Multiple Exposures and Policy Limits: Consider the Options

Imagine you are handling a liability claim for a multi-car rear end collision, and your insured's Property Damage policy limits are $10,000. Your insured was the third car of four (R1), and there is a disagreement regarding liability. Based on liability arguments made by other parties, your exposure includes full damages to the cars that were ahead of your insured. The insurer of the second car filed in arbitration against your company and the company for the fourth car (R2), in the amount of $8,100 (including the $500 deductible).

Image of a diagram of the accident

The owner of Car 1 does not carry collision coverage on her 1997 Nissan Sentra. The damage to Car 1 noted in the police report is estimated at $1,500—$2,000, but the owner has not presented a claim for her damage. What options do you have as Respondent 1 in this scenario?

You could raise an Affirmative Defense (AD) of Multiple Exposures and state that in addition to the Applicant's claim, there is a potential claim for damage to Car 1, citing the officer's estimate of damage in the police report. The police report might suffice as evidence to support the exposure of Car 1, but the arbitrator may or may not find the information in the police report sufficient to prove the exposure. Some reasons why the arbitrator may find it insufficient include:

Image of two cars involved in an accident

The police report estimate of damages is not an actual repair estimate.

The damages could exceed the value of the Nissan, and the actual exposure could be relatively low.

The Respondent has not submitted documentation that the Car 1 owner has actually presented a claim.

Another option is to request a deferment. Your Deferment Justification would explain that time is needed to investigate the potential claim of the Nissan owner as well as any potential out-of-pocket claims (including those of the Applicant's insured), and to either rule them out or document that the amount of claims presented is truly above the $10,000 liability limits. The Guide for Arbitrators considers out-of-pocket expenses as support for an AD of limits as follows:

"...Stating that the Applicant may have out-of-pocket expenses is not enough to uphold an Affirmative Defense for insufficient limits. There must be proof that out-of-pocket expenses exist to uphold for this reason. For the Affirmative Defense to be denied, the Applicant will indicate it will make its insured whole for out-of-pocket expenses in the Affirmative Pleadings section (Guide for Arbitrators, Page 23)."

Article Second (d) is intended to protect member companies from paying more than policy limits. Requesting a deferment to allow time for unknown exposures to be presented or quantified is an ideal option to help protect the responding company while preserving the Applicant's recovery rights.

Article published in: August 2017 E-Bulletin