Excess Policies--what does "following form" really mean?

     When I started in this industry we all used the term Umbrella. It was excess over the underlying coverage but provided broader coverage in many areas subject to the SIR which made it a real UMBRELLA. Over the years the broader coverage has diminished and in today’s world it is usually only excess. Some people stress that you should never use the word “Umbrella”. Remove it from your vocabulary and always just use the word EXCESS. One underwriter once told me----”we will give you anything you want provided you don’t have the exposure! If you have the exposure we will either exclude it or make it purely excess with following form endorsements”.

    Following Form endorsements do just that --- they follow the underlying forms. What they cover the Excess policy covers. What they exclude the excess policy excludes. No better; no worse. Sometimes the real effort is making sure that they are at least excess. It is really bad when the “EXCESS” policy provides less coverage than the underlying policies. This can, and does, happen. So, often, the real battle is to make sure that you AT LEAST HAVE excess.

    However, what does Following Form really “follow”-----it follows the coverage and exclusions not the conditions of the underlying forms. Well, that is all you really need---right? Perhaps not especially in the A-I area. With the “Excess and Additional Insureds” Blog we stated that you very seldom add parties as A-Is to Excess policies by endorsement. It is just done in the standard “Who Is An Insured” section. Endorsement are not necessary. HOWEVER, how would this stack?

    Scenario--A General Contractor is doing a large job for a hospital. The hospital demands being added as an A-I and this is done. They also demand that the GC has limits of at least 10 million and that the 10 million applies to the A-I and that the GC’s CGL is primary.

    *The Contractor has a CGL with a limit of 1 million and an Excess policy with a limit of 25 million. The hospital is added to the CGL policy as an A-I and the Excess policy makes them an A-I also. The hospital has their own CGL with a limit of 5 million. It has the standard language that says it is “excess” if the hospital has coverage for this loss as an additional insured somewhere else. All of this is shown to the hospital and they are happy that their demands have been met and that their GL will be “excess” if they have coverage as an A-I somewhere else. 

    *A terrible loss takes place that kills several patients and the loss is caused by the GC’s operations. Everyone agrees that it is the negligence of the GC but the hospital is also sued and is facing the potential of large vicarious liability. 

    *The GC’s carrier agrees that the hospital has coverage as an additional insured. They also agree that the CGL is primary for both the GC and the hospital. However, the loss is going to go way over one million. What happens next?

    Think about this until the next BLOG---do you think that the GC’s Excess policy is now #2 for both the GC and the hospital or only for the GC? Must the hospital look to their own CGL “2nd” prior to the GC’s excess policy even though they are clearly A-I on the excess policy also? The excess policy has standard following form endorsements.

    Think about it. We will get to this HOT area with the next BLOG.