Mitigating Unintended Consequences in the Placement of Casualty Insurance Towers

With ever increasing jury verdicts and aggregate litigation over the past several years, purchasing sufficient limits of liability insurance is critical to managing casualty risk. Casualty insurance can provide financial protection in the event of third-party liabilities. But in constructing casualty insurance towers, insureds often make decisions to achieve short-term cost savings objectives.

These choices can have significant unintended consequences, leaving you vulnerable to the enormous costs of defense and indemnity associated with tort liability. Several important aspects of casualty programs can radically affect insurance coverage in the event of a significant loss.

In Mitigating Unintended Consequences in the Placement of Casualty Insurance Towers, we explore how the choices you make about your casualty insurance program structures and policy language can have unexpected effects on how those policies respond in the event of a loss.

Among other areas, risk managers should work with their advisors to carefully consider:

• Casualty insurance policy retentions.
• “Batch” clauses in casualty policies.
• How punitive damages are addressed in casualty coverage.
• How contractual risk is allocated.

If properly executed, the risk management techniques listed above can effectively mitigate total cost of risk. But if used in inappropriate situations or improperly executed, they can expose you to significant costs of litigation, aggregate litigation, and rising compensatory and punitive damages verdicts.