Hurricane Matthew flood claims may not be entirely preempted by federal law

In the wake of Hurricane Matthew and its associated flooding (particularly in North Carolina and South Carolina), a recent case of first impression in the Sixth Circuit may be cited by both damaged businesses and insurers and insurance brokers in the Carolinas. Harris v. Nationwide Mutual Fire Insurance Company, __ F.3d __, 2016 WL 4174381 (6th Cir. Aug. 8, 2016).

Writing for a unanimous panel, Judge Ralph B. Guy, Jr. held that the National Flood Insurance Act (established in the wake of flooding in Florida and Louisiana after Hurricane Betsy in 1965) did not preempt claims based on state law for negligence in the procurement of an insurance policy for a home situated in a flood-prone area. Although this case was decided on principles of federal abstention, it has major ramifications for those practicing insurance law. While it is not binding on any courts in the area affected by Hurricane Matthew, policyholder counsel will likely cite to it as persuasive authority in support of negligence claims against insurance brokers and other professionals involved in the purchase of homes or insurance.  

The case arose when a married couple suffered a flood loss during a 2010 flood of the Cumberland River. They brought a claim against their mortgage bank (Regions), a flood-zone certifier, their insurance company (Nationwide) and their insurance broker (David Vandenbergh). On appeal, the issue was whether the homeowers’ state law claims for negligence during the procurement of their Standard Flood Insurance Policy were preempted by Congress when it passed the National Flood Insurance Act (NFIA) The panel unanimouslyheld that while the NFIA preempted coverage claims against the insurer, it did not preempt negligence claims regarding procurement of the policy.
The case was remanded to the district court for further proceedings and, presumably, for trial.

The Court explained that:

“The NFIA indisputably preempts state-law causes of action based on “the handling and disposition of SFIP claims.” Gibson [v. American Bankers Ins. Co.], 289 F.3d at 949. . . . . The Fifth Circuit has distinguished claims-handling causes of action from policy-procurement causes of action, and held that the NFIA does not preempt state-law claims “to the extent that they implicate [insurers'] acts or omissions regarding issuance of the policy because those claims are procurement-based, not claims-handling-based.” Spong v. Fid. Nat'l Prop. and Cas. Ins. Co., 787 F.3d 296, 306 (5th Cir. 2015). In determining whether a plaintiff's cause of action arises from claim handling or policy procurement, the Fifth Circuit looks to whether the plaintiff was “already covered” by a SFIP, or instead was a “potential future policyholder.” Id.  We agree with the Fifth Circuit's approach and hold that the NFIA does not preempt policy-procurement claims such as plaintiffs'.”

In adopting the same distinction as the Fifth Circuit, the Court noted that:

“Damages stemming from policy-procurement claims, unlike those arising from policy-coverage claims, are not “flood policy claim payments.” 44 C.F.R. § 62 App. A, Art. I. . . . . Policy-procurement damages, therefore, pose no danger to the federal interests prompting preemption in the claims-handling context, i.e., “reduc[ing] fiscal pressure on federal flood relief efforts.” C.E.R. 1988, Inc., 386 F.3d at 270.”

Addressing questions of federal abstention:

“[G]eneral conflict-preemption principles do not compel barring state-law policy-procurement claims. It is possible to comply with both state tort laws and FEMA regulations, and state laws regarding misrepresentation and breach of fiduciary duty in the policy-procurement process do not “stand[ ] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” in enacting the NFIA. Id. at 269Id. at 269 (quoting Green v. Fund Asset Mgmt., L.P., 245 F.3d 214, 222 (3d Cir. 2001)).”

As Hurricane Matthew's floodwaters recede from the Carolinas, Harris and Spong are likely to be cited as the parties duel over whether claims for negligent procurement in the purchase of insurance can proceed to trial. 

Hurricane Matthew insurance tips for businesses

With Hurricane Matthew downgraded to a tropical cyclone, it is time for affected businesses, property owners, and insurers to focus on quantifying the amount of damage caused by the storm.  By some estimates, Hurricane Matthew will generation over 100,000 insurance claims and between $4 billion and $7.5 billion in property losses.  Although the focus is typically on pre-storm preparation, the immediate steps taken this week will be important to any business owner seeking to present an adequate claim to its insurer for property damage.

Safety is always the first priority.  Do not put yourself, your employees, of first responders in danger.  Currently in North Carolina, the predictions are for worsening flooding in many low lying parts of the eastern part of the state, with peak flooding not reaching some areas until Wednesday (four days after the storm passed). 

Once the threat of imminent danger has receded, the next step should be to document your loss.  Thorough documentation of the damage to your property will be invaluable.  Hopefully you will also have photographs or video from before the storm, so that any claim presented to an insurer can show both the before and after photographs of the condition of the property.  Because cell phones and digital cameras are not limited by physical film, do not hesitate to shoot dozens or hundreds of photographs.  Videos may be helpful as well. 


At the same time you are documenting the damage, you should immediately put your insurer on notice of the loss.  You should call your insurer to begin putting them on notice as soon as you arrive at the property if you assess any physical loss.  After you give initial notice, you can follow up with complete details, provide the photographs you have taken, etc.  The insurer will likely eventually send an adjuster to physical inspect the damage to the property. 


It is important to quickly give notice for several reasons.  As a legal matter, giving prompt notice prevents having a claim denied by an insurer on the basis of a late notice defense.  As a practical matter, because of the large number of claims that will be filed within a short period of time, some insurers will likely handle the claims on a first-come, first-serve basis.  Getting your claim in quickly gets you closer to the front of the line.   


If immediate repairs are needed, take plenty of additional photos of the damage, the repairs in progress, and the final repairs.  Maintain copies of documentation regarding the repairs, and provide those to your insurer.  If your business had to buy or rent additional equipment as a result of the damage, or you suffered inventory loss, you will want to maintain detailed documentation of these costs as well. 


Finally, whichever employee you assign to provide information to the insurer should maintain a journal or notebook.  This should include copies of all documents submitted to the insurance company, along with a log of all conversations with the insurer or its representatives.  The log should include the contact information of anyone from the insurer that you have contacted with, the date and time, the topics you discussed, and any additional information which you believe may be useful in the future or in the event of a dispute. 

Charlotte-area riots and looting could be covered by insurance

Businesses in Charlotte, North Carolina will most likely be covered by property insurance for damage caused by protesters. Additionally, some may be able to recover lost business income.


Over the last two evenings, Charlotte has been the site of protests as a result of the police shooting of Keith Lamont Scott, a 43 year old man. On Tuesday night, protestors blocked Interstate 85 near the UNC-Charlotte area, and looted a nearby Wal-Mart. On Wednesday night, the Uptown area near the Epicenter was the site of most of the demonstrations. The protests, and resulting police response, have caused business disruptions in various parts of Charlotte.


 Today, it is reported that many of the largest employers in the urban center of the city, including Bank of America, Duke Energy, and Wells Fargo have asked or permitted employees to work from home. Governor Pat McCrory has declared a state of emergency and requested the assistance of the National Guard.


Local news reported that a number of Uptown Charlotte businesses were damaged or looted during the violent overnight protests. These included the NASCAR Hall of Fame, the Charlotte Hornet’s team store, the Charlotte Convention Center, the United Way of Central Carolinas, the Bank of America headquarters, and several restaurants.


Property Insurance
Generally, businesses have a commercial property or business-owners property policy (sometimes called a BOP). The standard ISO commercial property and business-owners property policies have provisions that cover riot, civil insurrection property damage, and looting. This would include physical damage to a building, as well as merchandise that may have been stolen. Damage from fire will also be covered as a named peril.


On the other hand, photographs from social media and news reports show many shattered windows in Charlotte. Plate glass window insurance is usually offered as an add-on or additional insurance, and is not covered by many standard policies.


Businesses which are routinely in possession of someone else’s property – such as a shoe repair or auto repair shop – would likely need to have specific bailee insurance to cover the cost of replacement of a customer’s property which was damaged.


Business Interruption
If any curfew is imposed in Charlotte, or other restrictions on access to a business by either its customers or employees, the company may have a claim for business interruption or lost business income, depending on what coverages were selected. These policies typically provide require the insurer to pay for necessary extra expenses and lost business income as a result of a civil authority prohibiting access to the business.


The usual business interruption policy will only be triggered if there is sufficient physical damage to the business’s property such that the business must suspend its operations. Business owners should carefully read their policies however, as the trigger for business interruption may not begin for 24, 48, or 72 hours after the first civil authority prohibits access to their premises. Although the policy may not require an additional deductible prior to business income coverage being available, the 24 to 72 hour waiting period serves as a “time deductible.” Even once the business interruption coverage is triggered, it will not be retroactive to the date of the event. In other words, for damage caused on Wednesday night, business interruption coverage will not begin until Saturday night. As a result, some losses will not be recoverable under the standard policy. The business interruption during the first 72 hours could be covered by a captive insurer, however.


Often, this is a critical period of time for business owners immediately after a civil insurrection. During this waiting period, policyholders should take prompt repair measures to mitigate their damages even though lost profits will not be recoverable. Extra expense coverage, on the other hand, typically is triggered as soon as the first civil authority action.


Businesses with claims should immediately take photographs and put their insurance companies on notice. If claims are denied, there are typically internal appeals processes available to policyholders. If claims continued to be denied, business owners should consult with a knowledgeable insurance attorney about their options.

Sanctions for failing to investigate insurance under Federal Rule 26

In two recent cases, lawyers have been sanctioned for failing to understand their client’s insurance program. These cases (along with others from the past) illustrate that courts are increasingly placing a burden on defense lawyers to have a basic understanding of insurance and to thoroughly discuss insurance matters with their clients.

North Carolina attorney sanctioned for failing to disclose umbrella policy

Last December, the United States District Court for the Western District of North Carolina sanctioned an insurance defense lawyer with a $1,000 sanction because the Court found that she failed to properly discuss and review the applicable insurance her client had for a claim. Further inquiry would have revealed a $10 million umbrella policy above the first $1 million layer of commercial general liability insurance. Palacino v. Beech Mountain Resort, Inc., 2015 WL 8731779 (W.D.N.C., Dec. 11, 2015).

Under Federal Rule of Civil Procedure 26(a)(1)(A)(iv), a defendant must disclose, relatively early in a case, “any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” In this case, the umbrella policy was only disclosed after mediation and after discovery closed. The Court concluded that this was a violation of Rule 26, as “Defendant was legally obligated to disclose both [insurance] policies in its Initial Disclosures, and its failure to do so violated its obligations under the Federal Rules of Civil Procedure and the Court’s Pretrial Order.”

By only disclosing the first $1 million in coverage under the CGL policy – presumably the policy which the attorney was retained under – the attorney neglected to investigate the full range of available insurance and to disclose the $10 million umbrella. The attorney submitted an affidavit stating that, in responding to Rule 26, the Risk Manager for the defendant was asked to provide all applicable insurance policies. However, the Court ruled that this was not enough. It noted that the attorney's affidavit in opposition to sanctions did not state that the attorney "independently verified the completeness of the information provided" or that "additional steps [were taken] to ensure that the information" provided in the Initial Disclosures was complete "or that a reasonably inquiry was made prior to providing the Initial Disclosures." The Court goes on to state that the attorney should have been able to "represent to the Court that she undertook [an] independent inquiry to verify whether the information provided by [the Risk Manager] was complete prior to signing the" Initial Disclosures. However, the Court gave no guidance as to how a retained defense attorney is to show that “a reasonable inquiry [into insurance policies] was made prior to providing the Initial Disclosures” other than asking the Risk Manager – presumably the most knowledgeable employee of the defendant – to provide all insurance policies. Does this require asking other employees of the client? Reaching out to the client's insurance broker? Physically inspecting the client's files?

In addition to the $1,000 sanction against the attorney, the client was also fined $500 for its failure to uncover and disclose the umbrella policy.

Tenth Circuit affirms sanction for failing to disclose D&O policy

In Sun River Energy, Inc. v. Nelson, 800 F.3d 1219 (10th Cir. 2015), decided last September, the Tenth Circuit affirmed an award of sanctions against counsel for failing to disclose the company’s directors and officers (D&O) insurance policy in its initial disclosures.

In that case, the Plaintiff had a "Directors and Officers Liability Insurance Policy including Employment Practices and Securities Claims Coverage" which arguably provided coverage for certain counterclaims which the Defendant may have made. However, by the time the policy was disclosed, any potential coverage under that “claims made” policy had lapsed.

The federal magistrate judge, in issuing the underlying sanction, wrote that counsel never “took a serious look at whether there was applicable insurance” and “exhibited deliberate indifference to the obligation of providing relevant insurance information under Rule 26.”

Importantly to defense counsel, the Tenth Circuit flatly rejected the attorney’s excuse that “counsel need not bother to review the actual terms of an insurance policy . . . before denying the existence of the potential coverage, so long as he believes the existence of coverage would be very unlikely or unusual.” Instead, defense counsel is obligated to review all applicable policies and then provide the information required by Rule 26 when completing Initial Disclosures. Implicit in the Tenth Circuit’s ruling is that the lawyer must have a basic understanding of insurance law and whether certain policies may provide coverage for the claims at issue.

Finally, no discussion of defense counsel’s potential insurance obligations is complete without reference to Shaya B. Pacific, LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, 827 N.Y.S.2d, 231 (N.Y. Sup. App. Div. 2006). In that New York case, the court held that an attorney could be liable for negligence/malpractice for failing to investigate his client’s insurance coverage for a claim or failing to notify the insurer of a claim. However, the determination of negligence would also turn on “the scope of the agreed representation.” Clarifying the scope of representation - by excluding any obligation to consult on insurance coverage - is thus important to attorneys who do not feel comfortable opining on insurance matters.

Tightening up regulations over commercial vehicle insurance

On March 1, 2016, WRAL Investigates reported that North Carolina Insurance Commissioner Wayne Goodwin wants state lawmakers to tighten up regulations over commercial vehicle insurance, stating that some out-of-state trucking companies are claiming in-state residency to obtain lower insurance rates.

It is no secret that North Carolina has some of the lowest vehicle insurance rates in the country. These insurance policies, however, are available only to residents and businesses that reside in the state. According to WRAL, ten years ago, drivers from New York and New Jersey were registering their cars in North Carolina in order to get cheaper car insurance. But, the General Assembly changed the law to stop this from happening.

Today, the same issue is occurring in the $670 million-a-year commercial vehicle insurance market. Reportedly, North Carolina Insurance Commissioner Wayne Goodwin is seeking to have a similar statutory enactment passed. In recent years, the North Carolina Reinsurance Facility raised its commercial rates because of significant claim losses. Goodwin attributes this increase in commercial rates to out-of-state trucking companies claiming in-state residency to obtain lower insurance rates. Goodwin has been quoted as saying: "They have accidents in other states and the like. It impacts insurance rates for the legitimate businesses that are here, and it's becoming a growing problem."

WRAL Investigates confirmed North Carolina freight insurance coverage for Senn Freight Lines in Newberry, S.C. A spokesman for Senn stated that the company has no North Carolina operations, although an internal insurance memo indicated that Senn claims one truck registered and one driver licensed in the state. According to the Secretary of State's Office, another trucking company, Fast Transport, Inc., is listed as a North Carolina registered corporation. However, the address listed for Fast Transport is in a remote residential neighborhood in Wake Forest, and a spokesman for Fast Transport stated that the Wake Forest house is the trucker's accounting headquarters. According to WRAL's investigation, Fast Transport claims dozens of trucks in Florida, Georgia, and Texas but only one truck in North Carolina.

The Insurance Commissioner's position seems to be that only North Carolina companies should be able to take advantage of the state's lower insurance rates. He wants "to protect and help the legitimate companies that are doing business in North Carolina from being taken advantage of by businesses...that are misleading the state and misleading insurance companies as to their presence in the state.

As a result, Goodwin's office is drafting legislation to present to the General Assembly when lawmakers reconvene in April that would better differentiate between North Carolina companies and posers exploiting the law to get cheaper rates.

Art insurance rates in Manhattan drop (plus tips on art insurance!)

It is widely known that Hurricane Sandy, in 2012, caused large losses in the insurance industry, in part because of the high property values in the storm's path, as well as the population density. This included flooding in the Chelsea neighborhood of Manhattan, which damaged nearly three dozen art galleries, and property damage at storage units and warehouses across the region.

After the storm, it was estimated that there was $300 million Because so much art is only temporarily in Manhattan - either on loan or consignment - the ramifications and insurance claims were worldwide. 

After the storm, it was predicted that the art insurance industry would react with higher premiums, which would then taper back to normal.  As Robert Salmon of Willis was quoted: “It’s mainly knee-jerk: restrictions, huge deductibles, and rate increases. As we get further from the events, insurers are going to have to tone down that kind of reaction or lose too much business.”

Mr. Salmon's predictions have been borne out.  The Art Newspaper is reporting that insurance premiums are now lower than before Hurricane Sandy, in part because of the fierce price competition in the industry and because, as LeConte Moore of DeWitt Stern, a specialist art insurance broker says, "People handle art with care: they put on white gloves, they package it specifically.  They take good care of art whether it's a Tiffany lamp or a Picasso."  However, underwriting standards are typically stricter and the policies contain greater restrictions and conditions. 

If you collect fine art (whether for a personal collection or to display at your business), here are a few tips to remember:

First, understand what coverage you already have.  Obtain a copy of your existing homeowner's/renter's insurance or business personal property insurance policy.  Read the policy and speak with your insurance broker to find out whether your existing property insurance policies cover fine art.  It is likely that fine art is either (1) wholly excluded or (2) subject to a sublimit.  Many insurers then offer additional coverage options (usually called a “rider” or “floater”) to add specified fine arts coverage.  This may be a blanket floater for all of your fine art, or it may be separate and individual floaters for each work of art (or, obviously, a combination of a blanket with individual floaters on certain works).

Second and related, consider specialty insurance.  You may find that your property insurer’s limits are insufficient, or that its policy terms are inadequate.  If that is the case, consider working with a specialist art insurer and possibly a specialist art insurance broker.  Some specialist insurers will also have employees who can assist you in upgrading your facilities to make it safer to store or display fine art. 

Third, know that premiums will likely vary on a number of factors.  These include the type of art (some types being more fragile than others), the geographic location (risk of flood, hurricane, or wildfire), the specific location (public display or private collection), whether the art is stored in a vacant facility or not, and how frequently the art will be moved. 

Fourth, keep good records.  This goes for any insurable collection and, indeed, many other types of insured personal property.  In the event of a loss, it will be helpful to have the original bill of sale or receipt, photographs of the item, any appraisals that have ever been done (even if they are “informal” appraisals such as print-outs of similar items sold at auction), and a copy of the item’s provenance (if applicable).  Further, in today’s world, it is easy to copy this information electronically and store it remotely where it is safe from natural disasters or fire damage, and can be easily retrieved after a catastrophe.

Fifth, get an appraisal.  Depending on the insurance policy, have the art appraised on a semi-regular basis.  An appraisal serves two purposes: (1) by knowing the market value of the item, you can adjust your insurance coverage up or down so that you purchase enough insurance (but not too much) and (2) an appraisal will assist in substantiating the value of the item in the event of a loss. Certain insurers will permit you to "self-appraise" and, for some individuals and collectors, this is an easy process because they already have the background knowledge in the field. For the more casual collector, a professional appraisal will be more helpful.        

The Economics of the ALI's Principles of Liability Insurance project

Yale Law Professor George L. Priest, who teaches in the fields of insurance law and law & economics, has written the first paper that I am aware of which applies a law & economics analysis to the ALI's Insurance Principles project.  This paper gives a very good explanation of the basic law & economic explanation of liability insurance and the social benefit of liability insurance (although that explanation takes nearly 25 pages of a 43 page paper). 

As readers of this blog may know, the American Law Institute has undertaken a project to publish a "Principles of Liability Insurance," similar to the Restatements of the Law which the ALI is well-known in legal circles for publishing.  The Principles of Liability Insurance project has shifted from being little-known outside of academic circles and is now widely discussed at meetings of coverage lawyers.  Note that this is no Restatement of the law; which, by its name, would imply it simply restates the law as it exists. 

The project is currently being managed by Tom Baker of the University of Pennsylvania and Kyle Logue of the University of Michigan, along with input from a number of stakeholders, and seeks to produce a book (perhaps, a multi-volume set) to set forth the law (as the authors believe it should be) on important issues of liability insurance coverage. In states with a paucity of insurance case law, the publication by the ALI of the Principles of Liability Insurance Law will likely have a major impact; in those states, judges will be more likely to rely on the ALI's Principles project as akin to a national treatise on insurance law. 

In states which already have a well-developed body of state common law (i.e., New York, New Jersey), the impact of the Principles project will likely be less.  North Carolina would probably fall somewhere in the middle; our state's insurance law has several large areas which are underdeveloped or completely undeveloped, however we are far ahead of many states which have less reported opinions, lack an intermediate appellate court, have fewer cases decided on summary judgment (and thus fewer appeals of legal issues), and which lack courts for complex commercial disputes such as the North Carolina Business Court.    

Professor Priest clearly explains his view that the greatest aggregate social utility of liability insurance is when it is easy to obtain and thus widely distributed.  He believes, in short, that although Professor Baker and Professor Logue intend to re-write various rules to be pro-policyholder in the short term (i.e., in an individual case), that these revisions may end up harming policyholders more broadly in the long run by making liability insurance harder to obtain, thus having a net negative effect. 

Insurance Requirements in Commercial Contracts (Part 2)

In this second post in the series, I hope to shed some light on the difference between an insurance policy with a deductible compared to one with a self insured retention ("SIR") and how that impacts business contracts. 

I have often heard people ask what is the difference in an SIR versus a deductible.  Confusion on this topic can have real-world impact when it comes to obtaining coverage under commercial contracts.

In Part 1, we discussed that bargaining for additional insured status may not always be equal to a stand-alone insurance policy.  Let's presume that a business bargained for additional insured status on a CGL or other liability policy.  The business then assumed it has coverage to defend and indemnify it against third-party tort claims, as if it had purchased its own insurance. However, if the liability policy is subject to a SIR rather than a traditional deductible, then the business will not obtain any coverage until the SIR is satisfied.  Further, the law is unsettled (depending on jurisdiction) as to whether only the primary named insured is permitted to satisfy the SIR or whether an additional insured can make a voluntary payment to satisfy the SIR, thus obtaining the coverage it (believed) it bargained for in an indemnity agreement or commercial contract. 

Deductibles and SIRs are often conflated; the differences are poorly understood by those outside of the insurance industry as well as the practical implications. Two policies can have a $1 million limit, with the only difference between the two policies being that one has a $100,000 deductible and the other a $100,000 SIR. Under an SIR policy, the $1 million of insurance only becomes payable after the $100,000 SIR is exhausted by the insured. In contrast, the deductible policy will typically immediately respond. Also, depending on the terms, the typical SIR policy will entrust the direction of the defense, appointment of counsel, and payment of legal defense costs with the insured, while the insurer typically retains control of directing the defense, appointing counsel, and paying defense costs under a deductible policy.

These simple distinctions have stark real-world implications.

First, under an SIR policy, no insurance coverage is required to respond until after the policyholder pays the full amount of the SIR. If the policyholder has cash constraints, is undercapitalized, or enters bankruptcy, it may not be able to ever exhaust the SIR (and thus there will be no requirement of the insurer to ever provide coverage to the policyholder or to any additional insureds).

Second, under a deductible policy, a policyholder is entitled to a defense (i.e., the insurer paying for an attorney and expert witnesses) as an additional insured. Similarly, the insurer immediately has a duty to defend. However, under most SIR policies, the insurer is not obligated to provide a defense and the insured(s) have to pay their own defense costs (which includes attorney's fees, expert witness fees, and other defense costs). Any business which has defended many lawsuits will know that the dollar value of defense costs can be significant and can, in many cases, exceed the costs to settle the lawsuit. The duty to defend typically does not arise under an SIR policy until after the SIR has been exhausted.

Third, as an additional insured under an SIR policy, your business's ability to obtain insurance coverage is predicated on the primary insured being able to pay the SIR. Even though you bargained to be an additional insured under the SIR, your business will receive no coverage until the SIR is satisfied. But wait . . . what if you volunteer to pay the SIR on behalf of the primary insured and thus trigger coverage? This offer of voluntary payment may not be enough; there is at least one case which prohibits the additional insured from satisfying the SIR in order to obtain additional insured coverage for itself.

Fourth, SIRs can change the way the total tower of insurance is calculated.  For example, a $1 million policy with a $100,000 deductible actually provides only $900,000 of indemnity from the insurer; the policyholder pays $100,000 and the insurance company pays $900,000.  However, a policy with $1 million in limits, subject to a $100,000 SIR, will often be written so that it provides for an insurance tower of $1,100,000; after the policyholder pays the first $100,000, the insurance policy is triggered and provides an additional $1 million for a total of $1,100,000.  If there is an excess policy sitting above in a tower of insurance, this difference can change when the excess policy has to respond. 

Without notice that a policy contains an SIR rather than a deductible, and without understanding the implications of each, a business cannot accurately plan for a loss situation.  Further, the difference between a deductible policy and an SIR policy often has major implications for the defense of any claims, as the deductible policy typically places the insurer in control of the claims, hiring of counsel, and management of defense of any lawsuits.