Legal Definitions - following-form policy

A following-form policy is a type of insurance policy that adopts the exact same terms, conditions, exclusions, and definitions as an underlying, primary insurance policy. Instead of having its own unique set of rules, it "follows the form" of the primary policy, meaning it provides coverage under the identical framework established by that primary policy. This approach simplifies coverage coordination, as the excess or umbrella insurer agrees to abide by the same interpretations and stipulations as the initial insurer.

• Example 1: Business Liability

  A manufacturing company, "Apex Innovations," purchases a primary General Commercial Liability (GCL) policy with a $1 million limit. To enhance its protection, Apex Innovations also buys an excess liability policy with an additional $5 million limit. This excess policy is written as a following-form policy.

  Explanation: If a lawsuit arises and the primary GCL policy's $1 million limit is exhausted, the following-form excess policy will then provide the next $5 million in coverage. Crucially, it will do so under the exact same conditions, definitions of "occurrence," exclusions for specific types of damage, and reporting requirements as the original GCL policy. This means Apex Innovations doesn't have to navigate two different sets of rules for the same incident.

• Example 2: Personal Umbrella Coverage

  Dr. Elena Rodriguez has a primary auto insurance policy with a $300,000 liability limit. Concerned about potential large claims, she also purchases a personal umbrella insurance policy with a $2 million limit. For the auto liability portion of her coverage, her umbrella policy is structured as a following-form policy.

  Explanation: If Dr. Rodriguez is involved in a severe car accident and is found liable for $500,000 in damages, her primary auto policy would pay the first $300,000. The following-form umbrella policy would then cover the remaining $200,000. The umbrella policy would apply the same definitions of "covered auto," "insured person," and "accident," as well as the same exclusions (e.g., for intentional acts) as her underlying auto policy, ensuring seamless transition of coverage.

• Example 3: Construction Project Insurance

  "BuildWell Construction" is undertaking a large commercial development. They secure a primary Builder's Risk insurance policy to cover potential damage to the project during construction, with a limit of $10 million. Given the project's scale, they also obtain an excess Builder's Risk policy for an additional $5 million, which is explicitly a following-form policy.

  Explanation: Should a fire or other covered peril cause $12 million in damage to the construction site, the primary policy would pay its $10 million limit. The following-form excess policy would then cover the remaining $2 million. This excess policy would adhere to the identical definitions of "covered property," "perils insured against," and "period of coverage," as well as any specific exclusions (e.g., for faulty workmanship) outlined in the primary Builder's Risk policy, preventing any discrepancies in how the loss is evaluated and paid.