As shown by the history of the Form and the method of acquiring capital for creation of Bermuda Form insurers, the Form, as originally drafted and issued by ACE and XL, took into account the interests of the investing policyholders that provided capital necessary to the founding of this new excess liability insurance market. The policy form that the founders and investors sought to draft to help stem the liability insurance crisis in the 1980s has the following distinctive features:
The Occurrence-Reported Trigger of Coverage
The Bermuda Form provides neither pure occurrence coverage, nor pure claims-made coverage, but, rather, in one of its singular innovations, uses a hybrid trigger that is a combination of the two, more traditional triggers. In broad terms, Bermuda Form policies cover occurrences that are reported to the policyholder during the policy period, under a period for reporting that has both a starting point and an end-point.1 The starting point typically is either the inception date of the policy, or a specified retroactive date.2 The end-point typically is the moment when the policyholder stops buying the basic cover granted by the policy,3 or the insurer stops selling it.
As a key to understanding to Form’s unique trigger of coverage and its aggregation concepts, it also important to note that a Bermuda Form policy is typically a “continuous policy,” meaning that it continues from year to year, usually with the same policy number, until it is cancelled or is not renewed. In contrast, the coverage promised under a claims-made policy typically is defined to stop at the end of one policy year, and will begin again, with a new policy period and usually a new policy number, if the policy is renewed. Thus, a Bermuda Form policy has a policy period that may span years with a number of “Annual Periods,” as defined in the Form. Each Annual Period requires a new premium and provides new limits of liability. The Bermuda Form also typically allows the policyholder to purchase an extended reporting period, called a “discovery period,” also known as Coverage B if the policy is not renewed. The advantages of the aggregation features of the Bermuda Form continue into the discovery period provided in Coverage B.
The Bermuda Form’s Unique Aggregation of Claims Provisions
The Bermuda Form addressed the issue of “stacking of limits” that arose in asbestos and other mass-tort and environmental liabilities in a number of ways. The key was the use of an occurrence-first-reported trigger. A simple way to avoid cumulation of limits in a liability policy is to specify a single moment or event as the trigger and to sweep into the single triggered policy all the financial consequences of all interrelated underlying claims. Accordingly, the Bermuda Form was specifically developed to address the concerns of its investor policyholders that coverage allow for aggregation of claims. Indeed, the Form requires the policyholder to aggregate related claims together or, to use the terminology in the early versions of the Bermuda Form and the jargon of the Bermuda insurance market, “integrate” them into a single year or period, a period that is not the same as the traditional “policy period” which liability policies typically define as a 12-month period or defined number of months in length. The aggregation period, thus, is the year in which the policyholder determined that the claims were likely to implicate the policy and gave notice of the underlying occurrence to the insurer. Although in more recent years sometimes an issue in dispute, in its original conception, the Bermuda Form explicitly granted — and was intended to grant — to the policyholder the decision over when to declare the “integrated occurrence,” often called more colloquially, and to use the traditional CGL concept, a “batch.”
Pronouncements by at least some insurers in the Bermuda Market over the years have emphasized that the policyholder need not report every liability claim that is made during the period. Indeed, Bermuda insurers have discouraged policyholders from doing so. Instead, the Bermuda Form (arguably like traditional excess liability policies) seeks reporting of only those occurrences, or “batches,” that are “likely to involve this policy” under the notice provision in the policy. This feature of sweeping all related injuries or losses into a single policy year is commonly called “occurrence integration,” or “batch occurrence” (or, in another term that does not appear in any Bermuda policy Form, simply “batching”).
The batching, or “batch sweep,” feature of the Bermuda Form truly was an innovation at the time created, and the drafters specifically designed it to respond to the needs and demands of both the US insurance market; and the policyholder companies that wanted and needed the asset protection afforded by excess insurance which would respond to (among other things) unanticipated increases in claims, over and above past, historical claims experience. The aggregation and related provisions in the Bermuda Form thus enable the policyholder to add together a large number of small occurrences, with the result that the policyholder can exceed the often very high retention underlying a high-excess Bermuda Form policy that would or might otherwise never be reached to provide coverage for each individual claim. This feature then benefits both parties: It provides insurance protection for a policyholder that fears an unanticipated increase in claims for a product that has a typical number of each year; and it also protects insurers from a call to pay an unanticipated number of limits in that the policy promised to pay only one loss in respect of any one particular problem, no matter how broad in scope or magnitude.
From our experience, Bermuda Form insurers today tend aggressively to challenge the use of this “batch-sweep” innovation, and the calculation of which claims qualify for “batching.” This was not the case in early Bermuda Form arbitrations involving batch claims that we handled in the first decades of use of the Bermuda Form. Policyholders today therefore often need to be even more strategic in how “batch claims” or “integrated occurrences” are presented under Bermuda Form policies today than was true before the early 2000s.
This post is part of the Blog’s Bermuda Form Insurance Arbitration Series.