Everything above speaks of the insurer in the singular. On a collection of any size there is almost never just one. The risk is spread horizontally among several insurers each taking a share of a single policy, which is called co-insurance, and vertically among stacked layers, which is called a tower. What the insured perceives as a contract is therefore a structure, and the properties of that structure decide things the policy wording states nowhere.
The first property carries the heaviest consequences and is the least known to insureds. In co-insurance each insurer binds itself for ITS share and for that alone: the obligation is several, not joint. If one line disputes, delays or defaults, the others are not required to make it up; that share stays with the insured. A policy settled at ninety percent is therefore a policy unpaid at ten percent, not a contract in the course of settlement. This is not a flaw in the structure, it is what makes it possible, no insurer agreeing to guarantee the others' shares.
The leader manages the contract and coordinates. Follow clauses organize the rest: co-insurers undertake to follow its decisions within limits, which avoids each claim being argued as many times as there are lines. The device works well and has a boundary worth knowing: what is followed is generally SETTLEMENTS, not necessarily decisions on cover itself. In other words, following holds on ordinary files and strains precisely on serious or contested ones, which are the files the comfort was bought for.
The tower adds the vertical dimension and its own surprises. An excess layer responds only once the layer below is exhausted, and it follows the primary's form only as far as its own terms allow. A tower assembled over several renewals, with different carriers, can therefore carry different clauses at different levels: an agreed-value revision clause here and not there, a ten percent depreciation cap below and five percent higher up, a condition precedent existing at one level only. The same loss then settles differently by level, on the same object.
One must measure what this does to everything this certification has established. Every mechanism seen so far, agreed value and its revision, the base of depreciation and its cap, cover for new acquisitions, conditions arising from a survey report, presupposes a wording. In a structure there are as many wordings as levels, and alignment between them is guaranteed by nobody other than whoever placed the risk. A placement summary aligning capacities and rates shows none of this: it would have to align the clauses, which few summaries do.
On a mass loss the structure shows itself in a very concrete way collectors do not anticipate. Layers activate in sequence: the primary exhausts, the first excess attaches, then the next. With each attachment come new counterparts, sometimes a new adjuster, often a new view on depreciation. The loss does not become bigger, it becomes more numerous, and settlement time lengthens accordingly. That is why a large collection loss is counted in years rather than months, independently of any ill will.
Three questions suffice to map a structure, and they are asked at placement. Are the lines several or joint, in other words who bears the share of a defaulting line. What exactly do co-insurers follow, settlements only or also decisions on cover. And do all layers carry the same wording on the three points that make this line, revision of agreed value, the depreciation cap and conditions precedent. An insured holding those answers knows what their contract is made of; one who does not holds a document and does not know the structure it describes.
A collection is insured for 12 million euros through a two-layer tower. The primary, 4 million, is placed in co-insurance among three insurers at 50, 30 and 20% respectively, with a leader and a clause following settlements. The excess layer, 8 million above 4, is carried by a fourth insurer written two renewals later. A fire destroys or damages part of the collection: the loss reaches 6.3 million, including 1.1 million of depreciation on the surviving works. The primary policy caps depreciation at 10% of the sum insured; the excess layer, written later, caps it at 5%. The 20% co-insurer disputes cover on the ground of a protection condition not complied with, a condition appearing only in its own line.
The collector believes he holds a 12 million contract and holds four, which the loss reveals on three planes at once. On the primary, the follow clause bears on settlements and not on decisions about cover: the 20% co-insurer can therefore dispute on its own account, and the leader cannot decide for it. The obligation being several and not joint, the other two do not make up that share: of the primary's 4 million, 800,000 euros remain in dispute and possibly for the insured's account, while 80% of the same loss settles without difficulty. A policy settled at 80% is not a policy in the course of settlement. On the vertical plane, the depreciation cap differs between levels, which is this structure's real trap: the same 1.1 million head is computed at 10% in the lower layer and 5% in the upper, so the allocation of the loss between levels decides the amount, although that allocation has nothing to do with depreciation. Finally the protection condition exists in one line only, which is the symptom of a tower assembled over several renewals with no alignment of wordings: nobody was charged with that alignment, and the placement summary, which aligned capacities and rates, could not show it. The three questions to ask at placement would all have found their answer in one meeting.
- 01In co-insurance the obligation is several, not joint: a defaulting or disputing line leaves its share with the insured, which the others do not make up.
- 02Follow clauses generally bear on settlements and not on decisions about cover: the device strains precisely on serious files.
- 03A tower assembled over several renewals carries different wordings by level, so the same loss settles differently depending on the layer.
- 04Allocating a loss between two layers can decide the amount of depreciation, although it has nothing to do with it.
- 05A placement summary aligns capacities and rates: alignment of the clauses is guaranteed by nobody other than whoever placed the risk.