Follow-Form Excess / Umbrella Limits - The Real Deal or Bait and Switch?

02/27/2020 Written by: Maureen Gallagher

Too often, the focus of umbrella/excess (excess) placements is limit and premium. This is especially true when the excess says, “follow form.” The excess policy is not reviewed because it is assumed all the primary terms and conditions of the primary are the same in the excess. As a general matter, most excess policies are not the real deal - a true “follow form” providing the exact same coverage as the underlying insurance. Even if an excess policy is purchased and does expressly state it will follow the terms, conditions, definitions and exclusions of the underlying insurance, invariably, that promise is qualified and usually includes important disclaimer wording – the bait and switch.
For example, one excess liability insurer, after promising to "… follow form the terms, conditions, definitions, and exclusions of the underlying insurance," further states, "… except to the extent that the terms, conditions, definitions and exclusions of this policy differ…. In the event of any conflict, the terms conditions, definitions, and exclusions of this policy shall control." In other words, we follow form unless we don’t follow form—necessitating a complete reading of the excess liability policy to identify where it does not "follow form."
Primary general liability can be written so that the $2M/aggregate policy limit applies per location. This is a significant expansion of limits. Each location has its own $2M aggregate limit. Most excess carriers include language that says, “…the per occurrence limit…is the most we will pay for all damages arising out of any one occurrence to which this policy applies. The general aggregate limit is the most we will pay for the sum of all ultimate net loss.” In this case, the excess policy does not provide a per aggregate limit per location because their policy is specific about limits – they will only pay the occurrence/aggregate limits listed on its own excess policy. Period. In addition, the excess carrier will also have bait and switch language established in their form expressly stating the excess does not follow form if its coverage is different. The excess policy terms and conditions rule.
Unless the excess carrier includes the Designated Location(s) Aggregate Limit of Insurance ISO CU 25 02 12 19 (or a similar) endorsement on its excess policy, there is a very good chance the excess policy is not providing per location aggregate limits due to the bait and switch qualifying language built into most excess forms.
This is not trickery on the part of the insurer—instead, it is a usual and customary practice of excess liability insurers. Buyers should be on notice of this practice and, therefore, should never conclude, without reviewing the complete excess liability policy, that even a policy that begins by promising to "follow form" does so in all circumstances. This is especially true with regards to the per location aggregate limits.
The AssuredPartners Real Estate team is well versed in excess placements. We ensure the proper policy language is in place so there are no limits surprises.  To learn more about our coverage review and risk management services, contact the AssuredPartners Real Estate professionals.

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