The ABCs of Self-Insured Retentions and Deductibles

Most insurance coverage disputes revolve around the insurer’s obligation to pay some policy benefit to or on behalf of an insured. But before the insurer’s obligation to pay is triggered, other disputes may arise over the insured’s obligation to satisfy a self-insured retention (SIR) or deductible. Here are some basic facts about SIRs and deductibles that every insurance lawyer should know.

• A self-insured retention is not the same as a deductible. While some courts have used the terms interchangeably, a “deductible” is usually satisfied within a policy limit, whereas a “retention” is typically outside the policy limit. See generally IMO Indus., Inc. v. Transam. Corp., 437 N.J. Super. 577, 622, 101 A.3d 1085 (App. Div. 2014) (outlining the differences between self-insured retentions and deductibles).
• A self-insured retention does not constitute “other insurance” for purposes of establishing the priority of coverage among policies. See, e.g., United States Fid. & Guar. Ins. Co. v. Commercial Union Midwest Ins. Co., 430 F.3d 929, 938 (8th Cir. 2009) (“Because the SIR contained in the USF&G policy is not ‘other insurance’ within the meaning of CU’s ‘other insurance’ clause, CU’s policy provides the only insurance coverage for the first $200,000 of Payless’s liability (subject of course to the $10,000 SIR in CU’s own policy).”); Consolidated Edison Co. of N.Y., Inc. v. Liberty Mut., 193 Misc. 2d 399, 749 N.Y.S.2d 402, 404 (N.Y. Sup. Ct. 2002) (“A majority of jurisdictions across the nation subscribe to the . . . view of self-insurance as ‘not insurance’ in, inter alia, an ‘other insurance’ context.” (collecting cases)); but see, e.g., Atchison, Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 275 Kan. 698, 749, 71 P.3d 1097, 1131 (Kan. 2003) (“We conclude that the SIRs are ‘other insurance’ within the meaning of the policies in the present case.”).
• Policies may or may not specify the means by which a deductible or SIR must be satisfied. Absent an express limitation, the insured may be able to satisfy the requirement of a deductible or SIR under one policy using the proceeds of another policy. See, e.g., Vons Cos. v. United States Fire Ins. Co., 92 Cal. Rptr. 2d 597, 605 (Cal. Ct. App. 2000) (“Nowhere does the SIR expressly state that Vons itself, not other insurers, must pay the SIR amount.”); Gen. Star Nat’l Ins. Co. v. World Oil Co., 973 F. Supp. 943, 947 (C.D. Cal. 1997) (analyzing a policy requiring the insured to “pay a $100,000 deductible” and concluding that “it does not unambiguously require World Oil to pay the deductible itself”; rather, “[t]he General Star policy nowhere states that the insured cannot purchase coverage for the amount of the deductible”); Fla. Ins. Guar. Ass’n v. Jacques, 643 So.2d 101, 102 (Fla. Ct. App. 1994) (finding that the insured’s deductible for its general liability policy could be satisfied by payments made under the insured’s business automobile insurance policy).
• When coverage is afforded by two policies with differing deductible/SIR obligations, the deductible under one policy may be allocated between the policies providing coverage. See, e.g., La Farge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 401 (5th Cir. 1995) (reasoning that when the insurer’s liability for a continuous occurrence is prorated, the insured’s deductible obligation should be similarly prorated); see also Cargill, Inc. v. Commercial Union Ins. Co., 889 F.2d 174, 179–80 (8th Cir. 1989) (stating that when loss is prorated between two policies with different deductibles, the insurer with the smaller of the two deductibles is obligated to pay the amount of the larger deductible (the insured bearing the cost of the smaller deductible), with any balance allocated between the two carriers pro-rata according to the proportion of the insurer’s limits to the total limits available (including the amount of the deductibles)).
• Ownership of the obligation to satisfy a deductible or SIR—as between a “named insured” or “additional insured”—will be determined by the terms of each individual policy. See, e.g., Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1481, 105 Cal. Rptr. 3d 200, 212 (Cal. Ct. App. 2010) (“The endorsement in Form-A still contains section I.A. describing whose obligation it is to pay the SIR. It plainly states ‘you,’ the named insured, must ‘be responsible for payment’ of defense costs and/or damages.”); compare Bishop-Stone v. Oakwood Gaithersburg Lessee, LLC, 2015 U.S. Dist. LEXIS 84415, *19, (Md. Ct. App. 2015) (“This policy contemplates that the SIR may be paid by either the Named Insured (Archstone) or any insured (such as Oakwood as an additional insured).”).
• However, an SIR or deductible obligation will not be construed as a duty jointly and severally owed by all insureds absent express language in the subject policy. See, e.g., Reliance Ins. Co. v. Airport Shuttle, Inc., No. 04-CV-02383, 2004 U.S. Dist. LEXIS 25715, at *2–3 (E.D. La. Dec. 15, 2004) (“Absent express policy language to the contrary, an insured under a policy is not liable for another insured’s unpaid deductibles.”); see also St. Paul Fire & Marine Ins. Co. v. Schilli Transp. Servs., Inc., 672 F.3d 451, 459 (7th Cir. 2012) (“The fact that there are nine named insureds, along with the manner in which those companies were listed, could indicate that the companies were, for the purposes of the definition of ‘you, your and yours,’ to be treated jointly as a group instead of separately. However, we conclude this language is not sufficient in and of itself to create joint and several liability among Defendants for the deductibles here. We have found nothing in the plain terms of the Policy which tells us unambiguously that liability is to be joint, not separate.”); Steadfast Ins. Co. v. Pop Rests., No. 09-CV-03148, 2010 U.S. Dist. LEXIS 80670, at *6–7 (S.D. Tex. Aug. 10, 2010) (“The Court finds that, at the very best, the policies are ambiguous as to whether Defendants are jointly and severally liable for a claim paid on behalf of any Named Insured. The policies do not even include the phrase ‘jointly and severally liable’ in their provisions. . . . The Court therefore adopts a construction not imposing joint and several liability on Defendants for a claim made on behalf of non-Defendant Golden Restaurants.”).