Potentially avoiding messy
claims situations when policies overlap
[W]hen … coverage is already provided via
another policy, issues can most certainly arise.
By Marc McNulty, CIC, CRM
Young producers often get excited when they close a deal and put multiple policies into effect for a new business account. “More lines of business equals higher retention,” they’re told. And whoever tells them this is not necessarily wrong.
However, the danger lies when coverages from multiple policies start to overlap. For example, I recently wrote coverage for a manufacturing account and in addition to the commercial package, product recall, and travel accident policies, I wrote an executive liability package for them through a well-known global carrier. This policy contained directors and officers liability, employment practices liability, fiduciary liability, and a suite of crime coverages.
At my follow-up meeting with them, I presented a cyber proposal from the same carrier that had provided the executive liability package. This was something that had been discussed during our initial conversations, and the business owner wanted to circle back on it once everything else was put into place.
He was pleasantly surprised at the cost as we went through the proposal—but then we arrived at a place in the meeting that I knew many new producers would unknowingly skip over. We discussed the crime coverages that were included with the proposed cyber program ($250,000 limits of insurance for computer fraud, funds transfer fraud, and social engineering fraud) and I mentioned that he already had these coverages, albeit with different limits, in his executive liability package.
On the surface, this may not seem like a bad thing, but when that coverage is already provided via another policy, issues can most certainly arise.
For starters, the policies would be providing different limits of insurance for the three crime coverages in question. While the proposed cyber policy includes $250,000 limits for the aforementioned crime coverages, the executive liability package includes $1 million limits for both computer fraud and funds transfer fraud while containing a significantly lower limit of $100,000 for social engineering fraud.
Here’s the part of the story that newer producers may not be fully aware of—the “other insurance” provision in insurance policies.
For example, the executive liability package contains the following wording in the crime section of the policy language:
OTHER INSURANCE AND INDEMNITY
With respect to any loss covered by this Coverage Part, if any Insured or any other party in interest has any bond, indemnity, or insurance which would cover such loss in whole or in part in the absence of this Coverage Part, then this Coverage Part shall be null and void to the extent of the amount recoverable or received under such bond, indemnity or insurance; provided that this Coverage Part shall cover such loss, subject to its limitations, conditions, provisions and other terms, to the extent of the amount of such loss in excess of the amount recoverable or received under such bond, indemnity, or insurance.
Let’s then examine the other insurance provision in the proposed cyber insurance policy:
If any Costs, Damages, or Claims Expenses covered under this Policy are covered under any other valid and collectible insurance, then this Policy shall cover such Costs, Damages, or Claims Expenses, subject to the Policy terms and conditions, only to the extent that the amount of such Costs, Damages, or Claims Expenses are in excess of the amount of such other insurance, whether such other insurance is stated to be primary, contributory, excess, contingent, or otherwise, unless such other insurance is written only as specific excess insurance over the Limits of Insurance provided by this Policy.
Both policies state that they are excess when another policy provides valid and collectible insurance. Plus, the executive liability policy is certainly not written as specific excess coverage over the proposed cyber insurance coverages, so the final wording in the cyber policy’s other insurance provision won’t apply
Given that the cyber coverage I proposed is with the same carrier that provides the executive liability coverage, this most likely wouldn’t create the type of messy situation that would arise if two different carriers were providing the coverage (and when the other insurance provisions could be even less favorable to the insured). However, it’s best to avoid this type of situation altogether, so I reached out to my cyber underwriting contact to see what could be done.
I raised my concerns to him and explained that I would like to keep the higher limits in place for each coverage in question—$1 million limits for computer fraud and funds transfer fraud and $250,000 for social engineering fraud. He acknowledged my concerns and then worked with the executive liability team to craft a solution that pleased both the insured as well as me.
In short, they would agree to endorse the executive liability package by increasing the social engineering fraud coverage to a $250,000 limit for a modest $100 annual premium. They would then remove the crime coverages altogether from the cyber policy for a premium reduction that more than covered the endorsement cost.
I’d call that a win-win since we got the limits we wanted and managed to avoid a potentially messy claims situation with overlapping policies.
The lesson here is twofold: For starters, always be aware of the other insurance provision and how it may impact your clients at the time of loss. Second, don’t be afraid to work with your underwriters to craft coverage solutions that benefit the insured while at the same time keep the carrier’s attorneys out of straightforward claims.
The author
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.
