The Umbrella That Sits Above the SIR
Harbor Logistics operates a fleet of delivery trucks and a warehouse. Its primary CGL policy has a $1,000,000 each-occurrence limit, a $2,000,000 aggregate, and a $100,000 self-insured retention for bodily injury. Its umbrella policy has a $5,000,000 limit and attaches only after the primary limits are exhausted. A forklift operator injures a visitor; the claim settles for $1,400,000. Harbor also faces a separate property damage claim from a neighboring business for $300,000 arising from a dock collapse. The primary insurer has paid $1,000,000 on the bodily injury claim and $250,000 on the property damage claim. Harbor argues the umbrella should drop down to pay the remaining $400,000 bodily injury and $50,000 property damage because the primary aggregate is eroding.
1. Determine how the primary and umbrella policies respond to the two claims, including the SIR and the aggregate.
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Start with the primary. The bodily injury claim settles at $1,400,000. The primary pays its $1,000,000 each-occurrence limit, but first Harbor must satisfy the $100,000 SIR, so the primary actually pays $900,000 and Harbor pays $100,000, unless the SIR is written to sit inside the limit. That distinction changes the numbers and must be read from the policy. The remaining $400,000 bodily injury is above the primary limit and potentially within the umbrella. The property damage claim of $300,000 is paid by the primary at $250,000, leaving $50,000, which may fall within the primary's remaining aggregate if the aggregate is not exhausted. The primary aggregate is $2,000,000; payments of $1,000,000 plus $250,000 total $1,250,000, leaving $750,000 of aggregate. So the $50,000 property damage balance is still within the primary and the umbrella does not attach for it. The umbrella attaches only after the primary limits are exhausted for the occurrence or the aggregate is exhausted. Harbor's argument that the umbrella drops down because the aggregate is eroding is wrong unless the umbrella has a drop-down provision triggered by insolvency or exhaustion.
2. Explain when an umbrella drops down and how the SIR interacts with the umbrella's attachment point.
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An umbrella is excess over the primary and generally pays only after the primary limits are exhausted by payment of claims or by the insured's payment of the SIR. Drop-down occurs when the primary insurer is insolvent, when the primary denies coverage, or when the primary limit is exhausted by defense costs if the policy so provides. Here the primary is solvent and has paid its limit on the bodily injury claim, so the umbrella attaches to the $400,000 excess. The SIR is the insured's obligation and does not count as primary insurance for attachment purposes unless the umbrella expressly provides otherwise. If the umbrella requires the insured to maintain the primary and the primary aggregate is exhausted, the umbrella may attach earlier for later claims. Harbor should confirm whether the umbrella's schedule of underlying insurance lists the SIR, because a mismatch can create a gap. It should also check whether the umbrella has its own SIR or deductible and whether defense costs are inside or outside the limit. Finally, Harbor should verify that the property damage claim is not barred by the primary's aggregate before assuming umbrella coverage.