Much has been written on the issue of allocating an insured's liability across policy limits under general liability insurance policies. The article "Is 'Fair' Fair?: 'All Sums' and the Allocation of Deductibles," by Lorelie S. Masters and Jerold Oshinsky, appearing in the March/April 2010 issue of Coverage, addresses the less often discussed issue of allocation of the policyholder's liability to insurance policies containing deductibles, self-insured retentions, and "fronting arrangements." Under "all sums" or similar language in standard-form general liability policies, policyholders may select a policy or policy year(s) that provide optimum coverage as the insurers are jointly and severally liable for the loss. The authors contend that "all sums" insurance should mean all sums not only for allocation of policy limits but also for deductibles, self-insured retentions, and "fronting" policies (collectively, "deductibles") as well.
The authors' search for pertinent court decisions led them to conclude that the case law in Washington and California appears to be the most developed on the issue of non-allocation to general liability insurance policies containing deductibles. The article examines the courts' reasoning in those cases and finds strong support for the contention that the "all sums" rationale should apply to the allocation of deductibles.
The authors state that, despite the inclusion of "all sums" or similar language in standard-form general liability policies, some courts have adopted pro-rata approaches across policy limits under the rationale of providing "equity" and "fairness" to insurance companies. The authors reason that, if "fairness" is used to go outside of the policy language to allocate liability on a pro-rata basis across policy limits to benefit insurers, then the concept of "fairness" should also be used to benefit policyholders in the allocation of liability to deductible periods, self-insured retentions, or "fronting" policies. Expressed in other terms, the authors conclude, "'Fair' should be fair."
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