation By Us
We may cancel this policy as stated below by letting you know in writing of the date cancellation takes effect. This cancellation notice may be delivered to you, or mailed to you at your mailing address shown in the declarations.
Proof of mailing will be sufficient proof of notice.
a. When you have not paid the premium, we may cancel at any time by letting you know at least 10 days before the date cancellation takes effect.
b. When this policy has been in effect for less than 60 days and is not a renewal with us, we may cancel for any reason by letting you know at least 10 days before the date cancellation takes effect.
c. When this policy has been in effect for 60 days or more, or at any time if it is a renewal with us, we may cancel by letting you know at least 30 days before the date cancellation takes effect.

3. Nonrenewal
We may elect not to renew this policy. We may do so by delivering to you, or mailing to you at your mailing address shown in the Declarations, written notice at least 30 days before the expiration date of this policy. Proof of mailing will be sufficient proof of notice.

4. Other Termination Provisions
a. When this policy is cancelled, the premium for the period from the date of cancellation to the expiration date will be refunded pro rata.
b. If the return premium is not refunded with the notice of cancellation or when this policy is returned to us, we will refund it within a reasonable time after the date cancellation takes effect.

Analysis

The termination provision states that the policy may be cancelled by the insured at any time by giving the insurer advance written notice of the cancellation date. The insurer may cancel the policy, but must provide advance notice depending on the reason for cancellation.

If the insured has not paid the premium, the insurer may cancel at any time by providing at least 10 days' notice before the effective cancellation date. If the policy has been in effect for less than 60 days and is not a renewal, the insurer can cancel for any reason by giving at least 10 days' notice before the cancellation date. If the policy has been in effect for 60 days or more, or is a renewal, the insurer must provide notice at least 30 days before the cancellation date.

If the insurer decides not to renew a policy, they must deliver or mail notice at least 30 days before the expiration date of the policy. Proof of mailing is sufficient evidence that notice was provided.

If the policy is canceled by either party, the unearned premium will be refunded pro rata. Premium should be refunded within a reasonable time after the cancellation takes effect.

L. Transfer Of Your Interest In This Policy
1. Your rights and duties under this policy may not be assigned without our written consent. However, if you die, coverage will be provided for:
a. The surviving spouse if resident in the same household at the time of death. Coverage applies to the spouse as if a named insured shown in the Declarations;
b. Any member of your household who is an "insured" at the time of your death, but only while a resident of the "residence premises"; or
c. The legal representative of the deceased person as if a named insured shown in the Declarations. This applies only with respect to the representative's legal responsibility to maintain or use your "autos" or the residence premises shown in the Declarations.
2. Coverage will only be provided until the end of the policy period.

M. Waiver Or Change Of Policy Provisions
This policy contains all the agreements between you and us. Its terms may not be changed or waived except by endorsement issued by us. If a change requires a premium adjustment, we will adjust the premium as of the effective date of the change.

Analysis

The insured cannot assign the policy to another party without the written consent of the insurer. Insurance policies are typically nontransferable—the insurer agreed to write the policy based on the insured's risk profile.

If the insured dies, the surviving spouse, if a resident in the same household at the time of death, is afforded the same coverage as the named insured. Coverage is also provided for any member of the household who was an insured at the time of the named insured's death, while a resident of the residence premises.

The legal representative of the deceased named insured is also provided coverage, but only with respect to the representative's legal responsibility to maintain or use the covered autos or the residence premises. Coverage is provided until the end of the policy period.

The waiver or change of policy provisions condition states that the policy terms and agreements will not be changed or waived except by an endorsement issued by the insurer. The insured cannot make a change to the policy except by agreement with the insurer. If an endorsement requires a premium increase or decrease, the insurer will adjust the premium on the effective date of the change.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.