We received 29 responses to our survey request on whether PAR insureds had written guidelines for reporting claims to excess or umbrella carriers. Our thanks to those who responded. This article is to give you information about how you can incorporate what appear to be “best practices” in this area into your own procedures.

Injury Severity

Most PAR firms have severity parameters they consider before reporting a claim to excess/ umbrella insurance companies. The most common bodily injury citations are:

A) Fatality(ies). B) Serious injury(ies), such as: - Severe brain injuries/ head trauma. - Paralysis. - Severe burns. - Amputation of an arm or leg, or multiple amputations. - Alleged permanent loss of any sense -- sight, hearing, taste, touch, smell. - Any facial disfigurement. C) Also mentioned at times are: - Coma. - Severe injuries in general. - Multiple claimants with severe injuries. D) Any injury that is likely to prevent someone from returning to his/ her prior occupation, or one that might be considered a total disability.

If you have additional bodily injury “qualifiers” not listed here, please include them in your procedures/ guidelines.

Primary Limits/ Underlying Claim Amount

A) It’s common for PAR firms to evaluate a loss compared to the primary policy limit. That is, could the dollars from the loss eat up enough of the primary policy to make it wise to put the excess/ umbrella carrier on notice? Frequently, the reference is to 50% of the primary policy limit, although 25% may be what’s used. B) Some consideration should be given to any limits that may already have been, or are likely be, eroded because of other claims. This may require periodic review because a subsequent claim may erode the limits and increase the possibility that an excess exposure could be triggered. C) Perhaps a particular dollar amount, say $250,000, might be a report trigger as well.

Other Factors

In terms of other factors to take into consideration prior to reporting to excess/ umbrella insurers, we offer the following:

A) A lawsuit that’s connected to a claim on the primary policy is another reason to involve the excess or umbrella insurance company(ies). If such a suit has been filed, it is typical to attach a copy of it to the claims report. B) Should the client or the primary underlying insurer ask that the loss be reported to the excess or umbrella carrier, that is justification for doing so -- even if none of the customary bodily injury or claim amount indicators have been met. Some PAR insureds also will report to excess insurers if the third-party claimant requests it. C) In those jurisdictions in which a Statement of Damages or its equivalent is provided by a plaintiff’s counsel, and the amount claimed is in excess of available primary limits, the excess or umbrella carrier should be placed on notice. D) When there are several excess or umbrella layers, the bodily injury and primary claim size examples above need to be applied to which carriers to notify. E) Note that, although it is less likely, a property damage liability claim large enough to report to an excess/ umbrella insurance company could occur.

Summary and Conclusions

1. The Quality Management Program expects all PAR insureds to have some form of written excess/ umbrella reporting guidelines. So, if your agency or brokerage doesn’t have such guidelines, you need to develop them. Should you already have such written guidelines within your claims procedures, we suggest you look at them in light of what’s in this document. 2. Remember these properly are styled as guidelines. We realize decisions to report significant claims to excess or umbrella carriers have been, and will continue to be, governed by the knowledge and experience of PAR agencies’ claims professionals. Our goal in wanting you to have written guidelines is to memorialize what to ponder if/ when this knowledge and experience aren’t available for consultation. 3. Due to E&O claims we have seen which concerned late reporting (or no reporting at all), the Quality Management Program suggests you err on the side of caution. That means providing a notice to an excess/ umbrella company even when it may seem premature. Understand we are not recommending the extreme of reporting all primary liability claims to excess or umbrella insurer(s). We’re pointing out that a potential exists for significant, negative consequences if you fail to report in a timely fashion. 4. There are differences of opinion on the necessity for two claims reports if the same insurance company is both the primary and the excess/ umbrella carrier. To the QMP, one report can work for insurance companies which house their primary and excess or umbrella claims personnel at one location, and it’s specified that the single report is to apply to each policy. But, especially for larger insurers having adjusters in different offices (perhaps in different cities), it troubles us to count on a single report being sufficient notification on both policies. Our advice is to make separate loss notifications and be certain they adhere to the reporting requirements spelled out within each of the policies. 5. Some PAR firms forward claims reports to excess/ umbrella insurance companies via registered electronic mail or facsimile. This could be something you wish to do as well. 6. In line with our continuing love affair with checklists, forms, and form letters, we suggest a templated form letter be developed to accompany the claims you report to excess or umbrella insureds. This letter would explain why the claim is being reported, plus pass along any other relevant information.

Finally, Ken Rothschild offers the following thoughts:

1. Although it is uncertain how often this occurs, what if the insured does not want the excess carrier placed on notice? There certainly are situations where insureds don’t want a potential claim reported for fear of increased rates. Even getting a client’s “sign-off” might not fully protect the agent or broker, but it’s absolutely in order to have some communication about the potential problem with failing to report. 2. Where the primary insurer issues a reservation of rights (RoR) letter, and the excess/ umbrella company has drop-down provisions, remember that a minor claim could trigger the excess/ umbrella policy -- if the RoR turns into a denial. 3. Care should also be taken in evaluating liability and its impact on the overall exposure when there are co-defendants. The client may not have an exposure significant enough to trigger the excess limits. But, a co-defendant with inadequate limits could increase the client’s exposure under Joint and Several Liability, depending upon applicable law in the jurisdiction. In addition, contractual indemnity may shift liability for a client which has limited exposure based on its own negligence, but which can owe indemnity to a co-defendant. 4. Another pitfall might be if the indemnity exposure is within the primary limits (even a liquidated amount below the limits), however the defense costs erode the limits. In certain situations, e.g., professional liability, multi-party cases, the defense costs could be significant. Sometimes such costs may be equal to, or greater than, the indemnity exposure, so this should be considered as well. Please let me know your comments, questions, or additions, to what’s been stated here.