Last month at Perrin’s Emerging Insurance Coverage and Allocation Issues Conference in Philadelphia, I spoke on a panel about the Bermuda form general liability policy. Joining me were Jay Konkel from Morgan Lewis and Elissa Isaacs from Steptoe.
The Bermuda form presents some unique coverage issues, which we covered from our distinct perspectives.
Bermuda Form Background.
The Bermuda form was born in the mid-80s as a direct response to what is sometimes called the crisis or collapse of the U.S. excess liability insurance market, due in large part to increases in long-tail, multi-year liabilities such as environmental property damage and asbestos bodily injury. For a time, certain policyholders that were considered high risk had a very difficult time getting meaningful comprehensive general liability (CGL) insurance. As a result, the Bermuda form is a hybrid of traditional occurrence-based policies and claims-made policies.
In short, the form provides large project manufacturers with meaningful coverage, while allowing insurers to limit their liability for occurrences that spanned multiple years. It gets its name from the beautiful island of Bermuda, where most of the insurers issuing the form are based.
Seems Simple … But It Isn’t
Conceptually the policy is simple in that it provides broadly defined excess liability coverage, typically over a very large self-insured retention (SIR), for personal injury or property damage that takes place after inception of the policy. It also allows a policyholder to combine multiple losses into one defined “integrated” occurrence. The integrated occurrence provides a way for a policyholder to aggregate like claims and keep them in one policy year, even if they spill over into years after the policy.
In practicality, the form is anything but simple.
Some of the bigger challenges a policyholder faces when seeking liability coverage under the Bermuda form include the definition of an integrated occurrence in the policy and how that interacts with the specific liability they are facing. The idea behind an integrated occurrence is that individual claims or loss can be aggregated together into one occurrence. This is key for a policyholder to be able to reach coverage over the large SIRs. Occasionally, however, the allegations of the underlying cases can be construed as different enough that they should not be combined.
The example we discussed on the panel was a shoulder implant that is failing at a rate higher than expected. Some claimants may allege the underlying cause was sharp points, while others may allege it was because of the sponge core, and still others may complain it was due to the internal springs.
As Jay pointed out, this is all related to the cause test: the policyholder adopts that the cause of liability is the manufacture and distribution of the product, while the insurer alleges that the cause is specific defects in the product. To further complicate how an integrated occurrence is defined, there is a date component — the alleged injury needs to take place on or subsequent to the inception of the policy, before the notice of an integrated occurrence is given and before the termination date of the policy. Another complex aspect of the policy includes what is sometimes referred to as a “maintenance” deductible.
Defense costs are typically covered, within limits, in Bermuda form policies. Since large products cases can go on for many years, generating high defense costs from multiple law firms, it is critical that the policyholder maintain this information at a high level of detail, so that they can demonstrate to carriers that the expense is covered under the policy. Whenever possible, defense fees and expenses should be tracked at the claimant level. If a policyholder enters into an alternate fee arrangement, such as a fixed fee, counsel time should still be tracked at the claimant level so that the total fees actually paid can be prorated across claimants. This will make any future disputes regarding what is in or out of coverage easier to value.
KCIC provides consulting to companies and their outside counsel that are engaged in complex insurance recovery efforts. In our work, one thing about the Bermuda form is very clear: while good data hygiene is always best practice for maximizing future insurance recovery, in the case of the Bermuda form, it can be the difference between getting to coverage or staying in the SIR!
Did you attend the Perrin conference? If so, you can access our full presentation here.