Excess insurance

"Excess insurance" generally means insurance that, by its terms, provides coverage "only after a predetermined amount of primary coverage is exhausted." Excess coverage might arise when multiple primary policies apply to the same loss and one or more of them contain a provision making it excess to other collectible insurance. It may also be purchased as excess insurance, intended to provide coverage only after a predetermined amount of primary coverage is exhausted. Kajima, at *8. The proliferation of insurance coverage disputes has highlighted several issues which are unique to excess insurance.

Types of excess insurance

Excess insurers frequently agree to provide coverage to an insured in excess of agreed types and amounts of underlying insurance, without having seen copies of the underlying policies or, in many cases, without even knowing the name of the company that is to provide the underlying insurance, leaving such matters to be advised." But, as the Second Circuit held in World Trade Center Properties, an excess insurer cannot be bound sight unseen to a policy that has not been finalized and issued. In the common situation where an insured purchases both primary and excess coverage for a single risk, there are two (or more) separate policies of insurance, each separately negotiated. The insured typically undertakes to obtain primary and excess policies that complement each other in that, upon exhaustion of primary limits, the excess policy will be triggered, thereby fully protecting the insured against the perils for which insurance was initially sought.

Excess insurers

Excess insurers frequently agree to provide coverage to an insured in excess of agreed types and amounts of underlying insurance, without having seen copies of the underlying policies or, in many cases, without even knowing the name of the company that is to provide the underlying insurance, leaving such matters to be advised." But, as the Second Circuit held in World Trade Center Properties, an excess insurer cannot be bound sight unseen to a policy that has not been finalized and issued. In the common situation where an insured purchases both primary and excess coverage for a single risk, there are two (or more) separate policies of insurance, each separately negotiated. The insured typically undertakes to obtain primary and excess policies that complement each other in that, upon exhaustion of primary limits, the excess policy will be triggered, thereby fully protecting the insured against the perils for which insurance was initially sought.

Excess policies

Excess policies often contain "follow the form" clauses which provide in substance as follows:

• It is hereby understood and agreed that in the event of loss for which the Insured has coverage under the Underlying Insurances set out in the Schedule of Underlying Insurances, the excess of which would be recoverable hereunder except for terms and conditions of this Policy which are not consistent with the Underlying, then, however anything contained herein to the contrary, this Policy shall be amended to follow the terms and conditions of the applicable Underlying Insurance in respect of such loss [...]
• It is well settled that the obligations of following form excess insurers are defined by the language of the underlying policies, except to the extent that there is a conflict between the two policies, in which case, absent excess policy language to the contrary, the wording of the excess policy will control
• Excess insurance policies typically require that the policyholder maintain underlying insurance, although if the underlying insurance is reduced by payment of other claims, this effectively lowers the attachment point of the excess insurer.

Author: Michał Augustyński

Footnotes

Excess insurance — recommended articles

Dual insurance — Tenancy at Will — Indemnity bond — Indemnity clause — Executed agreement — Institute cargo clauses — Vesting order — Negative easement — Insured contract

References

• Jeffrey W. Stempel, Peter N. Swisher, Erik S. Knutsen, (2012), Principles of Insurance Law , LexisNexis, Kingston, Ontario, Canada
• Marcinko, D. E., (2006), Dictionary of Health Insurance and Managed Care , Springer Publishing Company, New York, USA
• Ostrager, B. R., Newman, T. R., (2018), Handbook on Insurance Coverage Disputes, 19th Edition , Wolters Kluwer Law & Business, New York, USA
• Income Tax Regulations: Winter 2008 Edition (2007), CCH Tax Law Editors, Chicago, USA