Large deductible insurance policies provide many advantages, particularly for large, financially secure employers.1 They have the essential components of self-insurance, given per occurrence deductibles that typically range between $100,000 and $1,000,000, 2 while at the same time provide the financial assurance of the insurer. Large deductible policies require claims payments to be advanced by the insurer,3 thereby allowing the insured to forego the usual bonding requirement of true self-insurance. Moreover, since claims payments within the deductible limit are subject to reimbursement by the named insured, the insured pays a substantially reduced premium.4 Despite contractually shifting risk for claims to the insured, the insurer remains primarily liable for defense and indemnification.5 The insurer’s right to reimbursement under large deductible policies is just that – a right to claim over against the named insured.6 To be sure, most carriers require collateral from the insured to secure the reimbursement obligation.7 In addition, many large deductible endorsements authorize cancellation of the policy for failure to reimburse amounts advanced by the insurer. Occasionally, claims exceed reasonable expectations and exhaust the collateral. The cancellation right provides little leverage if the insured has changed carriers or if reimbursement is sought for ongoing claims. Accordingly, litigation may ensue if an insured refuses to reimburse the insurer. Reimbursement as a cause of action is an offshoot of subrogation law. Instead of the typical subrogation claim that seeks repayment of money paid out on a policy from the party at fault, reimbursement seeks to recover payment from the person to or for whom payment was made.8 Increasingly, insureds with large deductible and other loss sensitive policies9 refuse to pay the insurer advances, claiming inter alia, that insurers have mismanaged their claims responsibilities so as to raise the ultimate cost to the insured. Insureds may refuse to reimburse the insurer for amounts paid within the deductible limit or affirmatively assert the mishandling of claims as a cause of action for damages.
Claims and Defenses Based on Contract Theories
Claims and Defenses Based on Tort Theories
Annual Aggregate Limits
State Approval of Large Deductible Endorsement Forms and Rates
Litigation Over Large Deductible Endorsements
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