How Does Self Insured Retention Affect a Personal Injury Case?
If the Defendant Company Has Self Insured Retention, Then It Likely Has Sufficient Insurance Coverage or Assets to Make You Whole for Your Personal Injuries
If you are reading this article, you have likely discovered that the person or company you filed a claim for damages against has self insured retention. And you want to know how that will affect your claim for personal injuries caused by that person or company’s negligence or intentional acts.
First, the good news. There are assets and insurance coverage available, increasing the likelihood that you can collect on a judgment if you prove that the defendant negligence caused your personal injuries.
But self insured retention can make it more difficult to settle a personal injury claim because the defendant, not its insurance carrier, will make many of the decisions during litigation. And, if you suffered severe injuries and are seeking damages above the self insured retention amount, a dispute may arise between the defendant company and its own insurance carrier as to when the insurance policy kicks in.
The purpose of this article is to give an overview of self insured retention and how it may affect the value of your personal injury case and the length of time it takes to resolve the dispute.
If you have any questions after reading this article, call me for a free consultation: (804) 251-1620 or (757) 810-5614. Come see why my colleagues and past clients have voted me one of the best car accident lawyers in Virginia and how I can help you.
What is Self Insured Retention?
Self insured retention (SIR) is similar to primary insurance.
It is the amount of money that the policyholder (the person or company who purchased the policy of insurance) must pay to defend or resolve a claim for damages before the insurer steps in and provides coverage under the policy.
Self insured retention is seen in commercial general liability, workers compensation, medical malpractice, and bodily injury liability insurance policies.
The amount of self insured retention is stated in the limits of liability section of the insurance policy, as well as on the declarations page.
How Does Self Insured Retention Work?
First, a business decides the maximum amount of money it can sustain for a single loss or claim. This amount becomes the SIR.
Next, the business funds an interest-bearing account to pay for all individual losses that are below the SIR amount. The business should fund this account with an amount equal to its SIR multiplied by the number of claims with losses below the SIR that it expects to receive for a specific period.
For example, if a business determines that its SIR is $1 million per claim and it expects to receive ten claims with losses of less than $1 million each during the year, then it should fund the account with at least $10 million dollars.
Once the self insured retention is exhausted in a specific claim, the business’s liability insurance policy kicks in and the insurer starts to cover claim expenses and losses associated with the claim. The insurer does not get involved until the SIR amount is reached, though the business may have to notify the insurance carrier when it gets close to exhausting its self insured retention.
What Does Self Insured Retention Cover?
Depending on the language of the policy of insurance, the policyholder must use self insured retention to pay for losses (damages it owes under a claim) or both losses and legal defense costs, which includes claim expenses. Usually self insured retention is used for both.
Common claim expenses include charges for adjusting the claim (the business can either hire a third-party administrator such as Sedgwick, ESIS, Broadspire, or Gallagher Bassett to adjust the claim or ask the insurance carrier to adjust the claim and bill the business for expenses) and defense costs (expert witness and attorney fees).
An Example of How Self Insured Retention Works in a Negligence Claim
Let’s say you suffer whiplash, traumatic brain injury, and post-concussion syndrome when you are struck by a truck owned and operated by Amazon. You make a claim against Amazon, notifying them of your motor vehicle collision and injuries, stating that their driver was negligent, and asking for insurance information.
Amazon may respond with a phone call or a letter from its third-party administrator (TPA), stating that Amazon has self insured retention of $500,000.00 or more.
With this example, Amazon would pay the first $500,000.00 in losses and defense attorney fees. If its losses and expenses exceed that amount, then its insurer would make any additional payments for legal defense costs or monetary damages above that amount.
Self Insured Retention vs. Deductibles: Understanding the Differences
Many people are familiar with the term “deductible” but not the term “self insured retention.” That is because most private health insurance policies have a deductible.
A deductible is the amount or percentage of an insurance claim that the policyholder must pay under its policy of insurance.
The terms deductible and self insured retention are often used interchangeably in auto insurance and personal injury claims because they are both insurance provisions under which the policyholder retains a portion of the risk of loss in exchange for lower insurance premiums. But there are several differences between deductibles and self insured retention that affect not only the policyholder but also you – the injured person – when trying to negotiate a car accident settlement.
Duty to Defend
When an insurance policy includes a self insured retention, the insurance carrier has no obligation to provide a defense to the claim until the entire amount of the retention is spent. The policyholder acts as the insurer up to the amount of SIR.
By contrast, an insurance carrier must assume the defense of a tort claim if the policy includes a deductible. This is true even if the insurance carrier has reserved the right to deny coverage for losses under the policy.
Control over Claim Handling and Settlement
Self insured retention allows a policyholder to have complete control over the claim adjustment process, at least up to a point. If a claim falls within the SIR amount, the policyholder can choose whether to settle or go to trial, instead of having to listen to its insurance carrier. In fact, the insurance carrier may not have any knowledge of what is happening with the claim. This is a major advantage for companies with good risk management programs in place.
Companies that have an insurance liability policy with a deductible do not get this control. With a deductible, the insured company notifies its insurer when there is a claim. The insurance company then takes control of the claim immediately, providing defense counsel and paying for losses as they are incurred.
There is, however, an exception to this rule. If the insurance policy includes a “consent to settle” clause, then the insurer must get the policyholder’s approval before agreeing to a compromise and settlement with you.
When Payment is Made for Losses
With self insured retention, a company must pay defense costs and losses as they are incurred and until the SIR amount is satisfied.
With a deductible, the insurance carrier pays defense costs and losses, then asks the company to reimburse it for the amount of the deductible at a later date.
Erosion of Policy Limits
Deductibles erode the insurance policy limit while self insured retention does not.
For example, if a business has a $1,000,000.00 insurance policy with a deductible of $100,000.00, then it has only $900,000.00 in insurance coverage after paying the deductible.
But if a business has $100,000.00 in self insured retention plus a $1,000,000.00 insurance policy, it has $1,000,000.00 in insurance coverage. That is because liability insurance does not kick in until the self-insured retention amount is exhausted, increasing the policy limits available.
This additional coverage is important in claims involving catastrophic injuries, such as amputations, burns, and spinal cord injuries resulting in paralysis or the need for spinal fusion surgery.
Amount
Usually the amount of self insured retention is more significant than the amount of the deductible.
Payment of Defense Costs
With deductibles, the insurance carrier pays all defense costs, regardless of the amount of these costs. These payments do not reduce the amount of insurance coverage available.
With self insured retention the business usually pays defense costs as part of the SIR amount.
Collateral and Letters of Credit
With deductibles, the insured company usually has to provide collateral or a letter of credit from a bank to get insurance coverage.
With self insured retention, no letter of credit or collateral is required because the insurance company has no responsibility for paying losses from a claim until the SIR amount is exhausted fully.
What Companies Have Self Insured Retention?
In my experience there are three types of companies that are more likely to use self insured retention as part of their risk management programs for personal injury, product liability, and slip and fall claims.
- Large retail businesses, such as Walmart, Target, Kroger, Home Depot, Busch Gardens, and Kings Dominion.
- Transportation and trucking companies such as UPS, Estes Express Lines, Abilene Motor Express, and NFI Industries.
- Health care providers such as acute care facilities and physician practice groups.
There is a reason for this. These types of companies – large retailers, motor carriers, and medical professionals – face a high number of claims for relatively low losses. They save money by using SIR instead of paying high insurance premiums.
How Does Self Insured Retention Affect the Settlement Value of My Personal Injury Claim?
When the insured defendant has self insured retention, your personal injury claim is affected in three ways potentially.
The Defendant Has Enough Assets or Insurance Coverage to Pay Any Judgment You are Allowed
In my experience only businesses with lots of revenue, assets, and insurance coverage have self insured retention.
This is a good thing because it increases the likelihood that you can collect on a judgment that makes you whole. Knowing that you can collect allows you to be more aggressive during settlement negotiations.
Even Though It Has the Resources, the Defendant May Be Hesitant to Settle the Claim
Insurance carriers and claim adjusters view the decision to defend or settle a claim as a business decision. This is one reason that most personal injury and workers compensation claims settle. The insurer has no emotional attachment to the case.
Though some do, many companies do not view the decision to defend or settle as a business decision. Rather, they view the decision as a chance to make a statement that they did nothing wrong and will fight anyone who accuses them of negligence.
This attitude can make it difficult to settle a claim with a defendant that has self insured retention. It may take much longer for your attorney or the claim adjuster with the third party administrator to persuade the defendant that going to trial may result in a far worse outcome for it than paying a settlement.
You May Be Able to Recover Damages from Both Self-Insured Retention and Other Insurance Policies
In many states, self insured retention does not qualify as “other insurance.”
This means that you may be able to recover damages from both self-insured retention and other insurance policies such as underinsured or uninsured motorist coverage or bodily injury liability.
For example, let’s say you are struck by an uninsured delivery driver who is operating a motor vehicle owned by his company. And the company has self-insured retention.
In this situation, you may be able to collect damages from the company through its self-insured retention as well as damages from your uninsured motorist policy because the delivery driver did not have liability insurance.
Injured by Someone Else’s Negligence? Call Today!
If someone else’s negligence caused your injury, you may have a claim under tort law.
To learn more about what you must prove under negligence law and how to find available insurance coverage to get the best personal injury settlement possible, call me for a free consultation: (804) 251-1620 or (757) 810-5614. I want to help you.
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