Claims-Made Trigger, Retro Date, and a Self-Insured Retention
Prairie Hollow Foods, a poultry processor in Monett, buys a surplus lines commercial general liability policy effective January 1, 2024. The manuscript form provides $1,000,000 per occurrence, a $2,000,000 aggregate, and is written on a claims-made basis with a retroactive date of January 1, 2023. Defense costs are inside the limits, and a 60-day extended reporting period applies. A $100,000 self-insured retention applies to each occurrence, includes defense costs, and must be satisfied before the insurer has any duty to defend or indemnify. In March 2024 the company reports a contamination incident that occurred in November 2022 at a Branson customer. In September 2024 a forklift injures a visitor; it is reported immediately, defense costs reach $40,000, and indemnity settles at $80,000.
1. Which of the two matters is covered, and which policy term decides it?
Read the worked answer
Only the forklift injury is covered.
The contamination claim fails on the retroactive date, not on late notice. On a claims-made form, coverage is triggered by a claim made during the policy period for a wrongful act occurring on or after the retroactive date. The claim was made in March 2024, inside the policy period, so the timing of the report is fine. The occurrence, however, was November 2022, before the January 1, 2023 retro date, so the matter is excluded. The retro date is the insurer's protection against picking up known or older exposure when it first writes the account.
The forklift injury occurred and was reported during the policy period and after the retro date, so both the occurrence and claims-made conditions are satisfied. Do not conflate the two trigger theories: an occurrence policy would ask only when the injury happened; this form asks when the claim was made, then filters by the retro date.
2. How does the self-insured retention apply to the forklift claim, and what does the insurer actually pay?
Read the worked answer
The total loss is $120,000: $40,000 of defense plus $80,000 of indemnity. Because the retention is $100,000 and expressly includes defense costs, Prairie Hollow absorbs the first $100,000 and the insurer pays the remaining $20,000.
The order of payment matters operationally. With an SIR, the insured handles and funds the defense from dollar one; the insurer has no duty to defend until the retention is exhausted, and the insured typically controls or at least participates in selecting counsel during that period. That is the key difference from a deductible, where the insurer defends immediately and simply bills the insured for the deductible. This form also puts defense inside the limit, so defense spending consumes limit rather than sitting outside it.
Watch the erosion trap: if defense had run to $110,000 before settlement, the retention would be exhausted by defense alone and the insurer would begin paying defense costs thereafter, but the settlement would then draw down the per-occurrence limit from the first dollar the insurer pays.
3. What is the remaining aggregate after the settlement, and how should a third claim in the same policy year be analyzed?
Read the worked answer
The aggregate is reduced by what the insurer paid, not by what the insured retained. The insurer paid $20,000, so $1,980,000 of the $2,000,000 aggregate remains. The $100,000 the insured funded under the SIR does not erode the aggregate on standard forms, though the manuscript wording controls and should be read before the figure is quoted to the CFO.
A third claim must clear four gates in order: (1) the occurrence is on or after January 1, 2023; (2) the claim is first made during the policy period or the 60-day extended reporting period; (3) a fresh $100,000 SIR must be satisfied for that occurrence, including its defense costs; and (4) the per-occurrence limit is available up to the remaining aggregate. Because defense sits inside the limit, a seriously litigated third claim can exhaust the remaining aggregate through defense spending alone. Flag for the insured that a claims-made program with an SIR and inside-limits defense transfers far more of the loss-funding burden to the company than the $1,000,000 headline suggests.