When any one claim might not be just one claim

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When delving into the realm of financial lines placements—ranging from Professional Indemnity to Cyber Liability and Directors & Officers Liability—we frequently encounter terms like “any one claim” or “in the aggregate” following the indemnity limit. These terms play a pivotal role in outlining how the the indemnity limit will function. Let’s revisit their meanings for a moment:

• Any one claim (AOC) – A distinct limit applies to each separate incident, with emphasis on the word “separate.”
• Aggregate – The entire array of claims within a specified year or policy period relies on this limit. Claims made throughout the policy term gradually erode this limit.

Understanding the concept of an aggregate limit is relatively straightforward. However, I’d like to delve deeper into the intricacies of AOC.

Clients might assume that every time they receive a letter of claim, the full indemnity limit stands at their disposal for response. Yet, this is not always the case. Consider the following scenario: A bank faces a software failure instigated by a third party, resulting in customer financial losses. Common sense dictates that the single causation will prompt multiple claims from affected individuals.

Digging deeper, the bank’s insurer uncovers that the software provider was responsible for the failure due to an error in design, despite the bank’s meticulous compliance with operational instructions. Subrogation enters the scene, potentially shifting the responsibility to the software supplier.

Here’s where the complexity arises:

The software supplier’s Professional Indemnity policy carries an AOC indemnity limit of GBP1m. You might wonder, where’s the issue? It’s seemingly a scenario of multiple claimants emanating from a single event.

However, this situation deepens when it’s revealed that the software provider had distributed the flawed software to five other banks, all encountering identical issues. Insurers might argue that the events are interconnected under a singular claim, entitling them to a solitary indemnity limit for addressing claims from all six banks. While the software supplier benefits from a single excess payment, the risk of depleting the indemnity limit escalates significantly.

Think of it this way, if a dozen thieves pilfer from your warehouse through a window left open, the root cause remains the single mistake of the open window, rather than attributing it to a dozen thieves.

As the financial lines insurance market undergoes softening, opportunities emerge to secure increased indemnity limits. You can now potentially reverse the adjustments necessitated during the preceding hard market years. Strategically structuring your placement can also guard against exhausting the limit in scenarios like the one described above.

Questions to ponder: Do your financial lines policies carry any, one claims limits? Has your broker expounded on scenarios akin to the one mentioned above, prodding you to re-evaluate whether your overall limit of liability—whether on an aggregate or AOC basis—is robust enough to encompass the serial nature of claims your business could encounter? Is your excess appropriate in the event that multiple claims arise? It’s a consideration that can safeguard your business in an evolving landscape.

Take control of your coverage. Reach out to our experts by clicking below, and ensure your indemnity limits align with your businesses serial nature of claims.