Ronald S. Gass
Reinsurance and Insurance Arbitrator and Umpire
Reinsurance and Insurance Dispute Resolution Services Consultant

Umbrella Policy Covers Liability Otherwise Capped by Primary Policy's Household Exclusion in Absence of Explicit "Follow Form" Clause Maryland's Highest Court Rules

In what is sure to be a controversial ruling, the Maryland Court of Appeals held, inter alia, that in the absence of an explicit "follow form" clause in a personal umbrella policy that incorporates the primary policy's exclusions, the excess policy must respond to a family member's $291,000 damage claim once the primary's $500,000 per accident limits are exhausted notwithstanding an express household exclusion capping liability to family members at $20,000.

In this case, the policyholder's wife sued him for injuries arising from an automobile accident in which prior settlements to the other injured occupants exceeded $500,000, thereby exhausting the primary policy's per accident limit. The excess coverage provision in the $3 million umbrella policy stated that the insurer would provide excess liability protection for occurrences covered by the primary insurance and was responsible "for the amount of the loss above the limit of the applicable primary insurance."

But for the factual quirk that the underlying policy's $500,000 per accident limit was previously exhausted by other claimants, the household exclusion would clearly have limited the injured wife's recovery to $20,000. However, the court declined to infer that the household exclusion in the primary policy was applicable to this excess coverage because the umbrella did not contain a "conspicuous, clear and express" "follow form" clause.

Megonnell v. United States Automobile Ass'n, No. 93, 2002 Md. LEXIS 161 (Md. Apr. 15, 2002) (7-1 decision).

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5100 E RANCHO PALOMA DR, UNIT 2064
CAVE CREEK, ARIZONA 85331

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