Glossary

An excess liability "follow form" policy is excess insurance that is subject to all of the terms and conditions of the policy beneath it. In the event of a conflict, it is the underlying policy provisions that take precedence. Many excess liability policies state that they are follow form except with respect to certain terms and conditions. When this is the case, the excess liability policy is not truly on a follow form basis.

Primary cover refers to the policy that responds first to an insured loss, either on a first-dollar basis or after allowing for a deductible. When the primary coverage limits are paid, any remaining loss is covered by whatever excess layer of insurance may be in place.

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.

The commercial general liability (CGL) policy is a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability. The CGL policy was introduced by Insurance Services Office, Inc. (ISO), in 1986 and replaced the "comprehensive" general liability policy.

A corridor self-insured retention (SIR), also known as a "bikini deductible," is a self-insured layer, separating the primary layer of risk—whether insured, self-insured, or funded in a captive—from the layer immediately excess of the primary. It was first used in health insurance, inserting a deductible (a real deductible, not an SIR) between a first dollar insured health plan and major medical coverage, which is excess of the primary health insurance policy. The structure resembles a bikini because there's defined protection on the bottom and on the top but nothing in the middle. Corridor SIRs migrated from health insurance to property and casualty applications when risk managers, brokers, and creative excess insurance underwriters were looking for more sophisticated methods of allocating and funding risk. Typically, the corridor SIR layer is unfunded. It's used to lower the cost of (or provide access to) excess or umbrella insurance while relieving the insured from the requirement to fund for expected losses. It is also used in structured insurance arrangements. Corridor SIRs can be designed to cover non-aggregated per occurrence limits or a combination of per occurrence and aggregate limits. A typical corridor SIR will include per occurrence limits perhaps subject to an annual aggregate, depending on the risk and the excess insurance pricing.

Employers liability (EL) coverage is provided by part 2 of the workers compensation policy. It provides coverage to the insured (employer) for liability to employees for work-related bodily injury or disease, other than liability imposed on the insured by a workers compensation law.

Layering is the building of a program of insurance coverage using the excess of loss approach. Layered programs involve a series of insurers writing coverage, each one in excess of lower limits written by other insurers. Umbrella liability coverage is frequently structured in this manner, whereby a number of umbrella insurers write coverage at various levels, on an excess of loss basis, ultimately providing an insured with a high total limit of coverage.

Cross-liability coverage is coverage in connection with a suit brought against an insured by another party that has insured status under the same policy. Cross-liability coverage is provided as an intrinsic feature of the standard commercial general liability (CGL) policy by means of the "separation of insureds" condition. Some umbrella and professional liability policies contain insured-versus-insured exclusions that eliminate cross-liability coverage.

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.

Nonconcurrency is the condition created by two or more policies covering the same loss exposure that do not have identical inception and expiration dates. Nonconcurrency of an insured's umbrella policies and the liability policies required by the umbrella as underlying insurance is a problem because the nonconcurrent policy terms make it possible for a loss under an underlying policy's annual aggregate limit to use up part of the limit required by the umbrella and thus violate its underlying limits requirement.