A self-insured retention is the amount of loss that a policyholder must pay out of pocket before coverage kicks in.

In this judgment Colonial Pipeline Company v AIG Specialty Insurance Company, 1:19 –cv-762-MLB (US District Court Georgia, the policy included a US$10 million self-insured retention.  The insurer would “pay covered Loss, in excess of the USD$ 10 million Self-Insured Retention amount.”

It was undisputed that the policyholder had incurred more than US$10 million in covered loss.  The insurer argued that the policyholder did not meet the threshold if one counts only loss covered on a primary basis and ignores capital loss covered on an excess basis.

The court said that might be, but it is irrelevant because nothing in the policy limited the kind of “covered Loss” that counts towards the Self-Insured Retention.

Any covered loss” was sufficient. The court declined to add limiting language which was absent.  A Loss covered on an excess basis is still a “covered Loss”.

Excess coverage means “an insurer will pay a loss only after other available primary insurance is exhausted.”

The court said that the relevant wording was unambiguous and meant that the insurer had to pay when the insured’s “covered Loss” exceeds US$10 million.  The plain meaning of “covered Loss” includes Loss covered on a primary or an excess basis and the court was bound to apply that meaning.

The court held that the wording in the text was “too strong to bend”.