Discussion of Special Coverage
"McGowan Silo Aggregates"
The aggregate limit of liability on our Umbrella applies separately over each underlying liability policy. This means that an insured could make a $15,000,000 Directors & Officers Liability claim against our Umbrella policy one day, then a $15,000,000 General Liability claim against our Umbrella policy the next day, and, assuming both claims were valid and collectible, we would pay both claims. Most other Umbrellas in the market only provide a single aggregate which does not apply separately over each underlying policy (i.e.- once the policy limits have been paid out once, the policy is exhausted).
Pure "Follow Form" Directors & Officers Liability
Most Umbrellas in the market exclude excess D&O Liability. Those that do not exclude excess D&O typically only provide limited "follow form" D&O. This means that such Umbrellas provide coverage that is less broad than the underlying D&O policy, thereby defeating the purpose of purchasing a high-limit Umbrella policy. Our Umbrella provides pure "follow form" D&O Liability; therefore, if the underlying D&O policy includes protection for a certain type of claim, so would our Umbrella.
The limited v. pure "follow form" D&O issue is of particular importance with regards to Employment Practices Liability. Quality D&O policies provide explicit protection for Employment Practices Liability claims, e.g.- claims based on discrimination, wrongful termination, and sexual harassment. We see this area as presenting a tremendous exposure to community associations. Fortunately for our clients, our Umbrella would provide excess Employment Practices Liability coverage to an association so long as that association's underlying D&O policy provides such coverage. Most of our competitors' Umbrellas would not, because they do not provide pure "follow form" D&O; most of our competitors provide limited "follow form" D&O via endorsement, but exclude excess Employment Practices Liability claims elsewhere in their policies.
Defense Costs Outside the Limits
Any costs expended by our carrier to defend a claim against one of our insureds do not diminish the aggregates on that insured's Umbrella. This is not the case with most of our competitors' Umbrella programs. In their programs, defense costs do diminish the aggregates.
Property Manager Automatically Covered
Our Umbrella provides automatic coverage for the Property Manager; most Umbrellas do not.
No Shared Limits
Insureds in our program do not share limits. Claims by one insured in our program have no effect on any other insured in our program. This is because each of our insureds receives its own policy and policy number. In many Umbrella programs on the market, clients share limits. In these programs, hundreds of insureds share one limit of liability. An example might be useful:
Association A purchases a $10,000,000 shared-limit Umbrella policy from Nefarious Insurance Programs. Association B does the same. If Association A is sued for $10,000,000, and Nefarious Insurance pays the claim, the limits of the policy are exhausted. If Association B were sued the next day, it would not have any Umbrella coverage, because Association A exhausted the limits on the shared-limit Umbrella policy the day before.
Shared-limit programs are tantamount to gambling. We think they do insureds a tremendous disservice.
Shared-limit Umbrella programs can often be spotted by their requirement that all insureds in the program prorate coverage onto a Master Umbrella Policy (since there is only a single policy of insurance, all insureds on the policy must share a common expiration date: e.g.- 12/10/2004)( Not all programs with common expiration dates have shared limits).
In shared-limit Umbrella programs, insureds are really nothing more than Additional Named Insureds on a Master Umbrella Policy. Therefore, they have no rights of the First Named Insured (normally the First Named Insured is the wholesaler managing the program). They are not entitled to notice that the Master Umbrella Policy is cancelled for non-payment (e.g.- when the wholesaler which manages the program fails to pay the premiums due the carrier purposefully or otherwise). They are not entitled to notice that the aggregates of the Master Umbrella Policy have been exhausted by other insureds in the program. The list goes on…
No Common Expiration Date
We issue Umbrella policies in our program concurrently with each insured's underlying General Liability policy. In doing so, we assure that no "Impaired Aggregate" situations arise (i.e.- a gap in Umbrella coverage resulting from the non-concurrency of an insured's GL and Umbrella policies). Many of our competitors programs have a common expiration date (e.g.- 12/10/2004) which creates a potential "Impaired Aggregate" situation.
Claims-Made/Occurrence Form Hybridizing Endorsement
Almost all D&O policies in the market are written on a Claims-Made basis; the better ones also provide Prior Acts coverage. Claims-Made D&O policies with Prior Acts coverage provide coverage for claims (demand by a claimant for money or other relief) first made during the policy period, regardless of when the event giving rise to liability took place (so long as the event giving rise to liability took place after any applicable Retroactive Dates). Contrast this with most Umbrellas, which are written on an "Occurrence" basis. Most Umbrellas provide coverage only for events giving rise to liability that take place during the Umbrella policy period. When a claim is made against an Umbrella is irrelevant. The fact that D&O policies are written on a Claims-Made basis, while most Umbrellas are written on "Occurrence" basis creates a recipe for disaster in virtually all of our competitors' programs. A case would be illustrative…
Pete Plaintiff is injured on 6/1/00 because of a decision of Association A's board of directors. Association A purchases a D&O policy on 1/1/2004. The D&O policy has a Retroactive Date of 1/1/99. Association A also purchases a $5MM Umbrella on 1/1/2004. The Umbrella provides "follow form" D&O. On 2/1/2004, Pete Plaintiff sues Association A's board of directors for the injury he suffered on 6/1/00. A court awards him $6MM. What is the result???
Assuming that the claim by Pete Plaintiff is valid and collectible, the D&O policy would pay $1MM towards the claim, because the claim was first made during the D&O policy period and the event giving rise to liability took place after the Retroactive Date. But, the Umbrella would not cover the loss, even though it provides "follow form" D&O. This is because the event giving rise to liability took place outside of the Umbrella policy period (which runs from 1/1/2004-1/1/2005).
At this point, the plaintiff could seek to attach the personal assets of the members of the board of directors at this point, to seek recompense for the $5,000,000 portion of the verdict not covered by the Umbrella. This is because members of boards of directors can be held personally liable for decisions they make in their capacities as board members (in all 50 states).
Our Umbrella policies contain a "Claims-Made/Occurrence Form Hybridizing Endorsement." This means that our Umbrellas respond on a Claims-Made basis over underlying policies written on a Claims-Made basis, and on an Occurrence basis over underlying policies written on an Occurrence basis. In the example above, had Association A purchased our $15,000,000 Umbrella, our Umbrella would have paid the $5,000,000 portion of the $6,000,000 claim, after the $1,000,000 D&O policy had been exhausted.
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