SIRs, Deductibles and the Importance of Policy Language March 9, 2011 ERIC ADAMS DUTTON BROCK LLP.

Slides:



Advertisements
Similar presentations
DISCHARGE OF CONTRACT HOW A CONTRACT COMES TO AN END
Advertisements

A GIA is a contract between a surety company and a contractor (or subcontractor)/principal. A GIA is a standard, typical document in the construction.
Commercial Insurance: What Every GC Should Know Edwin L. Doernberger, Esq. Jeffrey J. Vita, Esq. Tuesday, October 7, 2008.
The Insured Rights to recover for sums paid and costs incurred : actual or arguable Liability ? BY DR ADOLFO PAOLINI UNIVERSITY OF BUCKINGHAM, UK AND DACBEACHCROFT.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 15: Third-Party Rights and Discharge.
CARLIN LAW GROUP, APC (619) Know Your Indemnity Obligation Know Your Risk Know Your Insurance Company by KEVIN R. CARLIN, ESQ.
2008 D&O Symposium Symposium EXCESS D&O – What’s Up With That? David Bell Senior Vice President Allied World Assurance Company, Ltd.
Discharge of contract A contract may come to an end by virtue of: i.performance ii.agreement iii.breach or iv.Operation of law, especially frustration.
The Honorable L. Brad Taylor Presiding Judge for the Oklahoma Workers’ Compensation Court of Existing Claims.
Trust Litigation A Costly Experience? 24 February 2012.
D&O Issues for Closely Held Corporations Simon Bieber Emerging Issues in Directors’ and Officers’ Liability 2013 Law Society of Upper Canada March 4, 2013.
Law I Chapter 18.
“In the vast area of legal jurisprudence, there are undoubtedly many instances where being the first, or only, jurisdiction to grant rights to persons.
A [Drunk] Wolfe at the Door (handling covered combined with uncovered claims) Thomas, Thomas & Hafer, LLP Peter J. Speaker, Esquire Joshua J. Bovender,
Topic 11. Insurance Policy Provisions BUS 200 Introduction to Risk Management and Insurance Jin Park.
Topic 9. Insurance Policy Provisions BUS 200 Introduction to Risk Management and Insurance Jin Park.
9-1 General Requirements - Enforceable Contract 1.Offer and acceptance 2.Consideration 3.Legal object 4.Competent parties 5.Legal form.
School of Government The University of North Carolina at Chapel Hill© 2004 Attorney Fees in Civil Cases Mark Weidemaier District Court Judges Fall Conference.
© 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 REMEDIES FOR BREACH OF TRADITIONAL AND E-CONTRACTS © 2010 Pearson Education, Inc., publishing.
P A R T P A R T Property Personal Property and Bailments Real Property Landlord and Tenant Estates and Trusts Insurance Law 5 McGraw-Hill/Irwin Business.
Duty to Defend Often linked with Indemnification Duty to defend kicks in when event occurs Who controls defense 0.
Contract Law for Paralegals: Traditional and E-Contracts © 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Third-Party Rights.
Cut through Meora Teitler, ADV.. What is a cut through clause? A cut- through clause allows a party not in privity with the reinsurer to have rights against.
BLG INTERNATIONAL MARINE CLAIMS CONFERENCE Dublin 1 October 2004 Tim Taylor Barlow Lyde & Gilbert Tim Taylor Barlow Lyde & Gilbert.
Skadden, Arps, Slate, Meagher & Flom LLP Andrew Thomases: Consequences of RAND Violations | 1 Consequences of RAND Violations Andrew Thomases.
Chapter 9 Fundamental Legal Principles
Follow the Fortunes Clauses in Reinsurance Law – Practical Problems in Ensuring their Effectiveness Ralph Fearnhead.
Car Theft and the Insurance Contracts Act 1984 (Cth)
RECENT DEVELOPMENTS IN PENNSYLVANIA BAD FAITH LITIGATION Presented to: BELL & CLEMENTS BELL & CLEMENTS APRIL 4, 2006 S. David Fineman, Esquire S. David.
Legal Principles of Insurance Chapter 9. Agenda Recall topics learned in your insurance or business law class to better understand this chapter Principle.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Insurance.
. Insurance Litigation For Non-legal Insurance Professionals.
Insurance Law PA E TR HC 27 “If anything can go wrong, it will.” Anonymous (1950s), known as Murphy’s Law.
Construction Contracts What You Need to Know March 19, 2015.
Contract Review.  1. The final step in the vendor contracting process should be getting the vendor’s standard written contract and signing the contract.
“FOLLOW THE LEADER” A BRIEF HISTORY OF “FOLLOW THE SETTLEMENTS” CLAUSES – THE U.S. VIEW Prepared for: AIDA Word Congress September 30, 2014 Prepared By:
CHAPTER 18 PERFORMANCE AND REMEDIES DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)
1 Ⅴ. General Articles Ⅵ. Transfer Article 29 Extension of Expiry Date or Last Day for Presentation Article 30 Tolerance in Credit Amount, Quantity and.
Presented by David P. Schack, Partner June 29, 2006 Insurance Coverage For Multi- State Investigations: Can You Get Your Insurer to Pay for.
Chapter 14. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.  Entrepreneur: A person who forms and operates a new business either.
REINSURERS’ EXTRA- CONTRACTUAL LIABILITY Ozlem Gurses.
Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 6 Proprietary Funds McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill.
13 - 1Copyright 2008, The National Underwriter Company Business Liability Issues in Insurance  What is it?  Business liability is the risk exposure that.
REINSURING CLAUSES Ozlem Gurses University of Southampton.
DUTY OF THE ASSURED Prepared by: Ms. Norazimah Mazlan.
Business Law MAN-3 Bakiev Erlan, Ph. D. PERFORMANCE AND REMEDIES.
Advanced Civil Litigation Class 12Slide 1 Settlements - In General A settlement is an agreement by both parties to resolve the dispute through compromise.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright.
Copyright © 2012, Big I Advantage®, Inc., and Swiss Re Corporate Solutions. All rights reserved. (Ed. 08/12 -1) E&O RISK MANAGEMENT: MEETING THE CHALLENGE.
Greg Pynt, barrister, Francis Burt Chambers, Perth Oh behave Some of the ways in which the Insurance Contracts Act 1984 (Cth) controls the way in which.
27-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
12 - 1Copyright 2008, The National Underwriter Company Business Automobile Insurance  What is it?  Business automobile insurance  Covers losses due.
Chapter 34 Small Business, Entrepreneurship, and General Partnerships.
Third Party Insurance Defense Work: Who is really the Client? Michael McTaggart Counsel Norton Rose Fulbright US LLP November 7, 2015.
Forgotten But Not Lost: Using Insurance Archeology to Fund Brownfields Development Tina Richards Baker & Daniels LLP Indianapolis,
MAXIMIZING INSURANCE PAYOUTS WHEN PUNITIVE DAMAGES ARE AT ISSUE MAXIMIZING INSURANCE PAYOUTS WHEN PUNITIVE DAMAGES ARE AT ISSUE Kirk C. Chamberlin Chamberlin.
Loren Smith & Melissa Murrah Kelly, Smith & Murrah, P.C Yoakum Blvd Houston, Texas The Subro Grapevine.
P R I N C I P L E S O F I N S U R A N C E. General Principles Basic Principles Specific Principles.
Copyright © 2017 Pearson Education, Inc. All rights reserved. Chapter 9 Fundamental Legal Principles.
Variation By Agreement: UCC Article 9 © Cravath, Swaine & Moore LLP. All rights reserved.
The Professional Indemnity Insurance Policy and the Insurance Act 2015
Presented by Henriott Group
Fundamental Legal Principles
Financial Accountability Fully-Insured and Self-Funding September 12, 2017 Title Slide 1b - Sneak peek at an alternate accent color.
E&O Risk Management: Meeting the Challenge of Change
Performance of Contract
What Small and Emerging Contractors Need to Know Understanding General Agreements of Indemnity © Copyright 2017 NASBP.
Deferred Compensation in M&A Transactions ABA Business Law Section Spring Meeting 2015 Hermann J. Knott Partner, Luther, Köln, Germany Diane Holt Frankle.
Find the Problems with the Provisions May 11, 2016 Presented By:
Chapter 34 Small Business, Entrepreneurship, and General Partnerships
Presentation transcript:

SIRs, Deductibles and the Importance of Policy Language March 9, 2011 ERIC ADAMS DUTTON BROCK LLP

2 The Benefits of a Self-Insured Retentions (“SIR”) or Deductible: Lower premiums Provides for less exposure under the policy Allows for a better risk rating Addresses the problem of “moral Hazard”

3 The Benefits of a Self-Insured Retentions (“SIR”) or Deductible: Promotes good risk-management practices Identify, assess and prioritize risks Mitigate risks through internal claims-handling

4 Is There a Difference Between a Self-Insured Retention and a Deductible?  “A policy with a deductible obliges the insurer to respond to a claim from dollar one (i.e., immediately upon tender), subject to the insurer’s right to later recoup the amount of the deductible from the insured. A policy subject to a SIR, in contrast, obliges the policyholder itself to absorb expenses up to the amount of the SIR, at which point the insurer’s obligation is triggered”. Allianz Ins. Co. v. Guidant Corp., 884 N.E. 2d 405, 410, n.2 (Ind. Ct. App. 2008)

5 Is There a Difference Between a Self-Insured Retention and a Deductible?  “A self-insured retention is similar to a deductible, except that the insurer does not defend the claim unless the insured intends to call upon the policy” Foley-Cornish v. Nabor Drilling Ltd., 2007 CarswellAlta 502 (ABQB)

6 Is There a Difference between a Self-Insured Retention and a Deductible?  “A deductible turns an insured into an ‘insurer’ for the initial portion of the loss. Thus, it is sometimes called a ‘self-insured retention’.” McNaughton Automotive Ltd. v. Co-operators General Insurance Co CarswellOnt 2500 (Ont. C.A.)

7 The Importance of Policy Wording Consider:  Who bears the duty to handle and defend claims within the SIR/deductible?  Is the SIR/deductible diminished by defence or adjustment costs or simply by payments made to satisfy judgments or settlements?

8 The Importance of Policy Wording Consider:  Is the consent or approval of the insurer required to settle a claim outside of the SIR/deductible?  Is the consent or approval of the policyholder required to settle a claim within the SIR/deductible?

9 Do Defence Costs Diminish the Deductible? There are generally two ways that an SIR in a liability policy can be exhausted : through payments made to satisfy settlements or judgments through the expenditure of legal fees or adjustment costs

10 Do Defence Costs Diminish the Deductible? CONSIDER THE POLICY LANGUAGE!  Under some policies, defence and adjustment expenses diminish the deductible.  Under other policies, defence and adjustment expenses do not diminish the deductible (they are entirely the responsibility of the insurer).

11 Do Defence Costs Diminish the Deductible? Does your policy expressly excludes defence costs from the deductible?  Defence costs are do not apply against the deductible (Swan Wooster Engineering Co. v. Simcoe & Erie General Insurance Co., [1971] I.L.R (BCSC))

12 Do Defence Costs Diminish the Deductible? Is your policy silent on the point ?  Defence costs likely do not diminish the deductible.

13 “While the retention clause may limit the amount by which Guardian [an excess insurer] must indemnify the respondents where liability is established, it does not diminish Guardian's clearly stated duty to assume the defence of the insured. In my respectful view, the trial judge correctly construed the policy in concluding that the retention clause "addresses only the obligation to pay and does not limit or diminish or, indeed, even address in plain terms the unqualified agreement [of Guardian]... 'to assume the defence of the insured in any action'" and properly declared that Guardian has an obligation to defend the respondents against the claims in the Lumsden Building action.  Broadhurst & Ball v. American Home Assurance Co (1990), 76 D.L.R. (4th) 80 (Ont. C.A.):

14 Do Defence Costs Diminish the Deductible? Does the policy seem to suggest that defence costs apply against the deductible? THIS MUST BE CLEAR!

15 Do Defence Costs Diminish the Deductible? In Alie v. Bertrand & Frère Construction Co. (Ont. C.A.), an excess insurer agreed to pay for that portion of the “ultimate net loss” in excess of the retained limits. “Ultimate net loss” was defined to include “sums paid or payable as… [amount other things]… adjustment, investigation and defence of claims”. The Ontario Court of Appeal held that defence costs did not count against the retention.

16 Do Defence Costs Diminish the Deductible? In Pacco Insurance Co. v. Zagora Holdings Ltd., the policy obliged the insured to assume and fund, up until a $5,000 deductible “each and every loss or claim hereunder, from the first dollar of loss including… external adjusters’ fees” and “legal fees and disbursements”. The Court held that defence costs and adjusting fees applied only against the deductible once a Statement of Claim issued and not for expenses incurred prior to the matter going to litigation.

17 Do Defence Costs Diminish the Deductible? In Kansa General Insurance Co. v. Elbow Skiing Ltd. the deductible applied to “all damages … including legal expenses and adjusters fees”. The Court held that legal expenses and adjusting fees incurred by the insurer could not be characterized as “damages” and, thus, did not count against the deductible.

18 Read the policy’s claims-handling provisions carefully! Consider:  who is responsible for adjusting and defending claims  when and how this responsibility is trigged  whether the expenses incurred to adjust and defend the claims apply against the SIR or deductible.

19 Settlements As SIRs and internal claims-handling becomes more common, we will likely see an increase in litigation over control of the settlement process.

20 Settlements If a policyholder assumes responsibility for handling claims within the retention…  Is the policyholder is entitled to settle claims for amounts in excess of the retention without the approval or consent of the insurer? If the insurer bears responsibility for claim-handling…  Is the insurer entitled to settle claims within the limits of the retention without the approval or consent of the policyholder?

21 Settlements If a policyholder assumes responsibility for handling claims within the retention… “The insured owes no duty to defend or indemnify the excess carrier; hence, the carrier can possess no reasonable expectation that the insured will accept a settlement offer as a means of ‘protecting’ the carrier from exposure. The protection of the insurer’s pecuniary interests is simply not the object of the bargain.” Commercial Union Assurance Companies v. Safeway Stores, Inc 610 P.2d (Cal. Sup. Ct.)

22 Settlements If a policyholder assumes responsibility for handling claims within the retention…  The insured failed to report on the progress of the litigation, to convey offers to settle, to inform the insurer of the theory of the defence and to advise that the action had proceeded to trial. The Court held that the insured’s failures were a substantial breach of the policy and that the insurer was absolved from its obligation to indemnify. Canadian Newspapers Co. v. Kansa General Insurance Co CarswellOnt 3227 (Ont. C.A.)

23 Settlements If the insurer bears responsibility for claim- handling …  In American Protection Insurance Co. v. Airborne, Inc., a federal district court, applying Illinois law, held that a policy permitting the insurer to investigate and settle and claims, “unambiguously gave [the insurer] the right to settle the third party claim involve here without [the insured’s] consent”

24 Settlements If the insurer bears responsibility for claim- handling …  In Stan Koch & Sons Trucking, Inc. v. Great West Casualty Co., a federal district court, applying Minnesota law, held that the policy provided the insurer the “unfettered right to settle claims despite the substantial retention in the policy”.

25 Settlements If the insurer bears responsibility for claim- handling …  In United Capitol Insurance Company v. Bartolotta’s Fireworks Company, Inc., the Wisconsin Court of Appeals, rejected the suggestion that the existence of a retention “somehow separates this single policy into two, leaving [the insured] with absolute authority over small claims (those less than $25,000) and [the insurer] with power over the remainder”.

26 Settlements If the insurer bears responsibility for claim-handling …  In American Home Assurance Co., Inc. v. Hermann’s Warehouse Corp., the Court held that an insurer owes no duty of good faith to the insured when settling a claim requiring a substantial contribution from the insured’s retention or deductible. It held that the insurer can settle without bone fide regard to the insured’s interests and still recover the deductible.

27 Settlements If the insurer bears responsibility for claim- handling …  In Canada it is clear that an insurer must consider the policyholder’s interests when settling claims outside of the upper limits of the policy

28 Settlements Shea v. Manitoba Public Insurance Corp reads: “[A]n insurer may owe duties to its insureds which are fiduciary in nature, but that it is not a true fiduciary since the commercial nature of the relationship between the insured and insurer does not require the latter to act solely for the benefit of its insureds, and does not demand a duty of undivided loyalty. The insurer is held however, to a duty of good faith, and fair dealing, and to give equal consideration to its insured’s interests with its own.”

29 Settlements THE IMPORTANCE OF POLICY LANGUAGE Consider: Express language imposing a duty upon an insured to attempt to resolve claim within an SIR Express language stipulating that where a policyholder refuses to settle a claim within a SIR, the insurer’s liability is limited to the extent of the offer

30 THE IMPORTANCE OF POLICY LANGUAGE CONSIDER: Who is responsible for adjusting and defending claim When and how this responsibility is trigged Whether the expense incurred to adjust and defend claims applies against the SIR/deductible Whether the consent or approval of the insurer is required to settle claims outside of the SIR/deductible Whether the consent or approval of the policyholder is required to settle claims within the SIR/deductible

Questions?

Thank you!