In the UK, as in South Africa, liability insurance is triggered when the insured becomes “legally liable to pay the third party claim”. This requires a judgment, settlement or arbitration award. That does not mean the insured, with layers of insurance, can choose which claims to meet first from primary or lower excess layers in order to get the best possible advantage out of the various policies.

An engineering company had a primary layer of professional liability insurance and three successive excess layers with one insurer who reinsured the risks with various reinsurers. The top layer, called the Top and Drop policy, excluded any claims emanating from or brought in the USA and Canada. The insured sought to meet claims which emanated from US or Canada under the lower layers so that they would not be excluded by the top layer cover.

These were claims-made policies applying only to claims that were first made against the insured and reported to the insurer during the policy period. Defence costs reduced the limits and deductibles had to be paid prior to indemnification.

It was held that the layered insurance served the purpose of meeting each ascertained loss when and in the order in which losses occurred. If the insured does not notify a claim the insurance will not be exhausted by that claim. But the insured cannot continue to pursue the claim and adjust its priority as against the program of insurances. As and when expenses or third party liability are incurred and ascertained, they must be taken into account. First, the self-insured retention and deductible must be used up and then each policy will respond up to its limit. Once that limit is used up, the next layer is engaged and so on up the tower of insurance.

This is a complicated set of insurances and facts. If you have a similar problem you should read Teal Assurance Company Limited v W R Berkley Insurance (Europe) Limited [2013] UKSC 57.