The Office of General Counsel issued the following opinion on December 20, 2007, representing the position of the New York State Insurance Department.
RE: Meaning of “Any One Risk”
On a policy providing commercial liability and property insurance for one or more buildings, which may or may not be located within close proximity, what is the meaning of “any one risk” for purposes of complying with Insurance Law § 1115?
The meaning of “any one risk” is dependent upon the insurance provided.
The president and chief executive officer of a small property/casualty insurance company in New York inquired about the meaning of “any one risk,” as that term is used in Insurance Law § 1115, for purposes of determining the amount of reinsurance that the company may need to obtain.
An insurer doing business in New York may not assume loss on any one risk that exceeds ten percent of its surplus to policyholders. Insurance Law § 1115(a) reads as follows:
(a) Except as otherwise provided in this chapter, no insurer doing business in this state shall expose itself to any loss on any one risk in an amount exceeding ten percent of its surplus to policyholders. In determining the amount of risk, any portion reinsured in an assuming insurer authorized to do such business in this state or in an accredited reinsurer, as defined in subsection (a) of section one hundred seven of this chapter, shall be deducted. In determining the limitation of risk under any provision of this chapter, "surplus to policyholders" shall include voluntary reserves, or any part thereof, not required by law, and be determined from the insurer's last sworn statement on file with the superintendent, or the last report on examination filed by the superintendent, whichever is more recent at the time the risk is assumed. In applying the limitation under any provision of this chapter to alien insurers, such provision shall be deemed to refer to the exposure to risk and to the surplus to policyholders of the United States branch of such alien insurer.
As stated in Insurance Law § 1115, any portion of the risk reinsured by “an assuming insurer authorized to do . . . business in this state or in an accredited reinsurer” reduces the loss exposure of the risk by the amount reinsured.
The Insurance Law does not define the meaning of “any one risk.” However, the Insurance Department’s Office of General Counsel issued an opinion, dated February 21, 2006, approving an insurer’s interpretation of the phrase as applied to various property risks. The insurer there proposed the following:
1) where a property insurance policy insures only one building, the policy limit is the maximum exposure on that single risk;
2) where a property insurance policy insures two or more buildings that are not located in close proximity but at distinct geographic locations, each building constitutes a separate single risk;
3) where a property insurance policy insures one location that has two or more buildings (such as a college campus), the insurer’s maximum exposure on “any one risk” may be the greater of: (a) the building with the highest insured value; (b) the combined insured value of buildings that are physically joined or connected;1 or (c) in the case of two or more buildings constructed of combustible materials that are situated in a location that poses a risk of multi-building conflagration, the highest combined insured value of such buildings.
4) where the insurer has issued more than one property insurance policy that insures the same properties (e.g., a primary and excess policy), the maximum exposure for “any one risk” will be determined as above-described for each policy and such maximum exposures will be combined to determine the true single risk assumed by the insurer.
With respect to a commercial package policy providing both property and general liability insurance, the general liability coverage is treated as a separate single risk. The maximum exposure on a general liability insurance policy written on a per occurrence basis with an aggregate limit is equal to the aggregate limit, because it is possible that the insurer could be called upon to pay the entire limit as a result of a single incident causing injuries to more than one person.
Thus, the meaning of “any one risk” on a policy providing commercial liability and property insurance for one or more buildings, which may or may not be located within close proximity, is dependent upon the insurance provided.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 The Department considers buildings to be physically joined and connected when, among other things, they share space such as a common concourse or underground passage, or have shared heating and electrical mechanisms.