As a growing numbers of insureds elect to control more of their insurance costs by increasing self-insured retentions (SIRs) and deductibles, a variety of issues have begun to emerge. In a Risk Management magazine online exclusive, attorneys Michael A. Hamilton and Michael Murphy of Nelson Levine de Luca & Horst, LLP discuss the impact of this decision and its evolving legal implications.
The duties and obligations of insurers and policyholders in relation to SIRs or deductibles have their genesis in two sources: the common law and the insurance contract. Principles of equity and good faith govern the relationship between the parties. However, as in most insurance coverage disputes, rights set forth in the insurance contract will control. Thus, courts will enforce clear policy language setting forth items such as an insured’s duties concerning the handling claims within the SIR, who must satisfy the SIR before an insurer’s obligations will be triggered, and an insurer’s duties when an insured is insolvent. The interplay between common law rights and contractual undertakings will help shape courts’ future decisions in this emerging area of insurance law.
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