Wag the Dog: How Allocation Determines Recovery for Long-Tail Losses

Allocation is the new
battleground in the
on-going coverage
war between policyholders
and their insurance companies.
When claims trigger
multiple policies, the issue
for insurance companies and policyholders
alike is less frequently whether the claim is
covered, but how the liabilities will be distributed
among the triggered policies. Not surprisingly,
policyholders advocate allocation
methodologies that maximize recovery without
prolonged litigation. Insurance companies,
on the other hand, argue for methodologies
that allow them to reduce the amount they are
obligated to pay—or to avoid payment entirely—
by shifting the liability to other entities.