Every insurance policy I have ever reviewed had what is known as an “Other Insurance Clause.” This is a short clause, usually tucked away in the Conditions section of an insurance policy, that most insurers don’t read and don’t know it’s even there. Even worse is that most insurance agents don’t know, or don’t remember, that it is part of every insurance policy. Given the plethora of new insurance policies and new forms that are being introduced these days, not addressing this clause can create real problems at the time of a loss.
The clause will read something like this, “If there is other insurance covering the same loss or damage…we will pay only for the amount of covered loss or damage in excess of the amount due from the other insurance, whether you can collect it or not….” The wording used by each insurance company is not always the same which complicates the matter even more. This can be a real problem at the time of a covered loss.
For example, let’s say a Bank has a property policy with insurance company A that includes Cyber Virus Damage coverage with a limit of $10,000. Insurance company B provides the Bank with Cyber Liability providing the same coverage with a $250,000 limit. (I am going to leave out the deductibles on each policy, as that would make it even more complicated.) There is a covered Virus loss in the amount of $10,000. Who pays what? Just before Company A pays for the $10,000 loss they find out the Bank has another policy covering the same thing with Company B with a $250,000 limit. By reason of the Other Insurance Clause each company will claim to be excess of the other. Until this is clarified, guess who doesn’t get a check for this legitimate claim? You’re right, the Bank.
The good news, if there is any, is that most (but not all) insurance companies include wording to the effect that they will pay their proportionate share of the loss. Of course, the wording of “proportionate share” needs to be the same in both policies. In the situation above, the total loss being $10,000 and the total insurance available being $260,000, Company A would pay approximately 4% or $400, and Company B would pay 96% or $9,600. With different deductibles and coverage wording, the negotiations can draw out for a long time. In short, you don’t get paid for a legitimate loss for some time, if ever.
The simplest solution to this problem is to make sure you don’t have overlapping insurance coverage. However, with the new Cyber Liability policies and Multi peril cyber endorsements, it is sometimes difficult to find the overlaps. Even if you find the overlaps, the insurance company may be reluctant to remove the coverage from their policy to eliminate the overlap. In this case, you should try to have them change their Other Insurance Clause to read their coverage would be PRIMARY over any other applicable coverage available, which would make the other policy excess.
It is difficult enough to make sure you have proper insurance coverage for the myriad of loss exposures for a bank. Overlapping coverage creating more problems just shouldn’t happen.