Product Update

Horizontal and Vertical Exhaustion of Limits Discussion Added to Commercial Liability Insurance

Added to the umbrella coverage analysis with this Commercial Liability Insurance release is an examination of horizontal versus vertical exhaustion of limits as methods of prioritizing coverage available to additional insureds. As a risk transfer device, additional insured status under another party's insurance program presupposes that all the insurance available under that program will respond to a claim against the additional insured before any of the additional insured's own insurance will be called on to pay. But in some jurisdictions, courts have determined that all applicable insurance in the primary layer—the named insured indemnitor's commercial general liability (CGL) and the additional insured indemnitee's CGL, for example—must exhaust their limits in the payment of claims before the named insured's excess or umbrella layer will be triggered. While contrary to the intent of indemnitees seeking to transfer risk to their indemnitors, this horizontal exhaustion principle has been enforced by some of the most influential appellate courts in the country. A new discussion compares horizontal and vertical exhaustion, examining the rationale behind horizontal exhaustion as well as the arguments supporting vertical exhaustion as a method of prioritizing coverage more favorable to additional insured indemnitees. Various methods of clarifying and giving effect to the intended order of payment among multiple policies in multiple layers are explored as well.

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