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Follow form excess liability seldom provides uniform coverage: Experts

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Theresa Guertin, John Grimaldi and Mary Bishop

HOUSTON — Construction insurance buyers should carefully review follow form excess liability policies because they rarely provide the coverage the name implies, a panel of experts said.

“There really is no such thing as follow form coverage,” said John Grimaldi, senior vice president at Navigators Group Inc. in New York. “All carriers have different follow form formats.”

Different wordings, exclusions, different interpretations of coverage and different applications of aggregate limits often result in disputes over coverage between owners, contractors, subcontractors, primary insurers and excess insurers, he said during a session of the International Risk Management Institute Inc.’s Construction Risk Conference on Tuesday in Houston.

Policyholders and brokers should read all the follow form policies of the excess insurers they use to fully understand the coverage that’s being provided and to resolve gaps in coverage, Mr. Grimaldi said.

“Words matter,” said Theresa A. Guertin, a partner at Saxe Doernberger & Vita P.C. in Trumbull, Connecticut.

“This is an area where people have been working for years and years under misconceptions, and if you simply read the language of the policies carefully you will find that you might have the wrong idea of what your excess coverage does,” she said.

The issue is further complicated by the use on some projects of a variety of controlling underlying policies, Mr. Grimaldi said.

“There should one controlling underlier,” he said.

Brokers and policyholders should build a road map of what they are trying to achieve with their primary and excess coverage, said Mary Bishop, New York-based associate partner at Construction Risk Partners, a unit of Jardine Lloyd Thompson Group PLC.

And once policies for a project are issued to all the parties involved, contractors should review the policies where possible, she said, although that can be challenging.

“If we could get a copy of every single trade contractor’s policy at the primary and excess level, that would be great, but we don’t live in a perfect world,” Ms. Bishop said.

Where they do see inaccuracies or gaps in the placements, “brokers should be asking for changes because by and large the underwriter will say ‘Sure, I can live with that,’ but if you don’t ask you don’t get,” she said.

One solution to the problem of inconsistent follow form excess coverage would be for insurers in the United States to follow the example of London market underwriters where every excess underwriter signs off on the same slip, Ms. Bishop said. “That’s not the way we roll here in the States, but that would be the goal.”

Another possible solution would be the purchase of a wrap-up policy, which can provide seamless coverage, she said.