Glossary

A stand-alone excess policy is one that provides excess coverage according to its own terms and conditions. It is to be differentiated from a follow form excess policy, which provides coverage according to the terms and conditions of an underlying policy.

Self-insured retention (SIR) is a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Under a policy written with an SIR provision, the insured (rather than the insurer) pays the defense and/or indemnity costs associated with a claim until the SIR limit is reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy. In contrast, under a policy written with a deductible provision, the insurer pays the defense and indemnity costs associated with a claim on the insured's behalf and then seeks reimbursement of the deductible payment from the insured. For example, assume that two policies are identical except for the fact that Policy A is written with a $25,000 deductible, while Policy B contains a $25,000 SIR. Also assume that defense and indemnity payments for a given claim total $100,000. In the event of a claim under Policy A, the insurer would pay the $100,000 in defense and indemnity costs that were incurred. After the claim is concluded, the insurer will bill the insured for the $25,000 in payments made on the insured's behalf. In the event of a claim under Policy B, the insured will pay the first $25,000 of defense/indemnity costs, after which, the insurer will make the additional $75,000 in defense and indemnity payments on the insured's behalf.

A series business unit (SBU) is a self-governing and protected company formed under the umbrella of a series limited liability company, currently permitted in Delaware. The SBU is an independent insurance company capable of issuing policies directly or policies fronted by a commercial insurer to the insured company and third parties. Each SBU has a unique business purpose and an independent tax identification number. The SBU's business purpose, taxpayer election, and coverage offerings are specified. Unlike the protected cells or segregated accounts of rent-a-captives, SBUs have greater flexibility offered by self-governance. An SBU is protected from the financial obligations of other SBUs by Delaware statute.

Suability factor signifies the likelihood of a legally liable insured being sued for alleged injuries or damage to a third party. This factor is determined, in part, by the size of the insured's savings account and stock portfolio, the extent of the real estate holdings, the family income, their profile in the community, and future income. Individuals with a high suability factor nearly always need a personal umbrella policy with at least a $2 million limit.