New Jersey ruling points to a problem with general liability sub-limits
Not long ago, identifying such potential gaps
would have been an exhaustive endeavor. Today, artificial intelligence
and machine reading should be able to make short work of doing so … .
By Joseph S. Harrington, CPCU
Ask virtually any commercial lines retail agent or broker and they will tell you how challenging it’s become to assemble “towers” of excess liability coverage.
Where it once sufficed to pair primary policies with one or two excess policies, producers today find they must assemble and coordinate up to five excess policies to achieve equivalent limits.
A recent ruling from New Jersey provides a reminder of a pitfall in that process. In April 2024, a New Jersey appeals court upheld a lower court ruling that a CGL sub-limit worked, in effect, to preclude coverage under an accompanying umbrella policy.
In the case, a Jersey City restaurant/bar was sued for negligent security after a man was killed in an altercation outside the establishment in 2018.
The defendant had a CGL policy with a $1 million per occurrent limit and a $2 million annual aggregate limit. However, coverage under the CGL was subject to an endorsement establishing a $50,000 per occurrence sub-limit for assault and battery claims.
The restaurant-bar also had a commercial umbrella policy that stated it would pay costs in excess of the “applicable underlying limit” identified in the declarations.
Where referenced?
The problem for the insured was that the $50,000 sub-limit was not listed among the limits indicated in the primary or excess policy declarations, but in a “classification and premium” section referring to the cost of the endorsement, not to the specified sub-limit of coverage.
As a result, the $50,000 sublimit prevented the CGL policy from paying the full limit necessary to trigger the excess policy. Both the trial court and the appeals court found the excess policy provisions to be unambiguous in creating this outcome.
This ruling has to be unsettling to producers, given all the non-standard forms and provisions they have to assemble when creating a comprehensive liability program. Will some overlooked restriction break the chain of coverage and leave an insured perilously exposed?
Not long ago, identifying such potential gaps would have been an exhaustive endeavor. Today, artificial intelligence and machine reading should be able to make short work of doing so—as long as we know what the potential problems are.
Until this ruling, artificial intelligence may not have detected the problem we’ve described any more than a human could. It apparently wasn’t seen as a problem until this case. AI is fast, very fast, but it can never overtake the law.
What remains is the need to negotiate with carriers about the implications of sub-limits they’ve obviously implemented for a reason. Umbrella/excess policies may need to be written to allow for self-insured retentions in different layers for specified occurrences.
Without that, a lot of towers may collapse.
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.
