Product Update

Exhaustion of Limits Discussion Added to Contractual Risk Transfer

This release of Contractual Risk Transfer revises and expands a discussion of two conflicting approaches to umbrella other insurance issues—horizontal versus vertical exhaustion of underlying insurance. A core assumption of contractual risk transfer from an indemnitee to an indemnitor is that all layers of the indemnitor's liability insurance program will respond on behalf of the additional insured indemnitee before any of the indemnitee's own insurance is called on to pay. But that expectation is frustrated when umbrella insurers insist—as the provisions of their policies may permit them to—that all underlying limits must be exhausted before excess coverage applies. Courts in some states have permitted this interpretation. Courts in others have not. Issues of policy language, and of the theoretical understanding of indemnity relationships, play an important part in any court's reasoning on this question, as explored in detail in our new "Exhaustion of Limits and Contractual Risk Transfer" discussion.

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