I do not think this has changed. No building can have more extended coverage(named perils) than the amount of the fire insurance. This was the rule in my first training school and I think with Risk of Loss coverage the amount is level. Also in the package policy some items have specific limits like objects in the open. (outside).

Not enough info, Ray.

Though the policy will likely have a clause that limits the duty to defend once the claim has been settled or adjudicated at or above limits, it is considered bad faith handling in most situations to simply pay the limits so the insurance company can walk away without incurring the cost of defense.  The newer ISO forms do not allow for simply paying the limits and walking away from the claim.  Assuming one of the newer ISO forms is being used, xyz owes both the defense and the limits of indemnity.

I'm not sure the location of the underwriter is germane to the loss, but perhaps you have some reason for locating xyz in Boston.  A more useful fact would be the venue of the loss.

You are 100% correct Steve. The cost of defense on a standard ISO policy (auto-GL) is outside the limit on the occurance limit. MANY of the non-admitted carriers (EU) insurors, the cost of defense is within the limit.

Now the second part of the question.The next layer is from 3 million to seven million with the cost of defense inside the limit. The jury award is 6.5 million and the excess carrier is expected to pay its pro/rata share of the defense cost of  2.56 million. You are the general counsel for the excess carrier based in Bermuda. (this is a hypo). What  total amount should the general counsel approve.

** The excess policy has the cost of defense, WITHIN the occurance  Limit**

Now I'm getting a feeling like the old fox is getting ready to lead me into the lair.

Is the next layer an excess layer or a reinsurance layer?  I assume an excess layer since you refer to it as an excess carrier, but let me know if I am correct.  Not sure this is going to make a difference, but I want all the facts.

I'm going to take a shot at this even though the esteemed Mr. Hall may have a twist or turn waiting for me. These are the facts as I see them:

1. The total of the indemnity (6.5 M) plus the expense (1,870,000.00) is $8,370,000. This clearly exceeds the 7 million available under both policies.
2. The total of the expense alone is $1,870,000.00. You mentioned that they have agreed to a pro rata share (4/7 of the total assuming there is no second layer of excess), so the pro rata share of the legal expense is $1,068,571.43.

That leaves an additional (4,000,000 minus $1,068,571.43) $2,931,428.57 of their limits that can be paid on indemnity. Their total payment would be $4,000,000.

This, however, leaves the insured still exposed for (6,500,000 minus 3,000,000 under primary coverage and $2,931,428.57 under first layer of excess) $568,571.43.

Which means the insured is going to sue everybody for bad faith and they will have to defend themselves at significant cost and risk to themselves. So it would have been much better for the first layer of excess to have paid the remaining $3,500,000 owed under the indemnity first and then pay the additional $500,000.00 remaining on their limits on the expense side. Again they are paying $4,000,000.00 but they are avoiding the bad faith exposure for everyone concerned.

Of course, I expect there is a second layer of excess hiding in the fox's den somewhere. In which case, I quote Emily Litella and say, "Never mind!"

If the offshore company is the first layer of reinsurance, the primary carrier has already paid the entire bill and the first layer of reinsurance reimburses them the 4 million and washes their hands of the matter.

Steve to tell the truth, I dont know the answer. I did not know it when I made the post. This group of old adjusters will be able to arrive at the correct answer. This is not reinsursance. It is excess of primary insurance with the same conditions. This a hypo and no trick questions.This could be a real life situation. So...... all excess over primary liability adjusters start thinking of the best claim practice.

'We chickens need to be a little bit wary, Steve.......the fox laid out the bait & strung up the snairs.  But all of a sudden, it seems like the fox might be retreating.  It Mr Fox comes back with more bait, us chickens might stick our necks out.  BokBok!!!

I am not a fox, just an old rooster trying to be of service  large flock of chickens. ert the ert er......

I do not know the correct answer.... may not be one.... but I have the option to refine my thinking when I listern . The most recent book I have on Insurance Coverage Disputes was printed in October 1992 when I was doing large liability claims.

Here go's the primary insurer pays 3 million. The excess pays 3.5 million on the Liability cover to settle the judgement/settlement. It was apparent when the trial started each carrier would have a duty to furnish best defense possible. The combined legal expense was2.56 million. I think like Steve that the first excess 3-8= 4 million would pay their 3.5 Mil, plus the additional 500,000. remaining under their {inside the limit} cover. This is the problem with ISO liability polices mixed with non ISO policies.

This will be a problem with excess of primary flood insurance layered up with CP's forms with flood limits,in the event of the insured bringing suit after 2 or 3 handoffs.

OK Brer Fox,

Here's one for you. 

In the same liability scenario above, it is still within the statute of limitations and one of the parties involved in contribution to the liability was previously unidentified.  New evidence is developed and the additional party is identified.   This party contributed to the loss to the tune of 25% in a comparative liability state.

Can the claimant file suit against the newly identified party even though he/she has collected fully from their two insurers based on the verdict already rendered?  Can the two insurers who have already paid subrogate or seek contribution against the newly identified party?  Can they file a cross-complaint?  If there is any recovery from the newly identified party, who gets to take the first bite of the subrogation apple if one company is primary and one is excess?  If one company is reinsuring the other, who gets the first subrogation money then? 

And the most important question of all -- Is there any real life jurisdiction where the legal system moves fast enough that the statute of limitations might still be open after a file has made its way through the court system?