In this final episode of the mini-series on insurance and mediation, 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: the insured’s own policy limits and the insured’s own policy and how that then affects the claims and lawsuits that might be asserted against the insured and who’s making payments to settle those. Terms discussed in this episode include:
- “Burning limits”
- “SIR” (self-insured retention)
- Deductible
- Certificate of insurance
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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[intro music]
JEAN LAWLER:
Well, hello I’m Jean Lawler, your host of the ROADS TO Resolution ~Closure ~Certainty Podcast and video. It’s great to be here with you today, and thank you so much for joining me. I know when I started my little mini-series on insurance law for mediators and mediations, I came up with five episodes, but I am making the executive decision to add episode 5.1 here. Something else that crossed my mind that would be of interest probably, that is important anyway. And there’s so many important issues, you can't just stop with five, but that’s where we’ll stop as part of this little mini-series. So what are we going to talk about today? Again, let's get back to money, and who’s on first for funding settlement payments.
You’ll recall that in an earlier session, I talked about additional insured endorsements and contractual indemnity–basically, risk transfer. That said, that’s fine, but let’s talk about another side of this that is different than that, and that is: the insured’s own policy limits and the insured’s own policy and how that then affects the claims and lawsuits that might be asserted against the insured and who’s making payments to settle those.
So, first and foremost, there’s such a thing, a concept, and a reality of “burning limits” and that’s a phrase that’s used, and that’s when the defense costs are paid within the policy limits. So they serve to reduce the policy limits as the attorney, the defense attorney is paid. This is typically found in professional liability policies, professional indemnity as it's called over in the London Market. It could be an attorney, it could be an architect, an engineer, I think doctors, others. Basically, professional liability policies and directors & officers policies, for example. Others may as well, but those are the more common ones.
So “burning limits,” if you’re in a burning limits situation, either as the claimant, the lawyer for the claimant, or the defendant who’s–it's your policy–or you’re counsel, or the mediator who is mediating a matter and learns that there’s a burning limits policy involved, then the goal of all (and there are certainly ethical considerations to be considered), you know, is to see about getting that case solved, especially if it's a policy limit case, because the longer the lawsuit goes on, the more the limits will be reduced and the less money there will be to pay a settlement or a judgment.
And it is certainly the case where limits have all been wasted, a “wasting policy” is another phrase that they might say to use for a “burning limits” policy. But where there is no money left then after some settlements, perhaps, some defense money has been paid, and then there’s another lawsuit, there’s no money left to pay the indemnity on that, to pay the settlement. So if a burning limits policy is involved in a mediation in which you are involved, my suggestion is that you pay close attention to that, and try and get the case settled upfront, as soon as possible to maximize the available policy limits–both for the benefit of the insured and the benefit of the claimant. Alright? Thanks.
Then, where else would the insured be putting in money? For example, if the insured has an “SIR,” self-insured retention, then that’s something a lot of businesses would have, also under professional liability types of policies, D&O policies. So maybe the insured has first layer primary liability insurance for whatever type of insurance it is, but they have chosen to self-insure, essentially, for you know, the first X dollars. Maybe it’s a $1,000,000 policy, with a $100,000 SIR–those are just numbers I’m using. So for any settlement, if the settlement amount would be within in the SIR level, then the insured is the one who’s paying. If it is in excess of the SIR level, then the insured would be needing to put in whatever the amount of the SIR is as the first amount, and then the insurer, the first level insurer, would pay the next amount. And if there is an excess insurer and it's a large claim that is greater than the available limits under the primary policy, then it would go to the excess layer–up that tower, so to speak. So that’s what an SIR is. The SIR is paid upfront, okay, to settle the claim. It’s not something that an insurance company fronts the money for and then goes back and collects from the insured.
Then that’s when we get to a deductible. A deductible is just that. The insurer fronts the money, pays the money, and whatever the deductible amount is, then goes back and the deductible folks working at the insurance company, go back and send the insured a bill for the amount of the deductible, or in some way they handle the deductible, and the insured pays that to the insurance company. As opposed to the SIR situation, where the insured is paying their money to the claimant. Alright?
We also have other insurance. There may be multiple policies of insurance and getting the priorities of those straight, or who’s on, or who’s not, or overlapping insurance–that’s a whole course unto itself. But definitely the mediators need to know that, and then the lawyers need to understand that.
Also, additional insured insurance is not the same as…you’re not an additional insured if you just have a certificate of insurance. A certificate of insurance does not convey “additional insured” status. And I know some brokers will put it on there, you know, so-and-so is an additional insured, and that’s on the certificate of insurance, but the certificate of insurance does say on its face–that does not convey any rights or whatever. It’s just there to let the holder of the certificate know that the policy is in effect.
Silent cyber is an example of overlapping insurance, and if you do have a cyber incident of some sort–a breach, it may involve data, it may not. Usually it will, of course, but it will involve something. Then look at all your insurance because there will be overlapping insurance there. The “who is an insured” section of any insurance policy is important to look at because an insurance policy can provide insurance for more than just the named insured or the additional insured, it will also include insurance for others. And every policy is different on that, so it's very important to look at the “who’s an insured” language.
And then another example of this is uninsured motorist and underinsured motorist coverage. In those cases, the first payment has to come from the liability policy–in that case, the auto, whether it's commercial auto or personal auto policy of the tortfeasor, the one who was at fault. And if that insurance policy has lower limits than the policy does for the one who was injured, the one who was hit in an accident, for example, then that person who was injured will turn to their own insurance carrier under their UM or UIM coverage for payment up to whatever their policy limits are.
So in a nutshell, a lot of different sources are there for funding settlement payments and it all depends on who’s on first, I guess.
Thank you so much for joining me today, as always, a pleasure, and goodbye.
[outro music]