Multiple losses and multiple policies: who pays?

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The question of how to allocate multiple losses has recently come before the Supreme Court in Teal Assurance Co Ltd v WR Berkley Insurance (Europe) Ltd and another [2013] UKSC 57. The decision confirms (absent clear express wording in the contracts) that losses should be allocated in the order that the insured’s liability is established. It also highlights one of the potential problems that policyholders can face when different policies within their programmes of insurance (or re-insurance) contain different wordings.

In the case of reinsurance, it is already well established that losses are to be allocated in accordance with the order that the reinsured’s liability in respect of each relevant loss is established (notwithstanding the principle that reinsurance is [re]insurance of the underlying risk and not a contract to indemnify the reinsured).

Under Black & Veatch Corp’s (B&V’s) professional liability insurance programme for 2007-08, B&V had $5m (£3.2m) of primary layer coverage with Lexington, above a self-insured retention of $10m per occurrence. Above this, B&V had three successive excess layers underwritten by Teal, a captive of B&V (the PI Tower). The top layer was a ‘top and drop’ policy for $10m, also underwritten by Teal…

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