Risk Insider: Peter Taffae

Excess Follow Form? The Problem

By: | August 23, 2016 • 3 min read
Peter R. Taffae, is managing director of ExecutivePerils, a national wholesale broker. He can be reached at [email protected]

Imagine a $100 million D&O (or E&O, EPL, Cyber) program made up of 10 insurance companies each providing a $10 million limit. The market standard dictates that each insurer use its own “excess follow form.”

Shortly after the CEO is briefed that his company has secured $100 million “state of the art” D&O program, a securities class action is filed, followed by parallel derivative litigation. The litigation progresses and ultimately the Insured resolves the litigation costing $70 million (defense and settlement).

During the litigation process, the insurance companies on the program reserved their rights each referencing provisions of their excess policies. Now that the insured seeks to collect on the insurance, one by one each Insurer sites a provision that is different than the primary and underlying Insurers. It may be the definition of Insureds, or different Reporting Provisions, or even differences in the Insuring Clauses.

Reality sets in and the CEO finds out that the “state of the art” $100 million D&O program Is not state of the art and has inherited numerous obstacles.

This scenario is not imagined. Despite the name, “excess follow form” policies do not completely follow the primary policy’s wording. Although the differences might seem small at the time of binding they can have significant consequences at the time of a claim.

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Qualcomm, Inc. v. Certain underwriters at Lloyd’s London, 161 Cal. App. 4th 184, 73 Cal. Rptr. 3d 770 (ct.App, 4th Dist. 2008) is a clear example why it is necessary to have true follow form excess wording.

AIG wrote Qualcomm’s primary D&O policy with $20 million limit, followed by a Lloyd’s excess “follow form” policy. After incurring $28 million in defense and indemnity, Qualcomm sought insurance recovery for the loss.

Despite the name, “excess follow form” policies do not completely follow the primary policy’s wording. Although the differences might seem small at the time of binding they can have significant consequences at the time of a claim.

Qualcomm settled a coverage dispute with AIG for $16 million (AIG’s policy has a $20 million limit). Lloyd’s refused to pay anything towards the $28 million because Lloyd’s “excess follow form” policy included a provision stating: “underwriter shall be liable only after Insurer(s) under each Underlying Policies have paid or been held liable to pay the full amount of the Underlying Limit of Liability”. Qualcomm sued and the court held in favor of Lloyd’s.

This is a clear example how “excess follow form” policies are not. Or as some would say “Excess Policies Matter.”

Another example of an “excess follow form” myth, is the arbitration provision that is in each policy.

Most D&O (E&O, EPL, and Cyber) policies require coverage disputes to be resolved by arbitration. Remember our $100 million D&O program with 10 insurers? The primary policy requires AAA arbitration in the laws of New York, the first excess may require that resolution be in London under the Arbitration Act of 1996, the next layer require may require arbitration under the laws of Bermuda, and so on.

Not only do these inconsistencies require different venues for resolution, but it is also likely that each arbitration location could have different results, thus compounding an already serious problem.

Hopefully, we can all agree that “excess follow form” policies are not excess follow form policies. Insureds need to recognize that not all excess programs are the same and there is a need to place significant importance on all the contractual wordings, not simply the primary.

I’ve now presented you with the problem. In my next post I’ll discuss the solution.

Risk Management

The Profession

After 20 years in the business, Navy Pier’s Director of Risk Management values her relationships in the industry more than ever.
By: | June 1, 2017 • 4 min read

R&I: What was your first job?

Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.

R&I: How did you come to work in risk management?

While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.

R&I: What is the risk management community doing right?

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The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.

R&I: What could the risk management community be doing a better job of?

Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.

Gina Kirchner, director of risk management, Navy Pier Inc.

R&I: What insurance carrier do you have the highest opinion of?

FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.

R&I: What emerging commercial risk most concerns you?

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The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.

R&I: Who is your mentor and why?

My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.

R&I: What have you accomplished that you are proudest of?

I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.

R&I: What is your favorite book or movie?

“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.

R&I: What’s the best restaurant you’ve ever eaten at?

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A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.

R&I: What is the most unusual/interesting place you have ever visited?

Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.

R&I: What is the riskiest activity you ever engaged in?

Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.

R&I: What about this work do you find the most fulfilling or rewarding?

I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.

R&I: What do your friends and family think you do?

My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]