Dealing With The Non-Cumulation Clause: It May Not Mean What Some Insurers Say It Does!

A rather common clause found in excess liability policies since at least the early 1960's is the so-called "non-cumulation" clause. That clause often provides that: "If any loss is also covered in whole or in part under any other excess policy issued to the Assured prior to the inception date hereof the limit of liability ... shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance." See e.g., Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A. 2d 1254, 1259 (Del. 2010). According to many insurers, this provision serves a bit like a deemer clause so as, arguably, to limit coverage available under multiple triggered policies. Under this argument, functionally, one limit (not multiple policy limits) is available for a common loss covered under those multiple policies. Before succumbing to its insurer's restrictive coverage position, an insured would be wise to consider its defense to such positions, a defense that may be supported by numerous separate and independent arguments.

As an initial matter, the drafting history of the non-cumulation clause makes it clear that the purpose of the provision was to prevent a policyholder from obtaining a double recovery in limited circumstances. For example, the London Market policy form L.R.D. 60 was drafted in 1960, prior to the development of coverage concepts such as continuous trigger (in which a single claim triggers multiple, consecutive policies spanning a period of years) or "all sums" allocation (in which a policyholder can "pick and choose" which policy year is responsible for providing coverage in full for a claim). Christopher French, The "Non-Cumulation Clause": An "Other Insurance" Clause by Another Name, 60 Kan. L. Rev. 387 (2011). The reason for drafting the provision was that the L.R.D. 60 form was an "occurrence" based form – a change from the previously used "accident" based form. The drafter, Leslie R. Dew, apparently wanted to make sure that the syndicates in the earlier years (using the accident form) would be required to pay before the syndicates in the later years (using the occurrence form). See id. In order to achieve this result, Mr. Dew drafteda "non-cumulation clause" which required that the claim be presented to and paid by the earlier syndicate before a claim could be required to be paid by a later syndicate. In other words, the claim was "due" from the earlier syndicate until it was presented to and paid by the earlier...