The Specific Excess Policy Of Company F Requires Retention

The Specific Excess Policy Of Company F Requires A Retention Of 80

1. The specific excess policy of Company F requires a retention of $80,000 per occurrence. The aggregate limit of this excess policy is $200,000. Suppose three separate covered losses occurred during the policy period: $150,000, $140,000, and $170,000. Company F will retain $_________ of its losses.

2. Company H is insured under a commercial general liability (CGL) policy with occurrence and aggregate limits of $1 million each. Company H also has an umbrella policy with an each occurrence limit of $2 million. The inception date of the CGL policy is January 1, and the inception date of the umbrella policy is April 1. Company H was sued in March, and the CGL policy paid $800,000. Another two claims were made in May and July against Company H for $1,500,000 and $600,000 respectively. The umbrella policy will pay $____?

3. Company X is insured under an umbrella liability policy that requires Company X to maintain CGL insurance with an each occurrence limit of $1,500,000. The umbrella policy has an each occurrence limit of $1,000,000. Several months into the policy period, the CGL policy was canceled. Later in the policy period, Company X was sued for two separate damages of $3,000,000 and $500,000. Company X will retain $___ of the losses.

Paper For Above instruction

The given problem provides scenarios involving different types of insurance policies, primarily excess and umbrella liability policies, and requires calculating the amount retained or paid by the insureds based on policy limits and specific conditions. In this paper, each scenario will be analyzed separately to understand the mechanics of insurance coverage application, aggregate limits, retention amounts, and how claims are settled within policy terms.

Scenario 1: Company F’s Excess Policy and Loss Retention

The first scenario deals with Company F's specific excess liability policy, which has a retention (or deductible) of $80,000 per occurrence and an aggregate limit of $200,000. This means that for each incident, the company must cover the first $80,000, and the insurer covers anything beyond that, up to the coverage limits. The total maximum payout over multiple incidents is capped at $200,000.

The three incidents recorded during the policy period involved damages of $150,000, $140,000, and $170,000. For each occurrence, the company's retention of $80,000 applies first. So, the amounts retained by Company F for each incident are calculated as follows:

• First incident: $150,000 damage. Company F retains $80,000, and the insurer covers $70,000.
• Second incident: $140,000 damage. Company F retains $80,000, and the insurer covers $60,000.
• Third incident: $170,000 damage. Company F retains $80,000, and the insurer covers $90,000.

Now, summing the amounts retained by Company F: 3 incidents × $80,000 each = $240,000. However, since the aggregate limit is only $200,000, the insurer's total payment across all incidents cannot exceed this cap. The insurer initially covers up to $200,000 - (sum of retained amounts), but because the total retained is $240,000, exceeding the aggregate limit, the insurer's actual payments are limited accordingly.

Therefore, the total losses retainable by Company F are the sum of its retained amounts, constrained by the aggregate limit. The total amount that Company F will retain from these losses is $240,000, but since the aggregate policy limit is $200,000, the insurer would only pay out $200,000, leaving Company F responsible for the excess. In conclusion, Company F's total retention (the amount it must cover) is $240,000, but the insurer's total contribution is limited to $200,000, effectively reducing the company's retained losses to the maximum allowed.

Scenario 2: Company H’s CGL and Umbrella Policy Payments

In the second scenario, Company H is covered under a CGL policy with an occurrence limit and an aggregate limit of $1 million each, along with an umbrella policy providing an additional layer of liability coverage with an per-occurrence limit of $2 million. The key dates are crucial: the CGL policy began on January 1, while the umbrella policy started on April 1. Company H was sued in March, before the umbrella policy was active, and the CGL policy paid $800,000. Subsequently, claims in May and July involved damages of $1,500,000 and $600,000 respectively.

Given that the CGL policy had an inception date of January 1 and paid $800,000 for the March claim, this amount exhausts a significant portion of its $1 million limit. For the May claim of $1,500,000, the CGL policy has already been exhausted, leaving the umbrella policy to potentially cover damages exceeding the remaining limits. However, since the umbrella policy began only on April 1, it was not in effect during the March claim, and thus cannot contribute to that payout.

The July claim for $600,000 occurs after the umbrella policy is active. Because the umbrella policy has an each occurrence limit of $2 million, it is sufficient to cover this new claim, provided no other claims exhaust its capacity. The previous claim's coverage didn’t involve the umbrella policy, so the umbrella would only respond to damages exceeding the remaining limits of the CGL policy, which are fully exhausted after the $800,000 payment. As such, the umbrella covers the remaining damage of $600,000.

The total payout from the umbrella policy is therefore $600,000, which is within its per-occurrence limit. The umbrella policy's maximum per-claim payment is $2 million; since the damages are lesser, it fully covers the claim. The total payout from the umbrella policy is $600,000.

Scenario 3: Company X’s Umbrella and CGL Policy and Subsequent Losses

In the third scenario, Company X has an umbrella liability policy requiring maintenance of a CGL insurance with a per-occurrence limit of $1.5 million. The umbrella policy itself has a per-occurrence limit of $1 million, but damages claimed are $3,000,000 and $500,000, respectively. The CGL policy was canceled during the period, which complicates the coverage calculations.

The critical issue is that after cancellation of the CGL policy, the umbrella policy still provides coverage for damages, but its limits become the primary source of coverage. The damages are two-fold: one for $3 million and another for $500,000. These are significantly higher than the umbrella's per-occurrence limit of $1 million.

Given the coverage caps, the liability for the first damage of $3 million exceeds the umbrella's per-occurrence limit. The umbrella will pay up to $1 million, and the remaining damages—$2 million—are not covered unless additional coverage is available. The second damage of $500,000 is within the umbrella's per-occurrence limit, so it will be fully covered if the policy is still active during the claim.

Because the policy period includes the time after the CGL cancellation and the damages occurred afterward, Company X will retain part of the damages exceeding the umbrella’s limits. The total retained losses comprise the damages above the coverage caps. Specifically, for the $3 million damage, Company X retains $2 million; for the $500,000 damage, it retains $0, as this amount is fully covered by the umbrella.

Therefore, the company's retention for the damages is $2 million on the first incident and zero on the second, as the damages are within the umbrella coverage limits. Overall, Company X will retain $2 million of the losses due to coverage limits.

Conclusion

The analysis of these scenarios highlights the critical importance of understanding policy limits, retention, and timing of coverage activation. Insured parties must carefully review policy stipulations to anticipate possible liabilities and coverage gaps. Excess and umbrella policies serve to protect against catastrophic losses; however, their effectiveness hinges on the application of policy limits, timing, and specific contractual provisions. Proper comprehension and management of these factors are crucial for effective risk management strategies.

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