How to Admit and Deny Coverage at the Same Time: The Multiple SIR Problem

Association of Corporate Counsel

PUBLISHED ON: September 19, 2014

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This article originally appeared in Enforce: The Insurance Policy Enforcement Journal (April 2014).

Many cost-conscious businesses purchase errors and omission insurance policies with high self-insured retentions, or SIRs, as a way of keeping premiums down. Unlike a firstdollar policy, in which the insurance company has a duty to defend from dollar one even if the policyholder is financially responsible for an initial indemnity layer, a policy with an all-loss SIR often imposes no duty to defend or indemnify on the insurance company until that SIR has been exhausted by the policyholder’s payment of defense costs, judgments or settlements. Given a large enough SIR, the insurance company may end up with no defense or indemnity obligations over the life of the policy. Generally, the higher the SIR, the lower the premium.