What types of insurance policies are there? Well, there are many many types. But let’s talk about the basic types that end up in mediation or end up in claims. In this episode, Host, Jean Lawler–commercial + insurance mediator and arbitrator–draws from her deep knowledge of the insurance industry, insurance policies and the various risks they insure against to talk about: a first-party policy vs. a third-party policy, primary and excess policies, an occurrence policy vs. a claims-made policy, tower of insurance, and more!
To read the full episode transcript please see the Podcast Website.
About the Host:
Based in Los Angeles, CA, Jean Lawler is an attorney and mediator, focusing on commercial, insurance and civil litigation matters pending at the trial and appellate levels - wherever filed. She regularly mediates a wide variety of insurance, business, and tort matters, as well as federal ADA accessibility lawsuits re architectural barriers and websites. CIPP/US (Certified Information Privacy Professional) certified, Jean also mediates matters involving data breaches, ransomware, and cyber losses. She has mediated hundreds upon hundreds - thousands - of cases over the years with a myriad of issues. For a more detailed sampling of the types of mediations that she has conducted and participated in, both when in practice and as a full-time mediator, please refer to her web page detailing Representative Matters.
Prior to becoming a full-time mediator in 2017, Jean was a Senior Partner in a Los Angeles based litigation firm, representing corporations, professionals, non-profits, individuals, and insurers in a broad range of matters, at trial and on appeal - mediating hundreds upon hundreds of cases over the years. Her legal experience has been diverse and international, and she has a deep knowledge of the insurance industry, insurance policies and the various risks they insure against (primary, excess, reinsurance, program, surplus lines, London Market, and international insurers). She also served as a Managing Partner of her former law firm, at times chairing the firm’s Insurance Law, Cyber & Privacy Law, International Law, and Business & Real Estate Transactions practice groups and, ultimately, served her many clients as counselor and trusted advisor.
As she would tell you if asked: “I absolutely love what I do! I would be honored to serve as your Mediator or Arbitrator.”
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JEAN LAWLER:
Hi, I’m Jean Lawler, your host of the ROADS TO Resolution ~Closure and ~Certainty podcast. It’s so great to be here with you today, and thank you for joining me. Thank you for your time.
Today, I thought that I would talk about the types of insurance policies and some vocabulary as it pertains to types of insurance policies. In one of my earlier presentations on this little mini series on insurance for mediation and for non-insurance lawyers, I did say I would get back to some of these things that we’ll talk about today. So, here we go.
What types of insurance policies are there? Well, there are many many types. But let’s talk about the basic types that end up in mediation or end up in claims. And those are what would be called “first” or “third-party” policies. So what does it mean, a first-party policy or a third-party policy, when those phrases are used?
A first-party policy is a policy that provides benefits, pays money to the insured when the insured has suffered a loss of property, essentially. Fire policies, your homeowner’s policy–well the property part of your homeowner's policy–wind, flood, earthquake, loss of jewelry, loss of artwork, damage to artwork or to jewelry. There’s a first-party component to your auto policy, for example. There’s a first-party component to cyber insurance policies. Again, for short-hand purposes, any type of coverage that provides the insured with policy benefits for the loss that they suffer for property of some sort–that type of thing. But it's all for the insured’s own loss, with the payment being to the insured.
A third-party policy on the other hand protects an insured against liability exposure to a third person. So you get in a car accident, your dog bites somebody, your business commits some sort of an invasion of–I don’t know–all sorts of things, an infringement of some sort, or bodily injury or property damage that somebody else suffers because of your acts. Then the third-party policy will provide coverage for you, for what has to be paid to the third-party. So, there’s no payment to you as the insured, there’s only payment to the third-party.
Now the little asterisk there would be payment of attorney fees, because a third-party policy does generally, and there’s no such thing as anything finite, I don’t think, in insurance. You have to, of course, read the policy, but most third-party policies will provide a defense for the insured. The insurance company will pay for the attorney that is hired to defend the insured. So that’s not money to you directly, necessarily, but it is money to the law firm for what services they are providing to defend the insured against the third-party exposure to the person who’s been injured.
So that’s first and third-party.
Really, and when you’re talking third-party, those could be exposures from construction defect, commercial exposures, all sorts of things. And the policies, when I say primary and excess, here, primary policy is the first level–the first layer of insurance. That’s the policy that would have the first obligation for defense or indemnity. And that obligation generally would exist, again providing that there’s coverage for the loss and all other things being considered. But keeping it simple, the primary policy would apply until and unless it’s exhausted.
So what’s exhaustion? That’s when the policy has paid out its full policy limits. It may be on one claim. It could be on multiple claims over time depending on what the policy limits are per occurrence and in the aggregate. The aggregate is where you aggregate all of the losses together.
So, the policy that sits on top of a primary policy is an excess policy. And you see those in commercial situations. They are also available on a personal basis, personal excess liability policy that would sit over your homeowner’s, your auto, underinsured, uninsured auto–that type of thing, boats, etcetera. So excess policies come on top of the primary and so if the primary is exhausted, then the excess would have the next level of obligation–if you will. Assuming again, that all things are equal, that it applies to the loss–to pay a judgment, to add more money to settle a claim, possibly to provide a defense. It’s just all depending on the language of the policy. So when you hear this–primary and excess–that’s what it is.
When you hear “tower of insurance” that generally means the tower that goes up for any particular given year of the primary layer first, then the first level excess. You could have second, third, fourth, you could have a lot of excess carriers. You could have like a group of them that each take a certain amount of that risk, at that higher level. That’s a tower. And it could be that a tower is exhausted or not. And exhaustion in some states can be horizontal exhaustion–meaning like in construction defect cases where you could have had continuous and progressive property damage occurring over the course of a number of years and so you have multiple years of insurance on that. Once all those have exhausted, then that’s called horizontal exhaustion. And then the legal question would be if there needs to be horizontal exhaustion for the excess to get involved or not.
If it is vertical exhaustion….Vertical exhaustion is going up, like in the tower. So if in one year, the primary exhausts and let’s say there’s one level of excess, or there’s no excess. Actually, let’s keep it simple. No excess insurance, just years worth of primary insurance and it's a construction defect case, then if one policy year has exhausted, if it's vertical, then that year is gone. (Of course it's gone too if it's horizontal, but you get the picture.) The tower exhausts, there may not be any insurance for any property damage or bodily injury or other insured loss that happens during that year. Certainly there wouldn’t be if the policy is exhausted.
So that’s what’s meant by that. Now, I had said in one of my earlier videos that I had referenced the word “occurrence policy” and “claims-made” and that I’d come back to that and at least talk a little bit about what that means.
Well, an occurrence policy is a third-party liability policy that provides…A simple general liability policy for example, it provides coverage for bodily injury or property damage that occurs during the policy period so long as that bodily injury or property damage is caused by an occurrence. And you have to look at the actual insuring agreement to see what all the requirements are, but that’s kind of it in a nutshell.
So the occurrence does not have to be during the policy period, it's a bodily injury or property damage that has to be during the policy period under most occurrence policy language. Again, not all, you have to read the policy.
Claims-made policy on the other hand is….like a professional liability policy, or directors and officers policies, those will be claims-made policies and those apply to claims that are first made during the policy period or first made and reported during the policy period. Again, you have to look at the policy. So that way, only the policy that’s first in line at the time that a claim is deemed to have been made would be the policy that responds. So, those are some concepts about types of insurance policies and what you may encounter as you mediate these cases, some of the vocabulary.
It’s a pleasure being with you here today. Thank you so much for being here and please feel free to follow me on LinkedIn or on YouTube, like my presentations, and on my podcast, and thank you so much. We’ll see you later. Bye.
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