A €3.1M Claim Behind a €1M German Policy and a $10M Master

Confirm the DIC trigger before you talk numbers. DIC responds to the difference between the local policy and the master terms - but only where the master would have responded and the local policy does not, and only subject to the master's own terms, retentions, and exclusions. Three checks:

1. Is the claim even within the master's grant? Read the master's territorial and jurisdictional scope and its product-liability grant. A U.S.-written master may respond to a German loss; it may not, and may respond only to claims brought in the U.S. If the master excludes or limits non-U.S. suits, the tower is €1M and the rest is the insured's balance sheet.
2. Is there a scheduled-policy requirement? DIC programs usually respond only over scheduled local policies. Confirm the German policy is scheduled and its limits and terms are accurately recorded; a mismatch between the schedule and the actual local policy is a chronic source of disputes after a large loss.
3. Allocation and retention. Establish how the local deductible and any self-insured retention interact, whether the master drops down for a local-policy exclusion (not merely an exhaustion), and whether defense costs are inside or outside limits at each level. A €1M limit eroded by defense costs is a materially different tower than one that is not.

Also check the Mexican exposure now, not later: the contract manufacturer's own policy, the indemnity in the supply agreement, and whether the insured is an additional insured. That is often the only real recovery in a component-failure loss, and it is waivable by delay.

Recognize it as a control conflict, not an administrative detail. The German panel counsel is retained by and reports to the local insurer; that firm's judgment about reserving, admitting facts, and settlement posture may not align with the master carrier's interests in a €3.1M loss where the master has the larger exposure.

Practical approach:

• Get panel counsel's engagement letter and reporting obligations in writing. Establish that the firm will provide you the same reports and file materials it provides the local insurer, with the insured's consent. Many local regimes permit this; some do not, and you need to know which one you are in.
• Do not reflexively appoint parallel counsel. Duplicate defense in a strict-liability jurisdiction invites inconsistent positions and doubles cost that erodes the tower. Instead, consider a monitoring or oversight arrangement - a coverage and strategy monitor rather than a second defense - with a clear, narrow scope.
• Reserve rights on the control question in writing if the local insurer's handling creates a coverage defense or a settlement the master would not have authorized.
• Coordinate a single position on liability and damages. In a strict-liability regime, defending the defect is usually less productive than contesting causation, the extent of the business interruption, and the customer's mitigation. Two firms disagreeing about the defect will be cited by the subrogating insurer.
• Confirm consent and cooperation obligations in both policies before any settlement discussion - a local settlement that prejudices the master's subrogation rights against Mexico is a real risk.

Reserve in the currency of the obligation, report in the currency of the policy.

• The German policy limit and the local reserve are in euros. The master policy limit, retentions, and your reporting are in dollars. Convert at a documented, consistent rate - the rate at the reporting date, applied the same way every period - and record the rate in the file. Do not re-rate the loss every time the currency moves; that produces reserve swings that look like development and destroy trend analysis.
• Break the reserve into components: indemnity for the property damage, the business interruption exposure (which is the softer and often larger number), defense costs, and a separate line for the subrogation defense. A single blended reserve hides which part is moving.
• Reserve to probable ultimate cost on the whole loss, then show the tower. If the probable cost is €3.1M, the master's exposure is roughly the excess over €1M plus defense, before any recovery from Mexico. Show that calculation explicitly so the excess carrier sees both the gross and the net.
• Flag the limitation issue in the reserve rationale. A three-year period with a different discovery rule than the U.S. may shorten your window; a claim that becomes time-barred is a reserve release, but a claim you let lapse by mishandling the calendar is an errors-and-omissions exposure.
• Review at defined milestones - panel counsel's first report, the customer's documented BI submission, and the first subrogation demand. Reserve adequacy questions should be answered with evidence at those points, not with a quarterly guess.